N.Z. EXCHANGE POLICY

Poverty Bay Herald, Volume LX, Issue 18205, 28 September 1933, Page 2

N.Z. EXCHANGE POLICY

WORSE THAN EXPECTED LONDON PRESS OPINION LONDON. Aug. 13. Some significant facts emerge from a statement on New Zealand finances issued by the High Gommissioner over the week-end. writes the City editor of the Daily Telegraph. This shows that, during the first quarter ol the fiscal year, the Government has bought no irss than £9,215,(300 of London funds from the Jianks, under the terms of the Ranks indemnity Exchange Act which was passed early this year, when the New Zealand exchange was raised from £llO to £125. That depreciation of tho Now Zealand pound was admittedly an arbitrary step, designed to help the New 1 Zealand primary producer, but the latest statement plainly indicates that the present rate is more uneconomic than even the hanks, which opposed the change last January, then thought it would

prove to he. The official statement points out that from the amount bought some £7.500.1.'C‘T must ho taken for debt, service require iiit-uls. so that the net surplus to June 30 is only £1.715.000. The £7.500.000. however, covers the debt service inr the full year, and during the remaining nine months further Loudon exchange will lie sold to the Government. PROBLEMS OF FINANCING It. is unlikely that the. disparity between the demand for sterling and its supply will remain as marked as it was in the first, quarter, for that is the big exporting season. It is not improbable that in the next few months demand and supply will approximately balance; i veil so, well-informed observers estimate that for the whole year there may well he a final sterling surplus, after deducting both the Government debt service and the amount which can be sold to municipalities, etc., of something approaching £5,000.000. This the Government will have to finance by an increase in its floating debt. So long as it can arrange the finance —and that largely depends on the capacity of the hanks to absorb Treasury bills —it can he taken for granted that there- will he no question of a reduction in the discount on tho exchange, for the Government is morally pledged to assist the farmers. Meanwhile, the fact that the, exchange must ultimately return to an economic level implies that the Government will incur a considerable loss on its surplus holdings unless, as the official statement suggests might hi' done, the sterling is finallv itausferred to the Reserve Bank shortly expected to he formed. Tu that event, the bank itself would start with an over valued exchange reserve—a most undesirable beginning.