EXCHANGE POSITION

Greymouth Evening Star, 15 September 1924, Page 3

EXCHANGE POSITION

THE EXPORTERS’ “BURDEN.”

One of the greatest dangers that this country lias to face is widespread ignorance of simple economic truths, remarks the “Sydney Daily Telegraph.” There is a very general belief on the part of people who should know better that the rate of exchange between Australia and London constitutes an unwarranted burden upon Australian primary producers. The latest public utterance of that fallacy was made by the retiring president of the Brisbane Chamber of Commerce (Mr F. W. de Little), at the annual meeting of that body last week. Mr Little is reported to have stated that the present rate of exchange on a 60 days’ sight bill against wool cost more than the shearing of a sheep; that the charge against the wheat growers amounted to about l|d. a bushel, and against the butter shipper to about 6s a cwt. Primary producers, declared the speaker, were adversely affected by these exchange rates, which were practically equivalent to an export tax. Secondary producers were also suffering by reason of the excessive amount of importation owing to the country’s inability at present to put Australian money in London to any other use than ‘the purchase ol goods manufactured overseas. The excna’ige rate between Australian and ?..iglish currencies—or, for that m'-'.'e' between any two currency'.- ■’ . based primarily upon their relati l ',- value in terms of goods. If, say, tT Australian pounds are obtained by the Australian exporter to every 100 English pounds which he has to his credit in London, it is because the purchasing power of 100 English pounds is equivalent to that of 98 Australian. An exporter can buy no more goods in England with £lOO than he can in Australia with £9B. Banks, of course, are not in busi-

ness to conduct exchange operations for nothing. Taking /current telegraphic transfer rates (in order to eliminate the, factor of interest on other- usances) published by the banks, it is seen, that the buying rate in Australia for London money is 50s per cent, discount, and the selling rate 30s per cent discount. The difference is 20, which, when apportioned between £IQ3 ’ Fought and £lOO sold gives the bank a profit of 10s per cent. Since the exporter otherwise gets an equivalent in purchasing power, the only “tax” he has to bear is this 10s per cent. Whether the profit to the banks is too high is another question. But it may be pointed but in defence of the banks’ charge that demand for Australian money in exchange for English varies considerably with the season. Sales 'by exporters do not synchronise on the whole with purchases by importers. Consequently, the banks have to keep considerable balances idled or invested at short call at low current rates, so that funds may be available for the convenience of customers at all periods of the year. r lhe loss thus sustained has to be deducted from the nominal profit of 10s per cent. As to the complaint that money in London can' be used only to purchase goods manufactured overseas, it may be asked to what other purpose the funds could be put. A nation can benefit only, in the long run, by exports if it takes imports in return. That is another economic truth which many public men would Go well to ponder. Supposing, as Mr Little suggested, the Notes Board were to issue

notes in Australia agdinst cash balances or securities in London. The mere issue of paper here would not transfer wealth. What would happen would be a further depreciation of the value of the Australian paper pound, since additional currency could only get a value by detracting from’' the value of that already in circulation. Prices would rise, and Australia would be further than 1 ore from the gold standard goal, which Mr Little admits is desirable, but * cannot be achieved in a- few weeks or months. mHN tkeCs kg,hl, op she MR MASSEY’S CONFERENCE. .. (Per Press Association). WELLINGTON, September 15. The Prime Minister had a conference on Saturday with representatives of the various banks in regard to the exchange difficulty. When seen subsequently, Mr Massey said that he had no announcement to make, but he will probably do so in the House.