Evening Post. TUESDAY, DECEMBER 3, 1935 A DIFFICULT CLIMB DOWN

Evening Post, Volume CXX, Issue 134, 3 December 1935, Page 10

Evening Post. TUESDAY, DECEMBER 3, 1935 A DIFFICULT CLIMB DOWN

Addressing his constituents in September, the Hon. W. Downie Stewart stated that while he still thought die raising of the exchange was a grave mistake for many reasons he recognised that once it was raised it became a "fait accompli" and farreaching consequences flowed from that. "To attempt to reverse ihe process now, either suddenly of by degrees," he said, "without some marked change in economic conditions, would cause the same trouble and disturbance as was caused when the rate went up. . . . As one Australian aptly said when the Australian rate was fixed: 'We have got up a tree and we don't know how ,to get down.'" Mr. Stewart went so far as to regard the difficulties in reduction as so great that an attempt to cancel' the high rate would be an error. We cannot go this length; but-we fully perceive the obstacles that Labour has to surmount in giving effect to this part of its policy. Nevertheless we believe these difficulties can be overcome. They do not furnish a reason for reversing this part of the Labour policy; only for- putting it into operation with circumspection. The only reason we can see for rejecting Labour's exchange reduction , policy is the one which we submitted in the election campaign—that it was tied up with the guaranteed price scheme, which, in our opinion, would have a more inflationary effect. The electorate, Labour may now argue, did not accept this reason for rejecting the policy.

It has been made clear by Mr. Savage, however, that while ihe Labour' Government will not go back upon its policy it does not intend to put it into operation suddenly.

Both the exchange rate and the sales tax must be dispensed with—there can be no question about that, he states., but I realise as well as anyone in this country that their sudden removal would be ruinous.

His present opinion is that both tax and exchange should be reduced gradually—2-J per cent, is mentioned for exchange—and that the amount should be. considered by experts. Also Parliament will have to be consulted, and "I do not think there will be any move before March at least." This, indeed, is sufficiently guarded and gradual, yet objections are being stated. Exporters naturally wish to know something of the compensating benefit promised them through guaranteed prices; export buyers see a difficulty if some pay for their purchases at the existing rate and others, through delaying their orders, have to pay in a higher-valued New Zealand currency; and importers are faced with the reverse problem, that purchase now may be more expensive than delaying orders. We do not under-estimate the gravity of these problems; but to accept them as sufficient reason for doing nothing is, to admit that once an erroneous and disturbing course has been taken it should be continued indefinitely. The interests of exporters and importers must certainly be considered; but there are other interests that cannot be overlooked, the interests of consumers who finally pay the exchange premium. They cannot be asked to pay it for ever because of the difficulty of changing from one rate to another. If this were a reason for making no alteration in exchange, it would also be a reason for never reducing Customs duties, " because some importers would be caught with stocks on which a higher duty had been paid. In the duty problem, it is recognised that changes tend to equalise themselves—the sale of lowduty stocks compensates for the loss on quitting high-duty goods, unless the alterations are made suddenly and reductions have no relation to increases. The same reasoning applies to exchange. Provided that care is exercised there should be the minimum of disturbance. In exercising care an essential step is consultation with experts. Mr. Savage has stated that there will be consultation, and we assume that he will take both the Reserve Bank and the trading banks into his confidence. That would be an elementary precaution.

Whenever an alteration is made there will be complaints and objections. Even if antecedent economic change is made a condition of an alteration in the rate there will be the same difficulty in. deciding how much economic change there must be. As we pointed out recently, the Coalition Government apparently did not regard a 1 rise in wool prices as a reason .for reducing exchange, and there was no reduction when dairy produce returns improved. But sudden action would increase the trouble, and the fact that the Coalition Government raised the rate in one step by 15 per cent, in the middle of the export season is no sufficient reason for taking the same drastic course in bringing it down. So far as possible, therefore, alterations should be timed for the quiet trading periods. A Dunedin lepresentative of t exporting interests has suggested that the end of June, as the close of the j export season, would be the most suitable time; and the views of importers might reasonably be heard on this suggestion. The 1 banks, however, are the authorities best equipped to give guidance on times and seasons, and to help in lessening hardship and checking speculation. I Particularly in preventing gambling,

against which Mr. Savage has quite lightly set his face, is the co-operalion of the banks necessary. There is machinery now in the Reserve Bank Act for assuring co-operation, and also lessening the difficulties of legitimate traders. An indication of how this machinery might be operated was given in the first announcement of the Reserve Bank on exchange when it was stated that the Bank aimed at achieving stability and: "To assist in achieving this measure of stability the Reserve Bank will be prepared to enter into forward exchange contracts wilh the trading banks." With full co-operation of me Reserve Bank and the trading banks, which are all in a remarkably strong position by reason of their sterling holdings, we see no reason why alterations should not be made with a minimum of disturbance. But the difficulties are certainly not to be ignored, and should convince all who have an open mind that this question of exchange is best dealt with by the banks according to1 banking principles. Politics should never have been brought into the matter, and the less they enter into it now the better.