EXCHANGE POLICY

Evening Star, Issue 21811, 29 August 1934, Page 5

EXCHANGE POLICY

ASSISTANCE TO STABILITY In a comment upon the decision of the Reserve Bank of New Zealand to retain the exchange on London at the existing rate, ‘ The^Times’ _ stated that the soundness of this no doubt determined in consultation with the Government, was not open to question, for stability of exchange was essential to trade activity. “The present' rate,” ‘The Times proceeds, “ has been in operation for a ■sufficient period for many of the necessary adjustments to be made, and although the big rise in the price of wool and the reduction in imports have helped to build up New Zealand’s external resources, the position is not quite as strong as it was owing to the recent reaction in wool prices, which is largely the consequence of the German restrictions.” Speaking of the freedom ot the trading banks to formulate their own exchange policy and to fix their own buying and selling rates for London funds, ‘ The Times ’ stated that these rates obviously would not deviate much, if at all. from the official rate unless the official rate, owing to unforeseen circumstances, became completely out ot touch with the market. That had frequently happened in those countries which had attempted to fix an artificially high rate for their currency. It had called into being a “ black market ’ in which the currency changed hands at a lower figure. The only real objection to the artificial fixing of exchange arose when the rate was out of touch with economic realities. Generally countries with artificial 1 rates of that kind had to impose such severe restrictions upon business that it was doubtful whether the gain, such as it might he, was commensurate with the loss of trade involved. Exchange restrictions would be unnecessary if countries were prepared to face the facts of their economic situation and -to allow the solution of their difficulties to be found in the free play of exchange.