RATE OF EXCHANGE

Manawatu Standard, Volume LII, Issue 72, 24 February 1932, Page 2

RATE OF EXCHANGE

PRIMARY PRODUCERS' POSITION. PROFESSOR GREGORY’S OPINION. Per Press Association. WELLINGTON, Feb. 24; Professor Gregory, the eminent economist, who has been consulted with the object of obtaining the best opinion in the City of London on. the question of advancing the rate or exchange New Zealand on London, has submitted his views. He begins •by agreeing that since primary production in New Zealand is carried -on for export, there can be no question that the direct and short-run effect of raising the premium on London money in New Zealand must be to increase the receipts accruing- to tlie primary producer. How far this immediate benefit to the primary producer means an eventual and permanent improvement in his position is another matter, for even if it can be shown that part of the increased receipts can be permanently retained by the farmers this ’does not dispose or the matter finally, for other aspects must also be taken into account. Professor Gregory then showd how the wholesale prices in. the United Kingdom have begun to rise, and can be expected to continue rising. He remarks that under the combined influence of the tariff and the suspension of the gold standard to the extent that sterling prices rise the position of the New Zealand primary producers would improve even without a change in the exchange rate. On the wholesale price levels index of both Great Britain and New Zealand the margin is appreciably narrowed, and he -suggests that it would appear not unreasonable to defer action in the immediate future in order to establish more clearly than is possible at the moment tire trend of British prices. Caution in this respect is especially necessary in view of the fact that a rise in the premium exchange rate is bound in any case to effect the level of import prices. Pursuing in detail the manv issues involved, Professor Gregory makes the point that while there might be a fall in wages they would eventually rise, as from a number of considerations there must be a rise in price levels. He says that the Customs revenue would fall; also, that New Zealand securities would decline in value, making conversion or a new loan either impossible or extremely expensive to finance.

If the exchange rate is allowed to rise further it must be recognised that it will ultimately prove impossible to revert to the old parity between the sterling and New Zealand money, for if the. rise in the sterling lags'behind the movement in the exchange it would be impossible to regain parity with the British pound except by means of drastic deflation of New Zealand prices. —lf on the other hand the British prices did not advance after the exchange rate had been allowed to advance an equally difficult problem presented itself, for unless such exchange rate was at once forced down the primary producers’ receipts must expand and all conditions for a sharp rise in land values and local over expansion would be created. Professor Gregory directs attention to New Zealand’s trade balance 'or the eleven months of 1931, which shows a cumulative balance in'favour of the Dominion of £7,000,000.

Professor Gregory’s opinion was furnished to the National Bank of New Zealand in response tb a request to headquarters for an , independent opinion of a British economist of high standing on the New Zealand exchange position.'