The Evening Star WEDNESDAY. JUNE 15, 1932. THE EXCHANGE AND FARMERS.

Evening Star, Issue 21129, 15 June 1932, Page 6

The Evening Star WEDNESDAY. JUNE 15, 1932. THE EXCHANGE AND FARMERS.

The “ unpegging ” of the exchange rate is due at tho end of this month. Mr Forbes was probably wise to decline to keep it “ pegged ” at the present 10 per cent, until Ottawa has dealt with the proposed Empire managed currency. To do so would be breaking faith in a matter which was arranged largely because of the New Zealand Government’s difficulties. Professor Tocker has admirably summarised the matter in the May issue of the * Economic Record ’ (in which New Zealand affairs are given unwonted prominence this half-year). Last Christmas tho 'Government established a compulsory exchange pool, under which -exporters had to remit all proceeds from sales to New Zealand througli the bank specified in their license to export. The scheme gave the banks an effective monopoly over almost the whole of the overseas credit available, and power to dispose of overseas funds at such prices as they determined. That power was to be exercised first to meet the New Zealand Government’s abnormal needs for exchange during this year. In past years the Government has needed between £0,000,000 and £8,000,000 to pay interest duo abroad. Normally the Government borrowed at least £5,000,000 in London, using this to pay the interest there. With difficulty the Government borrowed £5,000,000 in London this year, but of this £4,000,000 is now being used to redeem Treasury bills outstanding in London and falling due this month—a mere conversion of short term to long term loan. The Government therefore arranged with tho banks for its London requirements, which tho banks would not guarantee unless they had control over the proceeds of exports. This implied also power to ration supplies of exchange to buyers other than the Government—i.e., to importers. During the six months of the pool’s operation New Zealand’s favourable visible trade balance has continued to expand, the Government’s demand for London exchange has eased, and commitments in sight can he met out of the funds available. In short, the pool has achieved its purpose, and normal freedom in the exchange market can be restored.

What will happen when that freedom is restored ? The hanks will fix the rate as formerly, and the law of supply and demand is the factor in that fixation. The general anticipation is that with tl unpegging 44 the rate of exchange will move to higher levels than the existing 10 per cent. What some people appear to tear is that, there might bo violent (iiiclualions in exchange in eonsequence oi fluctuations in our accumulated funds in London owing to the seasonal nature of our export trade. The banks, however, still retain control, which one assumes will exercised to

minimise violent oscillation. Professor Fisher, in his review of the New Zealand Economic Committee’s report, writes in the ‘ Economic Record ’ criticising his fellow professors’ advocacy of “ pegging ” the exchange at a higher rate and approving of Mr Park’s reservation (as to checking falling price levels) that “ the desired end could be attained on more orthodox lines by action through the banks to maintain the internal purchasing power, leaving the rate of exchange to reflect the relative position of internal and external purchasing power in the normal manner.” This might check the tendency to discuss the exchange question as if it were one of farmers’ interests versus other interests. That tendency was particularly noticeable in Dunedin at the meeting of farmers’ organisations here during show week. They are exerting all pressure possible, and it remains to be seen whether the banks, on whom the farmers are leaning so heavily for finance, will incline out of self-protection to make the farmei’s’ interests their interests and shape their exchange policy accordingly. It is, however, difficult to blame the farmer for seizing on such a plan for help in his unequal task of making ends meet. There is in the ‘ Economic Record ’ an article on farm overhead charges in New Zealand in which the writer (Mr Weston, of Lincoln College) states that, “ when gross income suddenly and unexpectedly falls through such a fall in prices as occurred in 1930 onwards, overhead charges, unless x'educed, will absorb all, or almost all, the farm income.” Ho quotes a number of specific instances of losses made in farming since prices fell. For example, in one group of eighteen farms the overhead expenses were £15,134, the working expenses £14,168, making the total expenditure £20,302, whereas the total income was only £18,637. There is no need to extend tho doleful list, but Mr Weston writes: “ Any farmer who came of age or returned from the war and engaged in fanning in this period must find himself, merely through the fall in prices, ovei’-capitalisecl, either with respect to his own or to borrowed capital. Among these it is the saving typo of farmer and the good fanner who still has an equity in his farm, but is watch-

ing it slowly disappear. ... At present prices the position will continue until the owner’s equity has entirely vanished, or until relief is obtained under the Mortgagors’ Relief Act, At tho same time working expenditure is reduced to a minimum.”