A YEAR TOO LATE

Gisborne Times, Volume LXXIII, Issue 12092, 3 November 1933, Page 4

A YEAR TOO LATE

RISE IN EN-CHANCk RATE. MR. K. S. WILLIAMS DEFENDS FARMERS’ ATTITUDE. How the existence of a central reserve bank in New Zealand would have obviated the need lor the exchange pool at the end of 1931 and thus benefited the farming community, was explained by Mr. K. S. Williams, M.P. for Bay of Plenty in the course of an interview at Wellington. After tracing briefly the history of local exchange developments since 1914, Mr. Williams expressed the view that although the exchange had prevented a collapse of our primary producing industries, it had been raised a year too late to be really effective.

Mr. Williams said that when the farmers had asked for a free exchange in the past, they simply meant an exchange that was free from political, intervention. No other meaning could he attached to that request, since at no time since 1914 had the exchange been allowed to run free. The banks had fixed it ever since the Government suspended the gold standard in 1914. New Zealand had operated on a sterling exchange standard. The banks had controlled the rites of exchange between New Zealand and London. NORMAL TENDENCY. “If sterling is scarce in London,” said Mr. Williams, “the normal tendency is for the exchange to move against New Zealand. This discourages some of those who are demanding sterling and adjusts the supply to the demand. In 1930 the rate was fixed finally at £lO4 7s 6d. In January, 1931, owing to low prices in England, and a consequent lessening of London balances, the banks moved the rate to £IOB 10s for demand drafts or £llO for telegraphic transfers. At the end of 1931, after England had gone off the gold standard, sterling holdings on behalf of New Zealand were reduced and the Government had to find a considerable sum for external debt purposes. There were the usual demands for sterling, and temporarily not enough funds to meet these demands. “In these circumstances, what usually happens is that the exchanges run against a country until demand balances supply. Otherwise it- is impossible to meet those whose needs are most urgent. The New Zealand Government evidently had to provide funds mainly for external debt purposes.

MONOPOLY OF HOLDINGS. “Instead of the banks letting the exchange run free and go up to 125 or 130, as some of my financial friends informed me it probably would have done, they said they would only supply sterling if they were given a monopoly of New Zealand holdings abroad, so that they could ration the funds and prevent importers and farmers in New Zealand from claiming any of that sterling. The result was that the Government established the exchange pool and commandeered the producers’ money.

“This is the kind of Governmental interference to which the farming community objected. A central bank would probably have obviated the need for this exchange pool. As it was, exchange was pegged at a far lower rate than that at which it would have naturally been. If I am correct, the producer was deprived of the exchange benefit that would have accrued if exchange had been allowed to move as conditions warranted, which one of the commercial hanks was prepared to do.” It was also mentioned by Mr. "Williams that the Australian exporter had been placed in a very different position from the New Zealand producer. Australia, competed with this Dominion in the fat lamb and butter market. The Australian butter producer bad the advantage of tlie Paterson plan, which, with the 15 per centexchange difference, gave him that much advantage over the New Zealand farmer on a falling market.