THE EXCHANGE POSITION.

New Zealand Herald, Volume LXVIII, Issue 20977, 14 September 1931, Page 8

THE EXCHANGE POSITION.

The statement by the chairman of the associated banks appears to dispose completely of the suggestion that a radical alteration of New Zealand exchange rates is either imminent or seriously contemplated by the banks. A popular fallacy which has wide currency is that exchange rates can be manipulated by the banks or other agencies at their discretion ; whereas intelligent consideration of the mechanism of exchange leads to the positive conclusion that artificial rates cannot be maintained without loss to the banks or other exchange operators. On the other hand, the announcement by a single agency that it is prepared to sell exchange at high rates has no practical significance unless it is also willing to pay similar rates for bills on London or Australia. The incident will, however, have served a useful purpose if, by means of the prompt assurance on behalf of the associated banks, it leads to the disposal of the persistent rumour of some such change The only practical reason that has been advanced for any adverse alteration of exchange rates is that transactions between Australia and New Zealand have been disturbed by the sale of New Zealand Government securities by Australian holders. This activity has been attributed to several causes, including the pressure of economic conditions causing the realisation of investments and speculation upon the possibility of exchange alterations., The volume of these transactions may easily be exaggerated; it cannot possibly be large in proportion to the whole volume of the Dominion's overseas transactions,

and it would be deplorable if a disturbing element, partly due to sheer speculation, of such small dimensions were allowed to disorganise the whole economic equilibrium of the Dominion. That would undoubtedly be the effect of a drastic increase in rates of exchange on London, for the temporary advantage to exporters would be more than counterbalanced by adverse effects that would quickly extend to exporters. Beyond the entirely extraneous factor of Australian sales of securities—which, if necessary, could be controlled in the same manner as transfer of other stocks has been prevented—there is no ascertainable reason for an unfavourable movement of the exchanges. It is unfortunate that the recent development of rumours was not immediately checked by an authoritative pronouncement from the associated banks. Greater assistance in the process of adjustment and recovery could be given by them if they would occasionally make public their impressions of the situation, especially whether progress is being made toward improvement in the exchange position. They would do well to heed the advice given by Mr. Pember Reeves last year when he protested against the practice of masters of British finance of veiling their policy "in the darkness of reticence," of decreeing without explaining, of accepting the proverbial valuation of silence, whereas ''silence is not a metal —it is a mask." The essence of any policy in the present circumstances must be to restore the Dominion to independent economic stability, and efforts to achieve that result should be encouraged by authoritative information regarding the progress that is being made and by positive assurances that it will not bo impeded or reversed by effects attributable merely to the Dominion's proximity to Australia.