A CHOICE OF EVILS

Evening Post, Volume CXXVIII, Issue 121, 18 November 1939, Page 12

A CHOICE OF EVILS

"There is a tremendous lot to be said for the fixed rate of exchange that we have had operating in the Dominion for the last four or five years," said Mr. Nash on Thursday night. Lest there ahould be any doubt, we may add that the speaker was the Hon. W. Nash, Minister of Finance in the Labour Government which won the General Election in 1 1935 with a promise, among others, of reducing the exchange rate. Except for a few shillings difference, the rate is the same now as then, and Mr. Nash now defends it. He says if the rate were not fixed exchange would be used for luxury imports | and necessaries would have to be imported at the higher rate fixed by bidding. Also, "a fluctuating rate of exchange, without a tremendous volume of funds behind it, is one of the greatest difficulties that an im-" porter has to face, because he does !not know from ship to ship what he ! has to pay for his imports." That is only an argument against, shortterm changes, which can always be avoided by a country with a good banking system. The volume of funds does not need to be "tremendous" either, if a reasonable internal finance policy is being followed. I( was because Labour followed a course of internal expansion, without regard to the effect overseas, that a, fund of even £40,000,000 proved insufficient to keep the exchange at 125 without sterling control. Now the exchange is pegged at 125, which is certainly below the j rate th.at would operate if free transactions were permitted. When the rate was first made 125 it was artificially high. Now it is arti-j ficially low. A rate pegged above the true commercial level was an artificial depreciation of the currency; a rate below the true level is an attempt to cover up a further depreciation that has actually taken place. Though we think it would be unwise now to let the funds and the) rate move freely until there is a! better balance of sterling, with more confidence, the pegging is not the great protection of the public that the Minister of Finance suggests. With a higher exchange, people would have to pay more for imported goods, and would,, therefore, buy less. With a pegged exchange, sterling control and import licensing are necessary, and people are likely to buy less because less goods are available. The idea that, with free bidding, exchange goes to the buyers of luxuries is incorrect. When exchange rises and prices rise with it, trade in luxury lines is first affected. Exchange rising to the heights or kept down by licensing and control is just: a choice of two evils. The sound and desirable course is to regulate internal expansion so that there is no strain upon external resources. If the Government attends to this, the bankers, who understand their business, will see that sudden and disturbing fluctuations in the rate arc avoided. • i