WELLINGTON TOPICS

Hokitika Guardian, 1 March 1932, Page 6

WELLINGTON TOPICS

FREE EXCHANGE MARKET. (Special Correspondent.) WELLINGTON, Feb. 27. The exchange, problem caused and is causing a vast amount of unnecessary agitation, and the two schools are showing much ability in putting forward their respective ideas. No doubt a free exchange market is the ideal, and if we had free trade domestic trade and free international trade, imported goods would be balanced. by exported goods, that is goods would pay for goods. That- is stating the principle broadly. The Exchange problem, however, is impinged’ upon by other factors such as reparations and war debts which require for masses, of credit, apart from normal trade movements, to be transfeired from country to country. To make this transfer difficult, if not impossible, there are the high protective tariffs, as the poorer nations have not the command of gold with which to meet their obligations in the absence of the sale of goods adequate for the purpose of discharging their obligations. This has elevated a single problem into a complex and difficult one, and the difficulties of the problem vary in all countries. For New Zealand the exchange problem'is a- thorny one and may easily cause considerable trouble ii not handled with considerable care. It may not be out of place .to state the conditions that have led up to the present bitter controversy. Practically the whole of last year, the telegraphic transfer rate New Zeaand on London was 10 per cent., that is £N.Z.100 for £13.100. Up till the Ist January this year there was a free oxchange market, and while outside dealers in exchange obtained more than 10 per cent., there were occasions when London funds were in large exchange for less than 10 per cent. Taking it by and large the 10 per cent, rate seems a fair one, and there would have been no trouble whatever but for the fact that the Government is pushed into a corner and must during the course of this year have the first call on exporters’ funds to the extent of £14,000,000. This is made up of £8,000,000. for the service of the overseas debt, £4,000,000 to repay the Treasury bffis floated in London last year at £6 Is 3d per cent., and- £2,000,000 on interest for local bodies’ outside debts. The Government requested the assistance of the banks in finding the money, and while they were willing and anxious to do so it was obvious to them that the urgent needs of the Government introduced a new factor. If a free exchange market obtained, any sum the Wanks could not let the Government have, would have to be 11 ’obtain! cP fronAffe outside exchange dealers who would naturally take advantage of the needs of the Government and put on the screw. The Government would be obliged to pay these outside dealers whatever rate they demanded, and since these outsiders would be making huge profits out of exchange other exporters would certainly be attracted and the banks would have less and less command of London funds through exports, unless of course their exchange rate rose to the level or above the level of outside exchange dealers. The arrangements for pooling the exchange is undoubtedly ’in the interests of the general body of taxpayers who in the ultimate must loot the exchange bill whether it be 10 per cent or 25 per cent. There is a further problem involved. A high or panic exchange rate is bound to affect our credit in the London money market. A high exchange rate is indicative of the difficulties of the country and that must create a bad impression. As a temporary measure the pooling of London credits, together with the monetary low exchange rate is to be commended. 11 wholesale prices, that is prices foi our products, advance we will have an increased supply of funds in London, and those pieces are advancing In any event it is worthwhile waiting to see the effects of the abandonment of the gold standard, the imposition of a 10 per cent tariff by Britain and the reduction of the Bank of England rate.