EXCHANGE RATES

Evening Post, Volume CXIII, Issue 141, 16 June 1932, Page 10

EXCHANGE RATES

(To the Editor.)

Sir,—Your issue of yesterday quoted the Right Hon. G. W. Forbes, the Prime Minister, '.as; stating: "The , present exchange has been fixed by the "banks, and I take it that it will still be maintained by the banks, when the regulations are withdrawn. It k not the Government's function to fix exchange rates, and the banks will continue to be responsible."

In my opinion it would appear that it is doubtful if the Prime Minister does really appreciate the position, or the necessity for exercising his responsibility in a r matter of supreme importance. I say emphatically that it; is the Government's business to see that the New Zealand banking and financial position is not exploited by a bank from its head office in/ Australia, with the chance that the best interests of this Dominion as a* whole is subordinated to other interests.

The Prime .Minister's statement might be read to mean that he considers the Associated Banks as a board to which the matter of exchange can be safely left, but he should recognise that the position is not analogous to a board dealing with conditions to be fixed by majority rule. In the matter of exchange the Bank of New South Wales may, and are quite likely to, act independently of all others and creat new conditions, which willynilly the other banks to retain their business, will have to follow, even though it means heavy inflation and perhaps chaos in New Zealand for years to come. I would strongly suggest that this ia the. very time for statesmanship, and the Government should make it imperative on the part of the Bank of New South Wales to abide by the judgment of the New Zealand banks when it comes to the matter of arranging exchange rates-between New Zealand and England. The farmers appear to centralise their attack on exchange conditions .by asking for free exchange, and in such statements as the farmers have been robbed of three million pounds'. The words free exchange have developed almost to a parrot -cry, but I claim they merely disguise the situation i and are a misnomer. May I quote from'a May, 1932, .pamphlet published by their.chief witness, the Bank of • New South Wales, which, when referring- to exchange rates, stated the rate of exchange has never been left unregulated and. unmanage,d. Does1 not,the call for free exchange by our farmers mean that they, expect the Bank of New. South Wales will of its own accord break away from the other Associated 'Banks, and give inflation ( a substantial, start,' notwithstanding-, the opinion* of other," bankers that "it will cause disaster in New Zealand, and is quite unjustified by the present banking position as between London and - New Zealand?. In this regard it is to be" remembered that, although the-Prime Minister regards the guarding of the exchange'rate aa not a function of the Government, he will find if he inquires from his financial. advisers that the Commonwealth, through its bank, the Commonwealth Bank, has had to take the entire 'risk of loss by reason of the unnatural high rate of exchange ruling in the Comr monwealth, and which will be a serious matter at any time that return exchange is not sufficient • for the funds in hand, in London from Bales ofproduce, and considering the emallness of imports to New Zealand, a serious position may be created at any time if .the suggested, inflation is engineered to a definite issue. Tho.statement that the farmers have been robbed o£ three million pounds is absurd. The fixing of,the rate at 10 per cent: is considered higher than justified by. the ordinary rules governing the fixation of rate, and the holding the rate at this figure instead of inflating it to 25 per cent, or 30 per cent, has prevented the farmers from robbing the whole community of three million pounds, besides avoiding the disturbance of the financial balance of New Zealand. I do hope the Prime Minister will realise hid responsibility before the end of this month,- and take any action that may be necessary to prevent an institution taking independent action in the way of foisting a high rate of exchange on. this country at a time when other banking institutions consider such a course as. unjustified and _ dangerous. It is inconceivable that the Prime Minister of Australia would allow of the Bank /of New Zealand" dominating the position in Australia and operating a rate of exchange A opposition;to -the judgment of the management of the .Australian banks.—l am," etc., •■ "• " •. X T.J.