THE NEW ECONOMICS

Evening Post, Volume CXV, Issue 30, 6 February 1933, Page 8

THE NEW ECONOMICS

NEW ZEALAND STAGE SET : Discussing New Zealand's policy regarding the exchange question, the Sydney "Bulletin" says:— .Maqriland for months past has been seething -with controversy on the subject of London exchange. About the middle^ of last year A. C. Davidson, general manager of the Bank of New South "Wales, visited the Dominion, aiid strongly advocated depressing the value of M.L. currency to the Australian level as a means of "saving the farmers," an.argument that was subsequently supported by D. B. Copland, who revisited his native land to spread this gospel. Most of the banks, apart from, "the Wales," received the: idea coldly, and Chambers of Commerce damned it root and branch; but the Farmers'.Union, the greatest political power in the country, saw in it something good for its members. Pressure was brought to bear on the Government and on the Bank of New Zealand. The bank resisted. It said, in effect, that, while juggling with the I exchange rate might, for a while, be profitable to the bank, it wasn't going to prove profitable to the country, and, therefore, taking a long view, it wasn't good banking. The Government sat oh the rail as long as it could; but, gradually, waverers in the Cabinet were won over, until the only dissentient was Finance Minister Dowine, Stewart—he is a lawyer, and almost every other member of the team is a farmer. Now the rate has been bumped [up from.lo per cent, to 25 per cent., pthe banks obeying the Government under protest, and Stewart has resigned. Maoriland's interest bill in London, national and municipal, amounts to about £7,000,000 a year at present. The higher rate means an additional million, annually due to London—and for some time past budgeting for deficits I has been inescapable. The trading [situation is' that, despite-the big slump j in. primary produce prices, 1932 ended with a statistical margin in M.L.'s favour of about £13,000,000, which, even allowing for all sorts of "invisibles," provided amply for tho London interest bill. The rise in exchange rate has therefore been made in the face of a substantial surplus, of M.L. funds in London. Furthermore, M.L. bank note currency, unlike Australian, is backed by gold to the extent of just a fraction short of 100 per cent. If there is anything in the theory that a country can become prosperous by selling its money abroad for less than if! is worth, Maoriland has the stag© sot for a most conclusive demonstration;