All Will Benefit From Exchange Move

Northern Advocate, 23 August 1948, Page 3

All Will Benefit From Exchange Move

WELLINGTON, Mon. (Sp.).— Broadcasting last night on the decision to place the New Zealand pound on a paiity with Lhe pound sterling", the Minister of finance (Mi Nash) leiteiated that everyone would benefit from the move. He said it was to New Zealand’s credit that it had the strength in a chaotic world to take such a step Lo ensuie moie progress, more prosperity and greater security.

No doubt his announcement on Thursday night, one of major national importance,- came as a surprise to many people in New Zealand and other countries, said Mr Nash.

It was important to maintain the element of surprise, and his reason for speaking now was to explain clearly why New Zealand had taken this action. ALL INVOLVED “The actual decision was made shortly before Parliament met on Thursday night, and to the best of my belief the secrecy measures resulted in no person gaining one penny of profit through prior knowledge of the Government's intentions,” said Mr Nash. The exchange alteration would benefit everybody in every walk of life m this country—housewives, pensioners, wage-earners, farmers, manufacturers and business men. Some would benefit immediately and directly, and others would share in the national advantage. “Bringing the exchange rate to parity means removing the exchange loading on all imported goods,” said Mr Nash. “It means that imported goods '"ill be cheaper than before. The cost of living will be reduced. “Farm costs will come down, as well as the cost of imported raw materials, machinery and other capital equipment for farm -and factory. “Some of the most important things in our everyday life come from overseas. “They include cotton textiles, piece, goods, dress goods and other forms of j clothing, some footwear, tobacco, j building materials, motor cars, trucks, j tractors, petrol, tyres and fertilisers. ] CHANGE IN 1933 “There is no home that will not j share in the benefits, as lower prices i work through the whole economy. j “That is the principal advantage of j the decision to restore the New Zea- j land pound to parity.” j Describing the situation which led j up to the decision in 1933 to depreciate the currency, the Minister said that in the depression farmers and many other people were in a desperate position. Between 1929 and 1933 the value of the New Zealand pound had been depreciated by about 10 per cent. The efficacy of the measure was doubted at the time and the Minister of Finance (Mr Downie Stewart) resigned over the matter. “However, the decision put more money directly into the hands of the farmers, who received £125 for every £IOO of their products sold in Britain. “On the other hand, the community as a whole had to pay £125 to buy what previously could be purchased for £IOO. With little alteration that position continued until last Thursday. CIRCUMSTANCES CHANGE “In the meantime the economic circumstances of the Dominion changed,” said Mr Nash. “We climbed out of the depression and embarked on an era of prosperity. The war brought the inflationary pressure inevitable when money was being spent on war and destruction, and there were few consumer goods. “In New Zealand the position was relatively much more successfully handled" than in other countries. ‘■The effectiveness of stabilisation and the extent to which we have successfully controlled prices and checked inflation has put us at a disadvantage. “Benefits of cur relatively lower prices have been received by the buyers of our exports, while the disadvantages of relatively higher prices overseas have been passed on to us in the higher prices we have had to pay for our imports. “In the language of the economists, we suffered from deterioration in the terms of trade.” LUMP SUM PAYMENTS One temporary solution of this problem was the system under which Brij tain made lump sum payments as a method of reducing our bill for imports as a consideration for the benefit Britain received from stabilisation in New Zealand. Another solution which many people discussed was to obtain much higher prices for our exports in line with the prices of other countries. This idea did not meet with general favour, as it would mean taking it out of Britain, a thing no one in New Zealand wanted to do. For another thing it would mean that we would have inflation to the same degree as the other countries. “The proper solution was the one we took,” continued Mr Nash.

“One of the principal inflationary pressures in New Zealand has been checked. The volume of money will be more stable and the real purchasing power of our money will improve as the whole structure of costs and prices is lowered. TIME SUITABLE

“There has never been a more suitable time for making the adjustment in the exchange rate. “The devaluation of the New Zealand pound was made primarily to help the farmers out of the difficulties of the slump and to save many from bankruptcy.

“Today there are no bankrupt farmers and there is no doubt that the primary producers will not cease to prosper now the depreciated exchange rate is removed.”

The export prices of primary products . had either been continuously high, as in the case of wool, or had been recently raised considerably as in the case of meat and dairy products.

The long-term contracts had ensured their price stability over a long period. Dairy products and export apples enjoyed the guaranteed price. Meat producers, with the recent price increase and the exchange adjustment, and with the pool apeoum behind them, need not receive any lower return. Costs would be reduced as a result of the lower prices for imported farm requisites, and farmers would also share in the reduced cost of living.

Farm products which were not normally exported would not be adversely affected, but producers of milk eggs and wheat and other products would benefit from the lower costs. BEST METHOD “The Government has aiways contended that the guaranteed prices are the best method of ensuring security and prosperity for the farmer,” said the Minister. “The Government is prepared to adopt procedures which will guarantee prices to meet the costs of production and to give a reasonable return for other products than those covered if this is desired by farmers and primary producers.” One point of great significance to the farmer was that the stabilisation pool accounts were now worth much more than they were on Thursday morning. At the lower prices payable for imported commodities, the purchasing power of the pool accounts would inevitably increase. “I am happy to tell everyone with savings that their worth has been increased,” said Mr Nash. “To everybody who loyally supported the savings campaign during the war, the real value of their savings is better today than ever.” SOME DIFFICULTIES Some groups of the community would face particular difficulties as a result of the Government’s decision, said the Minister. These included those receiving remittances from overseas and importers holding stocks at the old prices. They might worry a little in the meantime, but, Mr Nash said, he was convinced that on the evidence of the demand they should be able to clear a fairly large proportion of their stocks before goods came in in any I quantity on the basis of the new rate of exchange. The wisest course was to meet the situation at once, and when the new goods came in New Zealand would have a rate of prices ruling that would Ue beneficial all round. “In any case I must point out that the exchange adjustment will not necessarily mean that a great quantity of goods will come in, but it will mean that the demand will keep up because of the improved purchasing power,” commented Mr Nash. TAXPAYERS AIDED “Those who will directly gain first of all are overseas residents with fixed incomes from New Zealand. “They include some New Zealand pensioners overseas and owners of New Zealand property or investments, who will all slightly benefit from the change. “The real beneficiary is the Government. This applies to the extent that the taxpayers will be assisted in the money required for debt services and local body debts overseas. Visits overseas will cost less, but shipping difficulties still remain. “The major point is that we will benefit as far as public finances are concerned.” The Government intended to adhere firmly to the price control policy and lo make absolutely certain that the full advantage of the adjustment would be passed on to the consumers. Some New Zealand manufacturers might have to meet sharper price competition, but the Government intended that they would be adequately protected. To the extent that they were purchasing necessary commodities at anything like reasonably comparable prices, import control would give them the security they needed.

BRITAIN NOT HURT “New Zealand’s action will not hurt Britain in the slightest degree,” Mr Nash said. “The sterling prices which she pays for our exports remain unchanged, and British exporters will find that Zealand will be a better market because of exchange alteration. At the moment, Britain is exporting all she can and will not benefit directly, but later there will be a major advantage. “As far as dollars are concerned, the real cost of imports from the United States will not change in terms of dollars, but’ it will do reduced in terms of New Zealand currency. “The dollar until Thursday morning would buy 6/1 worth of New Zealand goods. Now it will only buy 4/10 worth. “Sometimes you had to buy on a higher priced market in the United States and they bought here on our lower priced market. Some of that disparity has now been removed. IMPORTANT STEP “The appreciation of our currency is a significant and important step for us all, and in a world of chaos where the tendency of other countries is to depreciate their money and cheapen it in world markets, it is surely of some credit to us here in New Zealand that we have the strength to take the step which will ensure our further progress, ensure greater prosperity, increase our security, and ultimately keep the name of New Zeaj land at the high level it has held for ' many years in overseas countries.”