EXCHANGE RATE

Otago Daily Times, Issue 22137, 15 December 1933, Page 11

EXCHANGE RATE

METHOD OF ACCOUNTING. CRITICISM OF GOVERNMENT • REPLY BY' THE TREASURY (From Odb Pabuamehtaey Repobteb.) WELLINGTON, December 14. The Auditor-general’s criticism of the Government’s treatment of the exchange in the Public Accounts is answered by the Treasury in a statement laid before the Public Accounts Committee, during the investigation on which is reported to the House of Representatives to-day. The reply quotes a letter written to the Audit Office on August 21 last as follows: “ The problem is admittedly a difficult one, but two distinct questions are involved: (a) The basis of accounting for external transactions, and (b) the re- ' eovery of exchange costs paid by the Consolidated Fund from other accounts.” At the outset it is pointed out that there is still no justification for regarding the present exchange position between the three countries (New Zealand, Australia, and the United Kingdom) as being anything more than a temporary phase. Basically, our pound is identical with the pound sterling, and as yet there is no reason to suppose that we -will not return to exchange parity with sterling as soon as the present economic strain is eased. This being so, there is no reason to depart from the long-established practice of accounting for London payments at face value and dealing with any exchange costs on remittances as separate and distinct transactions; While the ‘ whole monetary system in all countries is in a ■ state of flux, it is surely not advisable to make any permanent fundamental changes in New Zealand. Under the existing system, exchange costs to the Consolidated Fund as segregated under one heading, and there is nothing to be gained by undertaking all the additional work involved in apportioning it over other items of expenditure out of the Consolidated Fund. This, however, does not prevent exchange costs being recovered from other accounts, if such recovery is equitable and desirable and above all practicable. In a time of extreme financial pressure like the present expediency must of necessity to some extent override the niceties of equity, and'all available resources should be drawn on for support of the Budget.. - ’" “In so far as the equities of the case are concerned, it is pointed out that, the exchange rate on London has been deliberately pegged at its present level as a matter of economic- adjustment to relieve the financial pressure on primary industries. This being so, it is a debatable point bow far jt is equitable to load self-contained activities with any pprtion of the .State’s 'share of the additional 'exchange costs. From a practical point of view, however, it is evident that the electric supply account referred, to in your memorandum is not in a position to carry additional burdens, as it has already ' accumulated losses exceeding' £400,000. Furthermore, to increase the charges for the sale of electricity would partly offset the benefit it is intended to give through the pegged exchange, and as the latter is only likely to be temporary there is also V the question whether it is advisable to ' disturb trade by raising and lowering charges for electricity. The / Treasury said that the Auditor-general’s table of transactions under the Banks Indemnity Exchange Act had been built up from the i public accounts'. , “As stated in the Budget,” continued the statement “London exchange required to meet the normal requirements is being taken from the Amounts purchased under the indemnity arrangements. The statement that £5,900,000 had been so used up to September 30 last' is not correct, as the balance of the Consolidated Fund is

affected by New Zealand as well as London transactions.” Concerning the investment bf funds, It is pointed out that the fundamental principle in public accountancy is the pooling, of the cash resources in .one bank' account, in this case the public account. . As far as possible, the idl.e balance is kept down to the net amount required to meet the net total requirements of all accounts. As during the period referred to the v greater part of the cash balance stood to the credit of the Consolidated Fund, that account would receive- the major , portion of the interest earned. .If the cash had to be kept in separate compartments and a working balance maintained in each aggregate the balance of idle cash would be much greater than it is at present and consequently less interest would be earned. .