CURRENCY INFLATION

New Zealand Herald, Volume LXIX, Issue 21349, 25 November 1932, Page 13

CURRENCY INFLATION

MANAGED EXCHANGE RATE

DISPOSAL OF SURPLUS FUNDS

NATIONAL DEBT CONVERSION

[by telegraph—own correspondent]

OAMARU, Thursday

A policy of controlled currency inflation by means of a high exchange rate was expounded by Mr. W. Machin, expresident of the Associated Chambers of Commerce, in an address to the Oamaru Chamber of Commerce this evening.

The disastrous decline in the values of : New Zealand's exports, measured in terms j of money, was traced by Mr. Machin. | "Put in a nutshell," he said, "in com- ' parison with 1914, our unit of primary produce costs 49 per cent more to pro- ! duce to-day and sells for 18£ per cent less, while some in the community get the benefit of the payments which make up i the increase of 49 per cent and also the benefits of the cheap primary products, j which have fallen in price to an index figure of This year a sheepfarmer has to pay his interest and wages, and for his implements and repairs and services, with units of, say, four store lambs, 2J, bales of wool, two fat cattle and fat lambs, where he paid the same unit of obligations with one of each of these three or four years ago. In 1929 the farmer paid the Canterbury freezing works witli one lamb for killing and freezing each 11. On the price ruling in London to-day he lias to pay for the same service with three lambs." Mr. Machin said we should not be efficient until we resolutely determined what proportion of our income we could afford to have earmarked for national and local government taxation and expenditure so as to leave sufficient to flow in the arteries of industry and trade to keep them vigorous. He suggested that the limit should be 12j per cent and on that we could still be well governed. Outlining his schehie for inflation by raising the exchange rate to, say, 40 per cent, Mr. Machin said the first thing to bo done would be to correlate the price index of our main primary exports with the exchange rate in such a manner that with increases in the prices of primary products, as shown by the index figure, there would be a corresponding decrease in the exchange rate. This alteration could be made once a year, say, in November, in much the same manner that the exchange rate over the year was now "managed." Any surplus of money left in London after the interest obligations and importers' requirements had been met could be held in London by the banks by arrangement with the Government, and used for buying New Zealand stocks in London, or for payments in connection with voluntary conversions. A scheme should be floated for the conversion of the New Zealand overseas debt which was held in London at higher interest rates than 3i- per cent down to that figure. The Government would arrange for the payment to the owners of the money used for the conversion by crediting it to them in New Zealand at plus the 40 per cent exchange. Thus the Government, by a policy of inflation strictly conditioned by the amount of funds used m London each year, and by the exchange premiums added, would issue money in New Zealand against the credit of the people of New Zealand, which was now already pledged against the equivalent amount of debt domiciled in London, but without paying any interest on it, and employ the interest which the debt had previously earned as a sinking fund for its extinguishment. Each year's injection of credit would be extinguished in 20 years, after which the Dominion would be free of that proportion of its present debt.

MANUFACTURERS' VIEWS

OPPOSITION TO RAISING

NOT IN COUNTRY'S INTERESTS

The suggested raising of the exchange rate was discussed at a meeting of the general committee of the Auckland Manufacturers' Association yesterday, and it was unanimously decided to oppose any change. The president, Mr. S. Takle, expressed the opinion that the real income of the Dominion would not be increased by a higher rate of exchange. The suggested alteration, he said, would raise the cost of raw materials which were imported into New Zealand and taxation would also be increased. There was likewise a possibility of customs duties being affected, and this might be forgotten when the reason for a high exchange no longer existed. Mr. J. A. C. Allum voiced similar views. He said he did not see how a high exchange would be in the interests of New Zealand, but if it could be shown to be so, then the position should be accepted by all sections of the community. It. was not desirable that there should be an argument between town and country. On the motion of Mr. F. N. Ambler, it was decided to support the opposition of the New Zealand Manufacturers' Federation to a pegged exchange rate for the reason that, while a high exchange might afford temporary benefit to manufacturers, it would be detrimental to the interests of the Dominion in the long run. FAR-REACHING EFFECTS EXPERT HANDLING REQUIRED [BV TELEGRAM —PRESS ASSOCIATION'] WELLINGTON, Thursday Speaking at the annual meeting of the Wellington Stock Exchange last evening, the chairman, Mr. E. Bucholz, referred to the high exchange question. Mr. Buchol/. said that unless the exchange were handled by experts with a practical knowledge of the cause and effect of exchange, the reaction might have consequences more far-reaching than the dairy control pool of a few years ago. The repercussion of a downward exchange from a high point was an evil certain to occur, yet it could not be anticipated. It was highly probable to prove disastrous to the tracing community in any case. With regard to the central reserve bank, Mr. Buchol/, said with the whole world in the melting pot it was hardly sound reasoning to push on with a measure of such importance until after the world financial conference to be held in London next April.

RAISING BY 30 PER CENT

CANTERBURY FARMERS' VIEWS

[BY TELEGRAPH—PRESS ASSOCIATION*]

CHRISTCHURCH, Thursday

" That this executive urge the Government to take immediate steps to remedy the present lack of balance between money and prices, which is exhausting the country, by raising the rate of exchange on London at least by a further 30 per cent, this being the only remedy in sight to save the whole country from bankruptcy,' was the text of a resolution canned at a meeting of the North Canterbury farmers Union yesterday. A further resolution that the Government should take over responsibility for fixing the rate of exchange was also carried.