EXCHANGE RATE

Taranaki Daily News, 17 June 1932, Page 7

EXCHANGE RATE

ARTIFICIAL RISE DANGER

ADVANTAGES OUTWEIGHED

WARNING GIVEN BY BANKER

ADDITION TO DEBT BURDEN

SERIOUS EFFECT ON .CREDIT

By Telegraph.—Press Association.

Wellington, Last Night.

In the event of the present rates of exchange between New Zealand and London being artificially raised the disadvantages thereby accruing will more than outweigh the advantages. This is the opinion of Mr. J. T. Grose, general manager of the National Bank of New Zealand and chairman of the Associated Banks, who spoke on the present exchange situation to-night to the Victoria University College Commerce Society. Bankers, Mr. Grose said, had to carry out their work with the idea of the whole community in view, and they should not consider sectional or party interests. It would be unwise to attempt any relief to any section of the community by the expedient of an artificially high exchange rate. What he stressed was that in a system of wise control the volume of money in circulation could be increased in such a way as to avoid the risk of inflation getting out of hand. It would even be possible to achieve' this without sacrificing New Zealand’s overseas credit and without erecting a vicious tariff barrier and so ensuring the already much reduced export trade.

"I feel sure that New Zealand •will never knowingly permit her fair name to be sullied with the stigma of repudiation,” ha said. “It is leas certain, however, that she may not drift unawares into unsound finance leading to grave difficulties, or even' repudiation, if the claims of sectional interests are given disproportional weight.”

’ PRESERVATION OF CREDIT. Mr. Grose discussed the effect of a high exchange rate upon New Zealand’s overseas debt. Apart from' any ethical considerations, he said, it was a matter of downright commonsense for the country to preserve its credit with all its might. Lately they had a practical demonstration of this when the loan of £5,000,000 was floated successfully on the London market. It was well known that the success of that loan was due to the confidence felt in London. This would have been shaken if an artificially high rate had been quoted. As the path of inflation generally took the form of a vicious spiral of increased currency expansion and exchange depreciation it was almost certain that on the maturity of the overseas loans New Zealand would find renewal -would not be countenanced.

"I may say that if the exchange rate were increased to £130,.- as has been recommended in certain quarters, that would be equivalent to adding not less than £30,000,000 to the principal amount of our overseas public debt,” Mr. Grose said. “The main argument of those who advocate a high rate of exchange. is that the benefits outweigh the disadvantages. If this were the case I should doubtless consider it sound banking policy to call an artificially high or artificially low rate of exchange to benefit any section of the community which might chance upon evil ways. Although certain advantages to certain sections of the community would result from an artificially high rate, yet the disadvantages would outweigh the advantages.”