THE EXCHANGE RATE

New Zealand Herald, Volume LXXII, Issue 22226, 28 September 1935, Page 17

THE EXCHANGE RATE

Sir, —Mr. George Patterson, a prominent merchant of Sydney, fails to see the great difference in the cause that led to the devaluation of the currencies of Australia and New Zealand. The Australian pound, on the one hand, was forced from sterling parity in 1931 by the extravagant policy of "borrow and bust" by a succession of Labour Governments, during a crisis in the creation of which Australia played no small part. The New Zealand pound, on the other hand, was deliberately and unnecessarily devalued to the same level. New Zealand foolishly believed that there was some mysterious advantage to the Australian producer in devaluing tho unit that measured the value of his product for export, and New Zealand was encouraged to follow Australia from sterling, and, where necessary, financial pressure was brought to boar to achieve this by Australian financial interests. Furthermore, the devaluation of the Australian pound is not so serious to the Australian farmer, who submits 30 per cent to 40 per cent of his total production for export, as it is for tho New Zealand farmer, where 80 per cent of his production is subject to valuation for exchange by the devalued pound. Mr. Patterson suggests that if New Zealand went back to sterling parity, with Australia at 25 per cent below sterling, Australia would undersell New Zealand in the British market. Was this the self-sacrificing motive that brought Australian bankers and economists to New Zealand. If so, then wo havo misjudged them. Or was it to provent New Zealand's taking full advantage of her British credit position and selling her produce not only to Britain, but to Australians who desired to establish Xondon credit through New Zealand? It is a common error to suggest that New Zealand and Australian exports are paid for in sterling. They are exchanged for goods and services measured for the purpose of exchange bj sterling. The recognition of this fact would impress our farmers with the importance of keeping our pound as close to the value of sterling as possible. If, therefore, New Zealand went to sterling, and Australia remained at 25 per cent below, we. would find an inflow of from Britain, Australia, « Germany, ' Franco and America, creating credits for these countries in New Zealand, the liquidation of which must create a keen competition for New Zealand's exports as a natural sequence to tho high value of our credit, and instead of New Zealand's blindly following Australia into inflation, Australia would be forced to follow New Zealand back to sterling parity in exchange. J. Hislop.