THE EXCHANGE RATE

Otago Daily Times, Issue 21688, 5 July 1932, Page 8

THE EXCHANGE RATE

AUSTRALIAN POLICY TWO REPRESENTATIVE OPINIONS. For some considerable time past the Australian primary producers have had the benefit of a high rate of exchange on London, a policy which has been favoured by the Commonwealth Government in contradistinction to the procedure of the New Zealand banks in maintaining the rate at 10 per cent. The present rate for telegraphic transfers from Australia is 25 per cent, to 25J per cent. In other words, £IOO in London represents £125 to £125 10s in Australia and £llO in New Zealand. Two representative Australian opinions are given below—one in favour of raising the ; existing rate and the other claiming that the benefits from such a course are illusory, if indeed they exist at all. THE GRAZIERS’ VIEW.

Discussing the question recently, Mr F. H. Tout (president of the New South Wales Graziers’ Association) said that his association advocated the establishment of a central reserve bank free from political control, with power to manage the credit currency through exchange. It was maintained by the association now, as it had been maintained for months past, that a higher exchange rate was urgently necessary in the interests of the primary industries. “ The report made to the last Premiers’ Conference by the Economic Committee, which advocated a rise in the rate of exchange in conjunction with a further cutting of costs,” Mr Tout continued, “ certainly should be adopted as quickly as possible. Mr Stevens in his election policy, speech said that the Stevens-Bruxner Government considered it necessary that the rate of exchange should be raised in order that the farmers and graziers should get better prices, and that such action was in accordance with justice and sound economics. It cannot be too strongly stressed that what the men on the land need is immediate assistance. They and their industries have drifted so far towards bankruptcy that no further time must be lost if they are to be saved. Immediate and effective assistance can be given through the exchange rate. In this way internal prices can be raised. The higher the exchange rate goes, the lower the Customs tariff should fall, because the high exchange rate is in itself a sort of tariff. By giving the man on the land this assistance quickly, unemployment will be reduced and the rehabilitation of all industries will be set in progress. It is a matter of assisting the man on the land now, so that in the end all sections may be helped.” DRAWBACKS OF HIGH RATE.

Judging by the fervour with which it is advocated in some quarters, one would suppose that an increase in the exchange rate must bring more money to Australia —that if the rate is 125 and is put up to 135 another 10 per cent, comes to Australia for our exports (says the Sydney Bulletin in its issue of June 22). A good many graziers are sure about it: they have handled the extra money, and there is no getting away from that! But, notwithstanding this evidence of the senses, notwithstanding this proof of the salenotes, the solemn, sober, stodgy fact is that an increase of the exchange rate does not bring a single farthing to the country._ What it really amounts to is a notification to the world that our pound has slipped back a little further and that we will for the future both buy and sell on this depreciated scale. Every person outside this country, however, continues to buy and sell in his own currency; and any tricks we may play with our currency do not affect him in the smallest degree. ... i “You can, however, play tricks with this market just as you can with most others. Years . ago certain copper producers and others tried it on a colossal scale; setting out to raise the price of copper, they created forces which presently sent the metal to a lower price than it had ever touched before. A couple of years ago Canada and the United States tried it with wheat; and they piled up such surplus stocks that 'the price fell and plunged almost every wheat farmer in the world into difficulties. Rubber, tin, coffee—efforts have been made to control all these markets, and the tale so far is one of dismal failure. And let* there be no mistake: what it is proposed to do in relation to exchange is what the producers have attempted in most of these cases; somehow to beat the supply and demand by 4 regulating' the supply or otherwise. “ The plan proposed in this case is to disregard any accumulation of funds in London, to disregard the price which importers are prepared to pay for Australian money in London, and to lift the purchasing rate beyond the capacity of the importer to pay. “If exchange is raised above the rate which the importer can afford to pay, then the money for our exports must accumulate in London. We are told that this does not matter —that we ov.'e hundreds of millions there. But, unfortunately, with an exchange rate at, say, 135, we should be paying £135 Australian to get rid of £IOO of overseas debt. The accumulation of money bought at a high rate in London is thus fraught with exactly the same danger as the accumulation of any other commodity in excess of market requirements.

“No doubt there is a way to eat up any such London balances; we can make it worth while for the importer to buy Australian money at a high rate in London. This can be done by the simple process of abolishing or reducing Customs and primage duties. Two results might follow: Commonwealth revenue would probably be affected; certainly employment in the Commonwealth’s factories would be. Neither is a contingency which any Australian Government can face at the present time. “Of course everybody wants to help the primary producer. He is the greatest of all sufferers from this crash in prices. World trade is disorganised, not only because of the fall in prices, but especially because of the inequality of the falls; what the farmer has to sell has slumped about twice as much as the things he needs to buy. But he is not going to be benefited by any .artificial lifting of the rate of exchange; it may help him momentarily. but at very great risk presently. Upon an increase of prices the farmer, like everybody else, depends for a return of prosperity. But it must not be a make-believe increase—a piece of leg-pulling. “ We may not be able to do much toward securing international action to raise prices: but what we can do we should do. The governor of the Commonwealth Bank is going to Ottawa and thence or. to London; and no doubt he will make contact with the great Central Reserve Banks on this most important of all their possible present services to the world. Moat> time there is only one policy for us; to press forward steadily for a reduction of costs which will at least put the primary producer in a better position to go into the world’s markets.”