The Evening Star FRIDAY, JANUARY 20, 1933. EXCHANGE RATE RAISED.

Evening Star, Issue 21315, 20 January 1933, Page 8

The Evening Star FRIDAY, JANUARY 20, 1933. EXCHANGE RATE RAISED.

Thk Government has yielded to the pressure of producers for an artificially fixed higher exchange rate. Its actual decision was reached in advance of the conference convened by the Farmers’ Union, which was merely the last act in the agitation. No doubt it was easier for the Government to yield, because a majority of its members as long ago as November last was understood to be in favour of the palliative which the farmers recommended. In a sense, therefore, the decision which brings the rate of exchange with London, to the same level as Australia’s rate from to-day is not surprising. It is surprising only in that it overrides the decision of the banks, announced two months ago, that the increase was not natural and should be avoided. The Prime Minister laid it down then that the determining of what the rate should be was the banks’ business. Now it is assumed that, on such a technical issue concerned with their calling, lay Ministers may have more wisdom than the banks. The banks have yielded to the Government’s pressure, but on their own terms. They take no -responsibility for a policy which they agree to reluctantly, and, as they are not following their own policy, they are to be indemnified for any losses in their deal-, mgs with exchange which may ensue. That is an indefinite obligation oh the country’s part, the possible cost of which it is impassible for anyone to compute, to be added to all the other disadvantages of the plan. It has been an old complaint that the banks controlled the Government. The Governments has controlled the banks, by its latest course,. in tho most startling manner, and we can only regard that ys a bad development. The banks should know their own business better than anyone else could know it. Dictation" of their policy can easily bo more dangerous than almost any other Government interference with commerce or industry. The statement made by Mr Forbes this morning does not suggest that any change has taken place in tho factors which should regulate the exchange rate since tho banks pronounced against its increase two .months ago. He dealt briefly with the difficulties of primary producers, which everyone knows. Ho made a claim that the new cicpai’cmo would help ■ the unemployed position.

The unemployed might bo helped, oven in the cities, ■if local manufacturers were enabled, by the additional protection which in effect will be given them, to take on more hands, but that benefit would be offset for industries which depend to any extent on imported materials. It would bo lost entirely if another request of farmers were complied with, favouring an immediate substantial reduction of tariffs, especially on British goods.. Raised import and local prices obviously would not assist the unemployed. It is plain tliat the difficulties of the Government can only bo increased by this manipulation of the exchange rate. Classes apart front the producers for export, and to some extent those pro-' 1 dneers themselves, will have to pay for the benefit which it is hoped to obtain for the farmers, and it is doubtful if they themselves will derive any benefit long. In theory there will be an advantage to this country when it sells and a disadvantage when it buys, and the plan would have maximum merits if we could sell as much as possible and buy nothing at all. Trade of that kind, however, is an illusion; it is what all countries have been striving for in the last few years, and what the agreements of Ottawa were designed to avoid. There is cause for concern lest the consequences of the new departure should be those forecasted by the statement of Wellington business men: “ For a while, perhaps . . . the

position of the farmer may be improved, but as soon as exchange inflation exercises its normal effect in raising local and import costs the relief to the fanner will cease, and he will demand more of the same medicine by

this process. . - Theoretically, exchange inflation can be controlled, but inflation, once started, almost always gets out of control, especially when it becomes a political matter.” Not more pleasing is the judgment of the London ‘ Financial Times,’ with its reference to a 11 moral breach of the Ottawa agreements.” It is a new thing for the policy of this country either to merit or receive accusations of that kind from the chief market for its products.

Mr Downie Stewart’s resignation stands, and that makes another loss to the Government. It conies at the most inopportune time, as a northern contemporary has pointed out, when his knowledge of world conditions has just been increased by his visit to London and when the Secretary to the Treasury is ill; but no alternative to it. iu the face of the Government’s decision, for one who had faith in his own convictions and a due sense of the responsibilities of his office, seems to have been possible. In his letter to the Prime Minister he h(is explained that on minor issues he had at times subordinated his views" to those of the Cabinet as a whole, but this one was too important. Mr Downie Stewart s sacrifice will cause his reputation to slime brighter wherever ife is considered. it leaves no doubt of his ability to act decisively whore convictions he holds precious are concerned. The Government's position will not be endangered by his withdrawal from it. but there is no doubt that the Government will ho weakened. Tor the exchange rate that is now in operation we can only hope the best.