Greymouth Evening Star. MONDAY, AUGUST 22, 1949. Facts About Mr Nash?# Policy

Greymouth Evening Star, 22 August 1949, Page 4

Greymouth Evening Star. MONDAY, AUGUST 22, 1949. Facts About Mr Nash?# Policy

DECENTLY in this column we quoted the Government’s method of handling the exchange rate as an example of its inflationary policy—a policy that has resulted in cutting the real value of money and thus increasing the cost of living. In this connection, a correspondent, whose letter we publish today, has accused us of “misrepresenting the facts.” That is a baseless charge, as the following explanation of simple facts will show. It will be recalled that when introducing his 1948-49 Budget a year ago, the Minister of Finance, Mr Nash, announced the Government’s; decision to reduce the exchange rate; in other words, the New Zealand °pound was brought to parity with the British pound; But the Minister, in implementing this decision, did not conform to the law by which he was at -that time bound. Section 4of the Finance Act, 1934, which refers to the obligations of the Government in respect to alterations in the exchange rate, says (sub-clause I) : “The Minister of Finance shall, from time to time, without further appropriation than this section, pay to . the Reserve Bank, out of the Consolidated Fund, an amount ecpial to the amount of any depreciation of the assets of the Reserve Bank, expressed in the currency of New Zealand, due to the fixation by statute at any time hereafter of a definite relationship between the currency of New Zealand and sterling, or due to any alteration of the rate of exchange that may be macle by the Reserve Bank.” The object is, of course, to withdraw money from circulation in the event of the exchange rate being reduced; conversely, if the exchange rate is increased, the object is to increase the supply of money in New Zealand. There , was thus a definite obligation on the part of the Government, when it reduced the exchange rate to par with sterling, to reduce the volume of money by making payment in cash, from the Consolidated Fund, to the Reserve Bank. Instead of doing that, the Government, which apparently had not the funds to pay in cash, “settleci” the matter by handing the Reserve Bank an 1.0. U., to add to the many millions of Government 1.0.U.’s that it already holds. . Had the Minister of Finance paid in cash, he would have had to impose additional taxation; as matters •stand, he has an unbalanced Budget, since there is no sign of any attempt to meet the debt. . ’ The matter is far from being one ot mere academic interest. Inflation the excess of money over goods—-is the root cause of the sky-high prices and a prime reason for industrial unrest. Statistics indicate that, in the past 10 years, the .volume of money in New Zealand has increased by £158,000,000. Dealing with this point, the latest report of the Reserve Bank, which is clearly uneasy concerning Mr Nash’s inflationary policy, says at page 13: “Looking at. our position from the financial viewpoint, it is clear that, though monetary expansion can’’give a stimulus io employment and to prosperity when a state of under-employment exists, it cannot do so now. Increasing the money supply in New Zealand could not under present conditions cause our standard of living to »ise; it could only increase the problem of restraining prices.” By increasing purchasing power in the way of reducing the exchange rate, instead of maintaining purchasing power at a stable level by paying the Reserve Bank its debt in cash, or refraining from altering the exchange rate till funds had accumulated which would enable payment in cash, the Minister (under pressure from the Left-wing group) has blithely created a problem which is virtually insoluble. The Government apparently feels that price control, import control, and exchange control will dampen down the effects, of its folly. Its philosophy is on all fours with that of the British Socialist Government, which, according to the Economist, believes that water can be made to run uphill by Orders-in-Council.