DEVALUING OF POUND

New Zealand Herald, Volume LXXI, Issue 21906, 15 September 1934, Page 16

DEVALUING OF POUND

DOMINION CURRENCY BEST EXCHANGE POLICY FIXATION AT PRESENT RATE [BK TELEGRAPH — REPORTER] WELLINGTON. Friday "Wo recommend that, as a definite contribution to stability in international exchanges, and as the best possible exchange policy for New Zealand to pursue, the Dominion's parity should bo £125 New Zealand to £IOO sterling," states the report of the Monetary Committee. "We would also advise that the devaluation should bo at tho demand rate of 125, making it identical with that of Australia. "It is particularly important to note that Denmark's currency adjustment in January, 1933, took the form of devaluation, and is referred to as 'devaluation' in official documents. Tho respective positions of Denmark and New Zealand give no warrant for Now Zealand altering her rate. Again, it is emphasised that certainty is the purpose to bo sought, and devaluation is the means by which certainty is to bo had. "While wo feel that the rato of 125 should be the normal parity, it should not be accepted as unalterable. We suggest, purely tentatively, that tho limits should bo five points on either side of 125." During any period when the exchange rate was likely to be altered, importers could be protected by the Reserve Bank's quoting a "forward" exchange rate. For example, if an importer ordered goods for delivery, say, in three months' time, the trading banks would obtain a quotation from the Reserve Bank. If the, exchange rate varied, the Reserve Bank would take any profit or sustain any loss. This dealing in "forward" exchange was a recognised function of international banking. MR. STEWART DISSENTS UNWISE TO EXPERIMENT CREDIT NOT LACKING [BY TELEGRAPH SPECIAL REPORTERI WELLINGTON, Friday Opposition to tho report is expressed by the Hon. W. Downie Stewart, who gives an explanatory statement covering his reasons for withholding his signature. In his statement Mr. Stewart admits that the first part of the committee's task —an explanation of the Dominion's monetary system —is well done. "But after that," ho contends, "the report consists for the most part of a long and voluminous scries of essays on banking and credit, price-levels, index numbers, inflation, the gold standard, and many other topics." Much the report he regards as superfluous. _ But the report is not merely voluminous, and, in my opinion, irrelevant, it is in manv points mischievous and selfcontradictory," he adds. Mr. Stewart points to the hostile criticism of the trading banks, which, in his opinion, is incorrect on its facts. Moreover, the report laid down novel and unsound lines as to tho principles which should govern the of the State to the trading banks. Further, the report failed to distinguish between the functions of a central bank, which must admittedly work in harmony with the Government on great questions of national monetary policy, and the functions of trading banks, whose primary duty was to their depositors. There were many indications in the report that the committee was in doubt whether it believed in the present system, which was still mainly one of private enterprise, or whether it was toying with the idea of a socialised State. Complaint that the Government directors on the Bank of New Zealand had not acted for the Government, but only for the shareholders, was entirely unfounded. In any case, as the State held one-third of the shares and drew a rich revenue therefrom in relief of taxation, the directors were right in paying some regard to that phase. "In my view, the directors are appointed as men of independent judgment and experience, whose duty' is to consult with and advise the Government, and this they have always done." Reference is made to a statement in the report that "it would have to control all forces on the side of money, and all on the side of goods and services, including supply and the human element, demand." "I cannot see what is to be gained by propounding theoretical schemes of this sort, which not even a super-man could give effect to," says Mr. Stewart. Mr. Stewart's conclusions are that it would be unwise to experiment with any new monetary schemes at this juncture, as New Zealand was engaged in making fundamental changes in her whole banking and currency system through the establishment of the Reserve Bank; and, secondly, that it was not credit that was" lacking in New Zealand to-day, but adequate markets overseas. SHARE OF TAXATION PAYMENT BY THE BANKS AMOUNT NOT EXCESSIVE [BY TELEGRAPH —SPECIAL REPORTER! WELLINGTON. Friday The present method of assessing banks for income tax, it is considered by tho Monetary Committee, prevents in no way a further reduction in bank rates of interest, and, as previously indicated, it is thought that a further substantial reduction should bo made to assist trade and industry. In the aggregate, it is stated, tho banks paid no more than their propor share of taxation. Their complaint was really narrowed down to this: That they would prefer to pay more taxation in good times, and be relieved, like trading firms, in times of stringency. It was, however, within the power of the banks to adjust the matter by setting aside an income tax reserve in good years, when their real income was in excess of the assumed income on which taxation was paid, and drawing on this reserve when tho opposite position obtained. Another aspect of the matter was that tho banks derived income from the difference between overdraft rates and deposit rates. Accordingly, if both sets of rates were reduced in proportion, tho income of the banks was not affected. The committee considered that as the note tax would entirely disappear when Reserve Bank notes were issued after August 1 and the notes of the other banks were retired, the bank charge for keeping accounts should be reduced from £1 to 10s as soon as one-third of the trading banks' notes ' had been withdrawn. In view of the saving of income tax and relief of bank note duty, it is considered the banks should make some reduction in the internal exchange on- cheques, equal to tho net relief in taxation.