Manawatu Evening Standard. SATURDAY, FEB. 20, 1932. THE EXCHANGE QUESTION:

Manawatu Standard, Volume LII, Issue 69, 20 February 1932, Page 6

Manawatu Evening Standard. SATURDAY, FEB. 20, 1932. THE EXCHANGE QUESTION:

Since the Government announced its arrangement with the banks for the mobilisation of exchange there has been a sharp controversy as to the wisdom or otherwise of the rate being maintained at ten per cent. On the one hand there are the primary producing interests pressing for a free market, without interference with the laws of supply and demand, and on the other importers, and Government and local bodies whose interests are conserved by a low rate. The case for the farmers and . others who earn their living from the soil by exporting their produce overseas is that an uncontrolled market for exchange in London would send the rate up appreciably. It has been claimed on their behalf that in this event the high Australian rate would be reached. The assumption, of course, is gratuitous. Nevertheless, it is asserted that had the Australian rate operated . last year the benefit to the primary producers would have been £4,000,000 or more, basing the sterling value of our exports at £30,000,000. This . extra sum would have been obtained in the process of exchanging London funds for New Zealand currency, but who would be required to meet it ? That is the point where the other side enter the controversy. A greater exchange rate would operate harshly against importers, for, to protect their interests, they must, in business routine, add the increase to the the cost of goods purchased from England. In the present state of financial stringency that would cafise a severe setback to trade, and must lead to greatly decreased exports with consequent loss of revenue at the Customs. Besides, many importers would be in the unenviable position of not being able to pass the extra charges to the public, whose buying power has been seriously curtailed, and trading enterprise would be restricted. The Government and local bodies having interest charges to meet in London would be compelled to pay a considerably higher sum were the exchange rate to be increased, and this would entail increased taxation, at a time when the fountain has ceased to flow freely. It is apparent, therefore, that the benefits which have been claimed for the farming interests are discounted by the serious, disability entailed in the collection of the extra sum from the community. There is a point of interest to the primary producers in the Welfare League article published to-day. Affirming the view that there should be as. little interference as possible -with the natural law of supply and demand, the Leagile says that in times of national crisis it may happen that these laws, to a certain extent, must be controlled by legislation. This demands great care upon the responsible authority, it points out, to see that the regulations, are'justified, and that every section of the community likely to be affected'is consulted. It may

be supposed that this was done by the Government before determining its arrangement with the banks. The Welfare League, however, introduces the important issue of the effect upon Great Britain of an exchange rate “pegged” at an artificial figure which is greater than would obtain on a free market. The Dominions have been granted a ten per cent, preference by Great Britain, under the tariff to operate from next month, until the Ottawa Conference is held, and the League asks the pertinent question: Can we expect to retain this concession if we artificially “peg” exchange above its natural figure ? Will England not be entitled, it adds, to point out that we have fixed exchange rates at an abnormal figure and thus hampered her exports to the Dominion; therefore, she cannot continue to grant preferences to our goods? That is a point to be carefully watched. In the meantime, the Government has appointed a Commission of Economists to “examine the economic and Budgetary position,” and to “deal with the problem of exchange.” The need for that commission has been questioned. So far as its investigations into the exchange position are concerned, the Government must be in possession of all relevant facts. There, also, is the danger of recommendations conflicting with those of the Economy Commission. The personnel includes Dr Copland, of Melbourne, who has been a strenuous advocate of a higher exchange rate, and the view is held that the Government has been weak in submitting to the criticism of the lower exchange rate in the Dominion by appointing, the latest commission. The banks, it should be noted, have expressed their satisfaction with the current rate, and their ability to judge what is best for this country surely cannot be disputed. It will be hoped that the Government will not do anything to increase the burden of taxation upon the community and embarrass importers. That would follow a sharp climb of the exchange rate. Far better were it to take note .of the Welfare League’s warning and leave decisions, if they are deemed necessary, until after the Ottawa Conference.