EXCHANGE RATES

New Zealand Herald, Volume LXIX, Issue 21347, 23 November 1932, Page 15

EXCHANGE RATES

Sh'j—Mr. A. M. Seaman has sent a telegram to the Prime Minister urging noninterference by the Government in the matter of exchange. Mr. Seaman regards the fixation of the rale of exchange as purely a commercial matter determinable by demand ;ind supply (of the) London funds." This view is commonly held and expressed by business men, particularly importers, at the present time, and it is difficult to escape the conviction that importers are concerned, not so much with giving general support to the principle of non-governmental interference, as with preventing a particular pieco of interference which they believe will be prejudicial to their interests. , Business men are usually eager enough to invoke the interference of Government in directions which appear to thoiri to further their own or the general interest, and there can be no reasonable objection lo such an invocation. Unless I am mistaken, Mr. Seaman, on a not very distant occasion, made a public pronouncement supporting Government interference to reduce interest by legislative action. I find it difficult to understand why ho thinks that of supply and demand," which the business man is prone to call to his aid when other arguments fail, should be interfered with iu the one case and not the other. There is no difference in principle involved. In view of the influence of exchange policy on the whole economic life of the community, it is surely extraordinary to regard the fixation of the rates as purely a commercial matter and therefore, apparently, sacrosanct. It has never been satisfactorily demonstrated that to leave demand and supply to work themselves out unimpeded makes for the best of all possible worlds, and in the case of interest Mr. Seaman clearlv enough saw that it was not doing so, ;ind that interference was desirable in the general interest. During times of "crisis most Governments regard it as their duty to lay down lines of currency policy and take steps to put them into effect. The pegging of the British excliango during tlio war, and the establishment of an exchange equalisation fund by the present British Government, are cases in point. In New Zealand, apparently, responsibility for and power over the determination of currency policy is to be left to the banks because it is a " commercial matter " and we must not interfere with the " laws of supply and demand." Whatever may be the case for non-interference in normal times, whatever may be the appropriate exchange rate at the present time, the delegation of responsibility and authority in so vital a matter to private, profit making institutions, can only be regarded as lamentable in a time of crisis. H. Belshaw, Auckland University College.