A SHIFTING BASIS

Evening Post, Volume CXVIII, Issue 93, 17 October 1934, Page 10

A SHIFTING BASIS

The comment of the "Financial Times" upon New Zealand's exchange policy has been interpreted in some quarters as commendation. In so far as it is commendatory it appears, however, to be based on misapprehension. The Reserve Bank announcement that no alteration in the rate is contemplated for a long time is noted, and the hope is expressed "that New Zealand's example would be followed and the alterations in inter-Imperial rates would be few and far between." Our reason for suggesting that there is misapprehension is the quotation which follows:

Indeed, Imperial monetary stability was the real basis of Iho Ottawa Agreements.

Monetary stability was certainly the real basis of the bargains made at Ottawa; but the Ottawa Conference was held in July and August, 1932. The New Zealand exchange rate was raised to 25 per cent, within five months of the conclusion of the meetings. The delegations had returned to their home countries only a few months, and had not completed arrangements for putting the agreements into practical operation, when New Zealand changed the basis upon which the bargain had been made, and made it more difficult for Great Britain to gain that trade benefit which she had been promised in return for the substantial concessions granted to the Dominions. "Stability" is a fine-sounding word. It has been used frequently by the Minister of Finance lately. But it is not correctly applied when it means only the retention of the artificial basis which was substituted for the exchange terms ruling when the Ottawa Agreements were made.

We may recall that in 1932 the demand of the primary producers was for a free exchange. When this was given and it was found that the rate did not rise as they had expected, the principle was, abandoned, and exporters concentrated their attention on forcing Government intervention, it is Ihe same with "stability."' The Minister of Finance says much aboul the- necessity of stability now; lit- favoured the principle also in 1932. But he

conveniently forgot it in January, 1933. Speaking at the Ottawa Conference in 1932, Mr. Coates said:

The Dominion is at present operating on a sterling exchange system, and desires to adhere to that system. It is willing and anxious to co-operate in any steps which London may devise with v view to remedying matters. Such cooperation might include the co-ordina-tion of our banking system under a Central Keservc Bank and the charging of such a bank with the duty of maintaining the sterling exchange system. Another extract may be quoted from the same speech:

We offer no opinion,.we nsk for no decision as to the ultimate objective of British monetary policy. But British statesmen and financiers have shown and are showing a courage that sluncs out brightly in a distracted world. All wo ask is an assurance of this conference that tho objects of British monetary policy arc to provide a sound basis for the continuance of trade and for the fulfilment of contracts.

These were admirable sentiments, but within a half-year of their utterance New Zealand altered the basis upon which trade with the United Kingdom was conducted and contracts were fulfilled in a way that placed a heavy burden on all importers and all debtors having London obligations.

We may quote in conclusion from the report of the Monetary and Financial Committee of the Ottawa Conference. The Committee, of which Mr. Coates and Mr. Downie Stewart were members, recognised "the great importance to traders of stability of exchange rates over as wide an area as possible." The complete solution of this problem would have to await the restoration of conditions for the satisfactory working of an international standard, but in the meantime the Conference recognised

the value of the countries within the Commonwealth ■whose currencies are linked to sterling maintaining stability between their exchange rates and looks to a rise in tho general level of wholesale prices as the most desirable means for facilitating this result.

This, it should be carefully noted, was before the New Zealand rate was artificially forced to 25 per cent. Everything said on the value of stability was conveniently forgotten when that change was made. Only when there are strong arguments for the return lo the former level is there a belated recollection of the value of stable exchange.