POUND AND DOLLAR

New Zealand Herald, Volume LXXV, Issue 23177, 25 October 1938, Page 8

POUND AND DOLLAR

New Zealand's currency being based on sterling, considerable interest attaches to the fall in recent weeks of the pound in relation .to the dollar. As the pound falls, incidentally, so the price of gold rises, another point of interest for a gold producer like New Zealand. Whether the recent depreciation of sterling be permanent, or due to temporary causes, has yet to be determined. The reported apprehension of the United States Government at the slow recovery of the pound suggests that the American Treasury recognises the causes may be more lasting than the recent crises in Europe. Continental alarums and excursions caused a flight en masse of refugee capital from Europe to America, and much of it passed through the financial drain-pipe of London. This movement not only caused sterling to fall but also French and Swiss francs and Dutch guilders. Selling pressure on all these currencies and buying demand for dollars has had the natural result, which might more correctly be expressed, not as the fall of the pound, but as the appreciation of the dollar. These movements of capital across the Atlantic have forced down the American exchange rate and forced up the sterling exchange rate, and Washington is fearful of the advantage that British export trade may reap in consequence. But America would not be worrying if sterling depreciation were considered to be merely temporary. The fact is that at the former exchange rate the pound was probably over-valued, a condition expressed in trade terms by the rise in the balance of 'British imports over exports. The European crisis may have forced the pound down to a more natural ratio with the dollar, in which case attempts to

restore it to what may have been an artificially high level are bound to be difficult, if not altogether vain. Should this prove to be the case, New Zealand's pound will also remain down against the dollar or, in other words, the exchange rate on New York will remain at the higher level recently reached.