“THE LAST STRAW”

Southland Times, Issue 21606, 19 January 1932, Page 6

“THE LAST STRAW”

THE EXCHANGE COMMANDEER. GOVERNMENT REGULATIONS. The recently published regulations under which the Government has taken control of the London exchange, unexpected as they were, have naturally staggered the business world; and importers especially, who have been sorely tried with primage duties, exchange premium, and |>oor buying power, will find the new situation even more difficult, and be inclined to regard it as almost the last straw (says the N.Z. Financial Times). While the effect of these regulations is not as yet completely determinable, and certain reactions will surely arise which were not contemplated ny the Government, it is already plain that the movement amounts to a complete commandeer of London funds for public requirements, and that the Government itself will be both judge and jury as to what those requirements are. Competitive rate fixing has also gone by the board, it being provided that the Government, in consultation with the banks, shall determine the fates to oe paid to exporters for London funds. This elimination of a competitive exchange market, in addition to the virtual control of our import and export business, is the most remarkable aspect of the nev regulations. In Australia the banks came to the aid of the State with exchange priority, but they did not establish a compulsory commandeer and eliminate private dealings, with the result that the Australian rate expressed the true situation of the Commonwealth currency. Under the arrangements made for the Dominion this safeguard does not exist, since there is a monopoly control on the demand side, and the Government can fix an arbitrary rate, for a considerable time at least, that will naturally be placed at the point most advantageous from the point of view of Government remittance. In all probability this will mean lower exchange rates than would establish themselves in a competitive market. Possibly this may be in the public interest, but we are opopsed to all artificial price fixation, unless the public needs are shown to demand it most urgently. It can, however, hardly be held that the regulations are a material discouragement to primary production, since we normally produce and export to the limit, irrespective of price considerations, and will continue to do so. Reasons for Action. The broad reasons for the exchange commandeer are clear enough. It is due to the breakdown of borrowing facilities in London, that centre having for the time being a considerable dearth of short term funds, owing partly to the collapse in Central Europe, and partly to the unsatisfactory British trade balance. Deprived as we are of the traditional expedient of borrowing to square our balance of accounts, we have to rely on our own resources; and to avoid default the Government takes first claim. Where, however, will this claim cease, and what guarantee is there that the Government will not interpret its needs in a very broad sense, endeavour to make provision ahead, and virtually deprive importers of remittance facilities altogether? We see nothing in these drastic regulations to prevent such a contingency. Suddenly deprived of our loan facilities, we have been brought up against much the same unpleasant situation as faces a confirmed toper suddenly deprived of his whisky. Nobody wants the Government to default, yet at the same time few will view with satisfaction the enormous extension of State control of our import and export business involved in these far-reaching regulations, which go much beyond any form of business control hitherto attempted in the Dominion. As things stand the Government, having taken control of all remittance facilities, is in a position to dictate what shall be imported, in what quantity, and by whom; since by securing an effective control of the means of payment it necessarily indirectly governs the volume and nature of imports. Position May Be Worse. The step also introduces a further arbitrary element into our economic life, and prevents the from being a true register of the condition of our currency and balance of trade. The rate is to be pegged at a figure decided not by supply and demand, but by Treasury requirements; and this will place on the shoulders of the Government not only the power, but the necessity to regulate imports, which otherwise would be regulated by free exchange movements. For this task no Government has the necessary qualifications. On what principles, further, will it decide who is to have remittance facilities, and who is to go short? One cannot resist the conclusion that in our efforts to react from the mess into which past policy has plunged us we are adopting hand-to-mouth expedients that may ultimately make our position materially worse. Every well-meant effort at rehabilitation has involved a further measure of State control, a further drift to State Socialism. It seems rather ironical that a Government just elected on an antiLabour programme should signalize ' its success by the most drastic venture in State control of business that the country has ever had to experience. It may be necessary td give the Government prior claims over London funds, but if in the process we ruin or seriously hamper our import industries our last state may be worse than the first. The major grounds for criticism are the elimination of a competitive exchange rate, the absence of any principle of distribution of the balance among importers, and the lack of any assurance that any such balance will in fact be available.