RISE IN EXCHANGE RATE

Hawera Star, Volume LII, 28 January 1933, Page 6

RISE IN EXCHANGE RATE

Debate Opens in House INDEMNITY FOR BANKS Mr. Coates Defends Plan LABOUR LEADER OPPOSED WISH TO STOP HEADING OF BILL (By Telegraph—Press Association.) WELLINGTON, Jan. 27. The Banks Indemnity (Exchange) Bill was introduced by Governor-Gen-erai’s message when the House of Representatives met this afternoon, i and wa;s read a first time. The adjournment of the House until Tuesday interrupted the second reading debate. Moving the second reading, the Finance Minister (the Rt. Hon. J. G. Coates) said the Government accepted full .responsibility foi; the action that Oiad been taken in respect of the exchange rate. “1 wish to associate myself with the Government’s action,” Mr Coates said. “‘I believe it is the right one and the only one in view of our economic circumstances.”.

The Government had made an exhaustive inquiry into l the country’s economic position and every avenue had been explored before the decision was, reached. Mr Coates believed the concern expressed by business men and otners could be explained away. They would find after a while the benefits winch would accrue from the Government’s action. •Mr J. McCombs (Lab., Lyttelton) : It will create more unemployment. ' Mr Coates: It will prevent further unemployment. The Minister said there were two courses open to the Government-. The first was to let matters take their course and allow further deflation. That might be the right policy but he did not think so. The country at the present time was facing tremendous difficulties and the economic structure bad neen endangered. Mi: J. A. Lee (Labour, Grey Lynn) : Biv the Government.

Mr Coates said world conditions had placed a strain on the economic structure. In liis opinion if +ihe Government had been content to stand by to watch the policy of deflation continue it would have meant wrecking the primary industries and the people of the country and would 'have resulted in incalculable distress. HOP IS TO BRIDGE GAP The other course open to the Government was to endeavour to bridge the gap between the prices that were being received to-day and the prices that would be obtained before man> years had passed. Mr Coates hoped that in the course of the next five or six years conditions would improve. Ho based this hope on the determination of the British Empire and the world generally to raise the wholesale prices of commodities on a prospect of a settlement of debt and reparation questions and on the fact that in view of the rapidity with which the depression had fallen on the world it was reasonable to expect that recovery also would be more rapid than had been the case! with former depressions. Mr Coates therefore considered the Government justified at this stage in taking the steps it had taken to prevent a further fall in the national incomo by increasing the prices to producers.

The raising of the exchange rate, Mr Coates declared, would not have the effect on the cost of living that liad been predicted. He did not propose to descend to the level that some public men had descended to in criticising the Government’s action. The Government was entitled to respect. It was entitled to expect argument and not vilification 1 ram the opponents of its action. The Minister said that when the exchange rate was increased in Australia the fall in retail prices had continued. The. fall in retail prices Iliad continued when Britain had departed from the gold standard. There might be a. momentary pause in the fall of the cost of living. He had seen statements that it was proposed to raise the prices- of goods by 15 per cent., but lie pointed out that all these goods were open to competition and competition would soon, dispose of any attempt to effect «udh an increase. j INCREASE IN BUSINESS* Wholesale prices had been falling steadily, but retail prices had been lagging behind. • People could expect a continued fall in retail prices and the commercial community would be fully justified in looking forward to improved business in the future as a result of the increase in the national income. The increase in the-.exchange rate would not bridge tiie whole gap between commodity prices and producers’ costs, and provision would have to he made for a further reduction of costs. Mr Coates said it was incorrect to state, the Ottawa agreement had been broken. He was fully in favour of working on a parity with sterling, hut not if it meant disaster, bankruptcy and misery to the people of this country. The Ottawa agreement did not make any reference to currency.

There would he some cause for anxiety and criticism if the Government in addition to raising the exchange rate were to place an embargo on imports from. Britain. The Government, however, had decided to initiate an Overhaul and complete investigation into tariffs and the effect of tariffs on industry. An endeavour would be made to bring costs down to the lowest level possible and Air Coates believed that as soon as conditions settled down workers would find their purchasing power would bo greater than formerly. Referring briefly to other steps the Government had in mind for adjusting financial conditions, Mr Coates predicted that members of the Opposition would find themselves a hundred per cent, in support.

AMEiNDMENT MOVED The* following nmonrlmont to the second vending; was moved by the Leader of the Opposition (Mr H. E. Holland) and ‘seconded'by Mr IVI. J. Savage (Labour, Auckland West) • “This House refuses to accord a. second reading to the Bill, which fails to provide an adequate method of dealing with the serious economic distress of the country as the fixing of the rate of exchange at art artificially high level avill raise the cost of living, intensify unemployment, foster unnecessary antagonism between town and country and afford no permanent help to the farmer, while increasing the financial difficulties of the Dominion.” I Moving the amendment, Mr Holland said that while criticising the Govern-

—' v '* ' "—! " A?, meat’s failure the Labour Party presented its own alternative proposals. The party recognised the first steps to be taken must be towards a restoration and stabilisation of the purchasing power—which involved the raising ot incomes of both farmers and workers —and towards a restoration to economic employment of those who were now classed as relief workers. That could be achieved only on a well-plan-ned basis of production and distribution, with an effective organisation and utilisation of the country’s? credit and currency and with guaranteed prices to primary producers and standard wages for workers. It was clear any benefits accruing from the artificial increase in the rate of exchange could be of only a temporary character. Practically every speaker" at the recent farmers’ gathering had made this clear. As Mr Holland saw it, only exporting farmers whose properties were mortgage-free would reap direct benefits and there were not manv farmers without mortgages .in New Zealand. The beneficiaries would be principally the banks and other financial institutions and stock agents, in a.nv case the farmers could benefit onlv if exchange remained high over a long period. REMINDERS OF OTTAWA. It was somewhat remarkable that it never occurred to the Prime Minister and his colleagues to peg up exchange as an alternative to wages leductions. . The London “Financial Times’’ had declared the increase to be a moral breach of the Ottawa agreements and it had to be remembered that an agreement had been reached at Ottawa te hold over the question of exchange until the London conference. Furthermore, it was legitimate, to remind Mr Forbes that at one stage he himself had suggested that to lift the exchange might be tantamount to violation of the Ottawa agreement. It had been said that at Ottawa New Zealand had helped to pull down the barbed-wire fence that stood m the Empire’s way. New Zealand was. now erecting a doubly high stone wall capped with broken glass. The banks having refused to accept responsibility for the surpluses that would accrue in London as a result ot the shrinkage of imports, Mr. Holland said, the Government would now have to find the money to buy these suipluses, and the money raised would have to be met out of taxation. In the end it would mean additional imposts on farmers and others. The cost of living would be substantially forced up and there must be an increase in wages to catch up with the increased prices. The Government s policy had reduced and was still 16clucin" the general income of workers in all fields, while at the same time the price of almost every commodity ivas being increased. While the Government’s policy yas being reflected in 'increased prices throughout the Dominion it would not add one penny to the total income of the Dominion. Exchange pegged at a high level would not increase the income of the Dominion; it would outs transfer the wealth from one section to another. GUARANTEED PRICE SOUGHT. Mr. Holland urged that the Labour 1 Party’s proposal for a guaranteed price to primary producers was a bettm method than the temporary expedient of increasing the exchange rate. Permanent help for the •fanner could come only with a guaranteed market for his goods, and that market was possible onlv when the incomes of the consumers were raised to a point that would enable them to purchase the farmers’ goods. _ . _ . As trade unionists the Labour 1 artj said there should be a minimum below which no wages-earner should be required to work—a guaranteed standard of living. 'The party was prepared to carry that principle into all fields oi industry, including farming. Mr. Holland said he had stated o» other occasions that he did not think it was necessary to create any large amount of additional legal tender currency, but if in the process of rehabilitation increased production should render additional money necessary, no difficulty would be encountered m making it available. . , , There was no difficulty about gettin" money if they were producing the goods. A State bank would have to come, but even without waiting to establish a State bank the Dominion could issue under existing banking legislation all the legal-tender papei money that might be required and m i a state of emergency the Government (under the Public Safety Conservation Act of 11)32) could take control of the banks and make them do the work of the State. , CREDIT AND CURRENCY. Mr, Holland then entered upon an explanation of the differences between credit and currency. He stressed thc"renter importance of the former and insisted that values created in the form of goods and services con stitut-ed the background against which credits could be safely created. He declared the national capacity to produce was the only possible foundation for the issue of financial credit. The Hon. J. A. Young (Minister o. Health) supported the view expressed by Mr Coates that instead of increasing unemployment the raising ol the exchange rate would reduce unemployment because it would increase the national income, it would in particular bring relief to the unemployed m country towns. He dill not agree that the Government’s action would proI mote antagonism between town and country, because the cities would eventually realise the value of the step to the Dominion as a whole. The debate was adjourned when the House rose at 5.30 p.m. till 2.30 p.m. on Tuesday. government in business

ASSOCIATED CHAMBERS PROTEST

LOSS OF ALL CONFIDENCE. WELLINGTON, Jan. 27. The executive of the Associated Chambers of Commerce, after a full discussion in committee this morning, I passed a resolution in which it said that the Associated Chambers had al--1 ways 'opposed Government interference in commercial business. The present Government had pursued a policy of progressive and increasing interference culminating; in the fixation of exchange rates. The association solemnly protested against this latest and greatest act of interference and ©specially “against the breach of faith by the Prim© Minister, who had but recently staled positively and definitely that fixation of exchange rates was a matter with which the Government would not interfere. The Associated Chambers of Commerce, representing tbe commercial community, v. is therefore reluctantly compelled to istate publicly that it has lost all confidence in* the present Government.”