EXCHANGE RISE

Evening Post, Volume CXV, Issue 62, 15 March 1933, Page 9

EXCHANGE RISE

RECEPTION. AT HOME

NEWSPAPER COMMENT

ELEMENT OF DANGEB

l(From "The Post's" Representative.) LONDON, January 24. Financial editors of the London, newspapers were sparing in their comments (in the devaluation of the New Zealand pound, but one or two private people representing exporters have expressed strong disapproval of the step taken by the Government. Sir Hugo Hirst, chairman of the Empire Committee of the Federation of British Industries, stated that while )ie naturally viewed with grave apprehension any step taken, the result of which xaigh£ be to add to the great difficulties under which British manufacturers laboured at present, he had no doubt in his own. mind that the Government of New Zealand had only taken this step after giving full consideration to all the interests in New Zealand for which that Government was responsible. He was certain that this country could rely, as always, on New Zealand acting in accordance with the spirit of the Ottawa, agreements. He was sure that if this recent action was found as time went on to be in any way out of line with those Ottawa agreements Great Britain could rely on New Zealand making such adjustments as might be necessary to preserve the full spirit of Ottawa. • "The Times" refers to the annual meeting of the Bank of New South Wales. "Mr. Thomas Buckland, the president,"'"The Times" reminds its readers, "dealt at some length with the development of central banking in Australia and with the Commonwealth „ Bank's management of, the exchange. Mr. Buckland said that an adequate exchange fund had not been created, though there was a pressing need for it in the ease of Australia because of her liability to droughts, and that exchange policy should aim at equalising prices and costs. The idea that the exchange policy of a central bank should be to maintain an equilibrium between internal prices and costs in Australia is distinctly novel. "Where a major downward revision of wages, costs, and debts is necessary, a depreciation of the currency may be the only practical method of achieving it. . But this is a device which cannot be used indefinitely. If every deviation between the internal and external price level were to be corrected by a depreciation of exchange, then the resources and skill of a central bank would, to say the least! be taxed to the utmost." THE COMPELLING-. FACTOR. '■ In another column "The Times" financial editor remarks:— ■ ' "The new rate is an artificial one in that New Zealand is not at the present moment faced with an adverse balance of overseas payments, and the reluctance of most of the banks to see the exchange raised lies mainly in the fear' that the impetus thus to be given- exports and the discouragement to imports may result -in an excess of London balances which ultimately can only be reconverted'into New Zealand currency at a heavy loss. Hence the undertaking given by the Government to indemnify the banks against any consequent loss. The movement is, of course, made entirely in the interests of the primary producer in New Zealand, whose plight is admittedly serious. It will confer material benefit on. producers, though at the expense of other interests in the community, for the cost of living will probably rise. The existence of a larger discount on the Aus■traliaii pound compared, nvith the-New Zealand was the compelling factor in the situation. The fact that, the Australian producer was getting more in local currency for his exports than the -New Zealand exporter solely on account of exchange created a demand which was difficult to resist politically. Hence the change." , "It is open to question," says, the ■ /'Morning Post," in a leading article, "whether, in the perhaps not very long run, the resultant rise in. the prices of the things the New Zealand farmer buys will not go far to neutralise the advantage of the rise in the prices of the things he sells. The budgetary position may also suffer both through the increase in overseas debt charges and through the accelerated decline of Customs revenues. Moreover, every precedent set in the .deliberate manipulation of exchanges enhances the danger of a world-wide eompetitipn in devaluation, the effects of which iust be wholly disastrous. The motives which have actuated New Zealand to devalue are the same as those in the case of South Africa, and are thoroughly intelligible. In face of the continuing deflation of gold prices it may be doubted whether any country, even, the United States, will ultimately resist the pressure to seek an escape by way of devaluation. Tnat,nught, indeed, prove the quickest and most efficacious solvent of deflation and depression. But if it is carried out haphazard, instead of in an orderly and organised manner, it is bound to create extreme chaos This consideration justifies the emphasis which the World Economic Conference experts have laid on the importance of currency stabilisation. At the same time it detracts not a whit from the soundness of the British contention that certain prior conditions must ba established, not least of which is the reversal of the slump in prices." , SURPRISE IN THE CITY. The New Zealand Governments step m further depredating theScutt rency from £110 to £125 per £100 stermg caused surprise i/ the City (writes the City Editor of the "MorZ ■»g Post"), as the exchange at £110 smJothTy. S°me tlm° be°" ™ki*g The New ■ Zealand banks had no official confirmation of the change, but at is expected that the new rate will into operation today with th° receipt of confirmation from Welling . ton. The change has been made purely on political grounds, there having been pressure exerted for some time on. behalf of certain interests concerned in -New Zealand's export trade, which is expected to benefit from the move. In some quarters it was thought that embarrassment might be caused by the new heavy depreciation in New Zealand, currency owing to its not being justified by the Dominion's position with regard to the balance of payments The effect of the change upon British and New Zealand trade remains to be seen.,- In the normal course a depreciation of exchange assists exports and discourages imports, but to counteract the latter influence iff is considered probable that New Zealand may increase its preferences upon British goods iv order that their prices may not be raised to the disadvantage of the New Zealand purchaser. The following is from the "Manchester Guardian":—"The one great primary producing country still on the gold standard has reason to be concerned, and this news will certainly be pondered over by all those in. the United States who desire to come into line by devaluing the dollar. The New Zealand decision is rendered dramatic by the resignation of the Finance Minister and the open but ineffectual opposition of the bankers, who are obliged under protest to revalue their London assets at the new Tate and to sell New Zealand currency for less than they think it worth. It must be remembered, then, that what-1

ever South Africa's decision may have done to speed up this development the New Zealand Government is acting substantially in accordance with adviel tendered for months past by author^ tative local economists, though it is the opposite advice frora that tonde d &1931 » °£ Englai!a's Cl»issarie 3 THE BRITISH EXPORTER. Mr. 0. C. Johnson,. Export Manager of Moray, Limited, writes today ip the "Daily Telegraph":-^ "As exporters of British goods to New Zealand over a large number of years, we, in common with other British manufacturers, view with very grave concern the recent action of the New Zealand Government in pulline down the value of the New Zealand pound. In faco of the cabled reports during the last day 01 so, it would seem that this short-sighted action is the Tesult of political manipulation rather than one of natioual necessity. "Wo are informed that the New Zealand Government is not at present faced with an adverse balance of overseas payments, and consequently this drastic action cannot possibly bo justified. Moreover, we venture to think that the raising of a further barrier to British goods is contrary to the spirit, if not the agreements, of : the Ottawa Conference, and on this score alone the matter becomes so serious as to warrant the intervention of the British Government. "Our exports to New Zealand during the latter part of last year showed a distinct improvement after a long period of depression, and trade reports received last mail were most optimistic for 1933, more particularly in view of the lower rates of duty which were to operate early this year. "But by one stroke of the pea the New Zealand Government has wiped out the hopes of the British exporter, and the New Zealand market is definitely closed until such time as a rational Government replaces the prejsent administration."