Effects Of Exchange Adjustment On Australian Trade

Greymouth Evening Star, 21 September 1949, Page 6

Effects Of Exchange Adjustment On Australian Trade

CANBERRA, September 20.—Australia could not maintain its foi mer rates of exchange with both the sterling and the dollar, said the Federal Prime Minister (Mr Chifley) in a statement in the House of Representatives today. . . The choices open were to maintain the existing relationship with the dollar and appreciate against sterling, maintain the existing relationship with sterling and depreciate against the dollar, or adopt a middle course involving some appreciation against sterling, together with some depreciation against the dollar. After careful consideration of all the circumstances, it had been decided to maintain the existing relationship with sterling, and to devalue against the dollar. The Government’s decision meant that there would be no change in the exchange basis of Australia’s trade with the United Kingdom, the Commonwealth’s most important export market. “Proceeds in Australian currency received by exporters to the United Kingdom will not be reduced as a result cf exchange movements, neither will these movements reduce the price of Australian goods imported from the United Kingdom, said Mr Chifley. ‘The Government had in mind the difficulties which would have been created for both export industries and industries producing for the local market if the existing* exchange relationship with sterling had been altered. To have retained the former par value with the dollar would have meant that the Australian £ would have been appreciated against sterling, and possibly against the currencies of a number cf other countries in which we have important markets. “This would have been to the disadvantage of exporters, and it would have also created the possibility that Australian industries would be undersold in their home market. If a midway course had been taken, the same possibilities would have been present though to a lesser degree. Dollar Imports “At the same time, the Governmemi reccgnised that to devalue our currency against the dollar to the same extent as sterling would tend in some respects to increase local costs. “At the new rate of 2.24 dollars to the Australian £, the cost of all imported goods which have to be paid for in United States dollars will be increased. Because of the need to economise in dollar expenditure, American goods which we are now importing have to conform to a high standard of essentiality. These goods will now cost more in terms of oui own currency, and this higher cos t must ultimately be reflected, as least in part, in higher prices lor. some of the goods we produce. “However, although the goods we import from the United States are important to our economy, they do not represent a high production of our total imports. The United Kingdom itself supplies us with roughly halt our total import requirements; and, as many other countries, both inside and outside the sterling area, are likely to keep in step with sterling, there will' be no immediate increase in costs over by far the greater part of oui' import trade. “The increased cost of dollar imports will call for some adjustment cf import licences for dollar goods, which are normally expressed in terms of Australian currency. “On the other hand, the new rate should provide some stimulus to our export sales in the United States. Wool is the most important item m our export trade with the United States, and a cheapening of wool in terms cf United States dollars may be expected to produced some increase in American consumption. The change in the exchange rate does, of course, mean that at the current prices a greater volume of wool will have to be shipped to the United States to earn the same number of dollars. Heavier buying by American mills could, however, increase our total dollar earnings from wool.

Exports To America “Other Australian exports to the United States may also be stimulated. I emphasise that devaluation in itself does not provide any automatic solution to the dollar difficulties of the dollar area. Its effectiveness will depend on how all of us in the sterling countries respond to the opportunities offered by the new situation.” Authorative sources in Canberra says that the Australian Cabinet has agreed that tariff and excise charges on tobacco, petrol, and oil and some othei- items should be reviewed, with possible reductions. The review will be made by the Dollar Committee of the Cabinet. ' ' .. The Australian retail motor trade believes that the ,price of petrol may be increased by 6d a gallon. The price of petrol in Sydney is 2s B|d a gallon, of which IOJd is for taxashipping circles report that British will save dollars by returning to England by way of the Cape of Good Hope, instead of going through the Panama Canal. The Waimana will be the first ship to do

this, and will bunker at Sydney instead of at an American port. She will be followed by three other British ships now in Australian ports.