The Southland Times. PUBLISHED EVERY MORNING. “Luceo Non Uro." THURSDAY, NOVEMBER 8, 1934. THE HIGH EXCHANGE

Southland Times, Issue 22473, 8 November 1934, Page 6

The Southland Times. PUBLISHED EVERY MORNING. “Luceo Non Uro." THURSDAY, NOVEMBER 8, 1934. THE HIGH EXCHANGE

Mr Masters’s statement that the high exchange “generally was a benefit to all’ should not be misunderstood. What the Minister means is that the high exchange was adopted as a means of assisting the exporting industries, the farmers, and. in saving them it had been beneficial. The other purpose of the high exchange associated with drastic Government economies and the lowering of interest rates was to bring the costs of production closer to the effective value of the exportable products. It was assumed that under the high rate of exchange imports would be checked, but the Government reckoned on importers finding it necessary to renew stocks with a consequential growth in the absorption of the credits accumulated in London. 'When financial papers in London said that the surplus of New Zealand credits in London under this artificially high exchange would be over £20,000,000 at the end of last March, they were castigated as scaremongers doing the work of certain British interests—in Invercargill we heard the same sort of thing; but at the end of the financial year the facts had to be revealed, the accumulation of credit was well over £20,000,000. This mound of credit, against which the Government had issued Treasury Bills to make the money available in New Zealand (indemnifying the banks), was handed over to the Reserve Bank. This is how the Government got rid of the transaction. But if it be assumed that £18,000,000 is again accumulated in London, what is to be done? Will the Reserve Bank handle this transaction, too? Let it be remembered that the accumulation of

credit in London cannot go on indefinitely without serious effects on the position of New Zealand. Mr Master's spoke of the 110 rate of exchange and made some indefinite allegations about that; but if he looks at the report of the economists, gathered together by the Government to advise on the economic questions, he will find that 110 was very close to the natural rate, and the proof of that is to be found in the fact that there was no accumulation of credit in London. Mr Masters’s adoption •of the argument of justification by bad example ill befits a Minister. But while he may say that if it was right to raise the exchange to 110 for the commercial interests it was right to raise it to 125 for the farmers, he forgets that the question of the wisdom of the latter rise remains untouched. The Government does not seem to recognise that the artificially high rate at most can cause a re-dis-tribution of the national income within New Zealand, and this only if there is a free movement in trade, so that the margin gained by exports is paid through the additional charge on imports and services. When the imports fall off and the credits accumulate in London, these credits can be made effective in New Zealand only through advances in the Dominion, by the Government in this case. This was a gigantic discounting scheme and the Reserve Bank has entered as the glamorous rescuer of the Government. The cost to the public funds is in increased interest charges, and these are paid by the taxpayers or are added to the public debt and dealt with on the plan Micawber favoured. No amount of argument or political indignation will alter those facts, and now political bunting will cloak the brutal truth that an artificially high rate of exchange cannot benefit all classes of the community, because its purpose is to take from one section what it gives to another. Primary industries have gained through the transaction and they will gain once more; but this cannot go on indefinitely, because accumulation of credits in London carried on long enough will destroy their value. Sir Francis Bell may have been rather drastic in his criticism, but on the broad facts he was too much for MiMasters because he was right in principle whereas Mr Masters was not even adroit.