THE EXCHANGE RATE

Otago Daily Times, Issue 21578, 25 February 1932, Page 10

THE EXCHANGE RATE

POSITION IN NEW ZEALAND PROFESSOR GREGORY’S VIEWS (Per United Press Association ) WELLINGTON, February 24. Professor Gregory, an eminent economist, who Avas associated with Sir Otto Niemeycr in the investigations made into the Australian Federal and State finances, and later came to Wellington in advance of Sir Otto Niemeycr as the guest of the Government, has been consulted Avith the object of obtaining the best opinion in the city of London on the question of advancing the rate of exchange, New Zealand on London. His attitude is made plain in the final sentence from his opinion as cabled out: “Even if it affects his (the farmer’s) receipts more favourably than it affects his cuts unfavourably, the influence on the Government, on wages generally, and on the credit of Ncav Zealand has also to be taken into serious consideration, as Avell as the danger that a moA rcment of this kind, once initiated, may bo difficult to check.” Professor Gregory begins by agreeing that since primary production in New Zealand is carried on for export there can be no question that the direct and short-run effect of raising the premium on London money in New Zealand must be to increase the receipts accruing to the primary producer, Hoav this immediate benefit to the primary producer means an eventual and permanent improvement in his position is another matter, for, even if it can be shoivn that part of the increased receipts' can be permanently retained by the farmers, this docs not dispose of the matter finally, for other aspects must also be taken into account. Professor Gregory then slioavs I>oav the Avholesale prices in the United Kingdom have begun to rise, and can be expected to continue rising. He remarks that under the combined influence of the tariff and the suspension of the gold standard, to the extent that sterling prices rise, he holds that the position of the Nbav Zealand primary producer would improve, even without a change in the exchange rate. On the Avholesale price levels index of both Great Britain and Ncav Zealand the margin is appreciably narroAved, and he suggests that it Avould appear not unreasonable to defer action in the immediate future in order to establish more clearly than is possible at the moment the trend of British prices. Caution in this respect is especially necessary in view of the fact that a rise in the premium exchange rate is bound in any case to affect the level of import prices. Pursuing in detail the many issues involved, Professor Gregory makes the point that Avhile there might be a fall in Avages they would eventually rise, as from a number of considerations there must be a rise in price levels. He says the Customs revenue would fall also, and that Nbav Zealand securities Avould decline in value, making conversion or new loans either impossible or extremely expensive to finance. If the exchange rate is allowed to rise further it must be recognised that it will ultimately prove "impossible to revert to the old parity between sterling and Ncav Zealand money, for if the rise in sterling lags behind the movement in exchange it would be impossible to regain parity with the British pound except by means of a drastic deflation of Ncav Zealand prices. If, on the other hand, British prices did not advance after the exchange rate had been alloAved to advance an equally difficult problem presented itself, for unless such exchange rate Avas at once forced doAvn the primary producers’ receipts must expand and all the conditions for a sharp rise in land values and local over-expan-sion Avould be created. He directs attention to New Zealand’s trade balance for 11 months of 1931, which shoAvs a cumulative balance in favour of the Dominion of £7,000,000. That was a fact that robbed of a good deal of its force the argument that the present rate of exchange seriously overvalued the Ncav Zealand pound. Professor Gregory’s opinion was furnished to the National Bank of Ncav Zealand in response to a request to headquarters for the independent opinion of a British economist of high standing on the Nbav Zealand exchange position. EXCHANGE CREDITS POOL ATTITUDE OF CHAMBERS OF COMMERCE. OPPOSED TO ARTIFICIAL “ PEGGING.” (Per United Press Association.) WELLINGTON, February 24. A statement was issued to-day by the Associated Chambers of Commerce of Ncav Zealand, explaining the attitude on the exchange credits’ pool. The association declares its opposition to the artificial “ pegging ” of the exchange rate and affirms its opinion that there should be a return to the free open market for exchange. It considers that the method chosen by the Government to extricate itself from the difficulty of making overseas payments by commandeering the export income of the Dominion in London is Avrong in principle and inimical to the commercial and productive Avelfare of the Dominion. It considers that simpler and better plans could have been devised than those forced on the community without consultation by Order-in-Council at short notice, and Avithout adequate explanation or the machinery for working. _ The association is still of the opinion that there is no necessity for the present system, and no reason why the banks should insist that all export moneys should be remitted to Ncav Zealand, and all moneys for import requirements remitted back to London, thereby duplicating a large proportion of the exchange business.