HIGH EXCHANGE RATE.

New Zealand Herald, Volume LXIX, Issue 21099, 5 February 1932, Page 11

HIGH EXCHANGE RATE.

TAX ON COMMUNITY.

NO PANACEA FOR FARMERS. SIR HAROLD BEAUCHAMP'S VIEW. " The case in favour of a high rate of exchange has certainly been very ably presented by Mr. A. C. Davidson, general «manager of the Bank of New South Wales, and his associate, Professor D. B. Copland," said Sir Harold Beauchamp yesterday. " They have been carrying on missionary work in the Dominion in the past few weeks and have impressed the farmers with a desire for 'a free maiket' for exchange which would enable them to become prosperous and relieve them partially, if not wholly, from the difficulties with which they are confronted to-day. " It is, however, significant that neither of the gentlemen named has converted the rest of the executive officers of the other banks trading in this Dominion or the directors of the Bank of New Zealand. The latter claim that exchange is based on trade balance and that the conditions which in the immediate past have governed Australia are not applicable to this Dominion. Conditions in Australia. "In that connection I would again point out," said Sir Harold, " that for some years the imports into Australia exceeded the exports by, roundly, £;<0 ; 000.000 a year, whereas in New Zealand we have had an excess of exports over imports. " The high rate fixed for Australia had an immediate effect of reducing imports, and to-day trade between Australia and Great Britain is practically balanced. That resulted recently in a drop in the exchange from £l5O to £125, and it has been suggested that a further fall may occur in the near future. " I cannot help thinking that the opinions of the two eminent gentlemen I have quoted are based more on theory than on practice. I hold that an ounce of practice is worth a pound of theory. It is well known that many economists whose opinions are based on theory largely differ most widely, in fact, almost as widely as the poles asunder, so that when doctors differ who shall decide ? I claim that rates of exchange and other matters pertaining to banking should be left to bankers themselves, and policies should not be dictated by economists or farmers, who are lacking in the knowledge of practical effect. " Now, if the rate in New Zealand were increased from 10 to 25 per cent., the effect would be that no less than £8,500,000 would be taken out of the pockets of one section of the community and placed in the pockets of another section, namely, the farmers. Further, the disturbance of Government finance would, in my opinion, be simply alarming. Increasing Cost of Living. " The Government this year has arranged with the various banks to find it £14,000,000 in London during 1932, and tlie exchange at 25 per cent. would amount to £3,500.000. I would ask, how is this money to be raised in a community that is already groaning under the weight of excessive taxation ? In addition, all imports would be weighted to the extent of 25 per cent., and this would correspondingly increase the cost of living. " Naturally, I sympathise with the farmers in this country whose products are realising such low values, but I am confident that they are not going to be placed in a financial position by the levying of a special tax on the rest of the community. " At this stage I should like to remove, if possible, an erroneous interpretation of the position, that the Government has been in any way responsible for the ruling rate of I*o per cent. I would point out that that rate was in existence for some time before the arrangement was made for the mobilisation of exchange, and if this arrangement had not been made I venture to believe we should have heard nothing about the attempt that has been made to debar the sale of exchange in the open market, " All who have thought seriously of the matter must recognise that, it would have been fatal to the interests of New Zealand had the banks not been able to afford the Government the assistance it requires during 1932. The needs of ( the country must surely bo paramount. OPPOSITION TO INCREASE. FINANCES OF LOCAL BODIES. A telegram was received by (he .Auckland City Council last evening from the Wellington City Council stating that it was approaching the Government with a protest against any interference with the present rate of exchange, as any such move would l<e detrimental to the finances of local bodies The Auckland City Council was asked to support, this protest. The Mayor, Mr. G. W. Hutchison, explained that if as had been suggested in some quarters the rate were increased to 25 per cent, it would involve the council in an extra outlay of approximately £27,000 in the payment of interest due in London on the city loans. The Mayor was authorised to forward a telegram to the Government in suppoit of the Wellington Council's protest.