TRADE AND FINANCE

Evening Post, Volume CXIX, Issue 129, 3 June 1935, Page 12

TRADE AND FINANCE

PRODUCE & MARKET REPORTS FROM DAY TO DAY,

A MANAGED CURRENCY

RELIEF OF DEPRESSION

PROF. COPLAND'S VIEWS

Australia now • has a lull-fledged managed currency, according to Professor Copland in an address to the New South Wales branch of the Economic Society. The objectives of management, as he defined them, are:—(a) Maintenance of fixed parity with sterling pending return of sterling to gold, with ultimate stabilisation in relation to sterling. This policy of exchange stability is not the best for Australia, (b) Main alternative is independent management, aiming at the maintenance of full employment and avoidance of serious changes in the burden of fixed money debts. This requires greater stability in the flow of investment and in the level of export prices and money wages than is possible under a system of exchange stability. Professor Copland pointed out that in the present circumstances pursuit of the second objective requires the further development of the monetary policy adopted during the depression, namely, a further depreciation of the currency, the further expansion of central bank credit, the further reduction of interest rates. The effects, .of,| this policy on national income andbiidr. gets will be examined and, in particu-, lar, the effect of currency depreciation on internal prices, the increase in investment, and the means by which the central bank may control the posi- j tion.

If credit were expanded in the modern banking system in proportion to the increase In productivity, stability of the money value of consumers' income per head would give the desired result. But credit is not expanded in such an even flow; the inherent tendency of the credit system is overexpansion. This cannot be completely checked by the independent action of one country, but useful action towards this end can be taken in Australia by—

(a) Appreciation of the currency in buoyant times; . ; (b),Funding of floating debt and the hardening of interest rates;

. ' (c) Reduction in the amount of public investment; and (d) Debt redemption abroad.

This would require close co-opera-tion of the Governments and the banking authorities, and the practical difficulties of this are considerable. Nevertheless, the effects of such action would be wholly beneficial.

It would probably not be possible to stop a rise in consumers' income per head (money value), but since the inherent tendency of credit is to expand it may be argued that the increase in fixed money debts justifies a slight rise in prices and consumers' income in the long period, rather than stability or a fall.

As the proportion of fixed to equity debt is increasing generally, the problem of adjusting consumers' income to the increase in fixed debt will become more important for all countries, but it is of peculiar importance in a country with a large element of primary production like Australia.