RATE OF EXCHANGE.

New Zealand Herald, Volume LXIX, Issue 21113, 22 February 1932, Page 11

RATE OF EXCHANGE.

MO REASON FOR INCREASE*

TRUE AND FAIR -LEVEL. BANKS DEFINE POSITION. [BY TELEGRAPH. —PRESS ASSOCIATION.] . WELLINGTON. Saturday. Tho following statement has beetf made by Mr. J. T. Grose, as chairman of the Associated Banks: — _ l .s There seems to be a Ro,od deal misunderstanding and many errofllouS';. assertions regarding the relations between the Government and the banks in the matter of the licensing of exports _ and the "exchange pool," and as to how the banks 'came into the scheme, and their reasons for giving support. The Government, on being faced with the necessity of meeting its debt service abroad without overseas -loan assistance, requested the banks to undertake to find London funds to help it meet immediate obligations there, and ensure it being able to meet its interest and debt service in London during this year. The latter commitment is about £8,000,000. per annum, and the renewal of over £4,000,C00 in Treasury" bills, about to fall due, had to be arranged without delay, but this could not be done unless, the banks immediately undertook to meet the Government requirements. Urgent Necessity. The Government intimated to th» banks that it was a matter of urgent necessity to ensure the provision of its requirements. As the banks could not safely undertake this in the ordinary course, they stated that only _by the licensing of exports and putting the funds through them could they under--take, so .far as London funds would permit, to meet such heavy obligations for • the Government in the interests of the whole country. Following this, the Gov-' eminent decided to licence exports, and the banks believe that had they notagreed to help as above stated, the Gov-' ernment itself —so urgent was the matter—would have had no alternative but' to seize all exports funds and handle l them on behalf of all concerned. The possibility of - getting exporters voluntarily to contribute the funds re- ; quired by the Government was fully considered, but it was decided that the' method adopted was the only one possible under the circumstances. It has been asserted by many that' this necessity to licence exports to provide the Government's rcquirem&its; proves that the exchange rates would* otherwise have risen, and that they are: pegged at an artificially low rate, on account of the banks having the mono-' poly of exchange funds. Those who 1 make such assertions do not seem to appreciate the fact that the decision to bring in the regulations did not turn on the question of the exchange rates, present or future, but rested entirely on the necessity of having a definite and' sound basis on which the banks could reasonably see their way to accept the responsibility of undertaking to provide the Government's requirements so far aft their funds permitted. Price for the Safeguard. The export licences order is the pries that had inevitably to be paid for this safeguard, which is essential not only in the interests of the Government and the banks, but Also in the interests "of thef whole country. No commitment was made regarding exchange regulation, and the banks continue their regular practice of what is believed to be the true arid fair rate, and while this is in accord'with the trade position, the rates cannot be said to be [ egged. Practically all last year the bank telegraphic transfer rate on London was 10 per cent, premium. If this rate had been too high or too low, the outside rate would ha.ve shown a marked divergence, for there was a considerable outside market then. ' But when London funds were much in demand the outside rate was only slightly above the bank- rate, _and toward the end of the year, when the London funds were not in such demand, the outside rate was slightly below the bank rate. Taking this into consideration, and also that a steady rate is more equitable for contracts than a too sensitive fluctuating rate, it is clear on the basis of supply and demand the bank rate was correct. Restriction of Imports. The trade figures for showed an excess of exports .of a little under £2,000,000, which was altogether insufficient to cover the interest and debt service. Early in 1931 the rate was increased from £5 to £7 10s, and % little late to £lO premium, which rate has continued. The increase in the rate was mainly to restrict imports,* and the calendar year 1931 Bhowed an excess of exports of over— £10,000,000, which, still insufficient, was a strong move in the right direction. , A carefully-prepared estimate for 1932 indicates an excess of exports of some £14,000,000, which is sufficient to cove? Government and local body requirements. This is purely an estimate, but in the absence of definite evidence to the Contrary there seems no reason, on the present and probably the future trading position, why the exchange rate should be raised. . It is recognised that the carrying out of the export regulations causes many difficulties and perplexities, but the banks are doing their utmost to cause as little inconvenience as possible to individuals, as well as to the community at large.