UNALTERED EXCHANGE RATE

Taranaki Daily News, 18 June 1932, Page 9 (Supplement)

UNALTERED EXCHANGE RATE

BANK OF NEW ZEALAND’S POLICY.

WISDOM OF GOVERNMENT ACTION.

Impressive comment on the agitation for increased rates of exchange was offered yesterday by Mr. O. Nicholson, chairman of the Bank of New Zealand, at the annual meeting at Wellington. This portion of his address reads as follows:—

In January last, in order to ensure that the Government and local bodies should be in a position to obtain exchange to meet their obligations iu London, the Government instituted a system of licensing of exports, under which it was provided that the proceeds of exports should be handled by the banks. The action of the Government has been strongly condemned by exporters, who contend that exchange should be left free to find its own level. Doubtless they expected that in a free market, and with the knowledge of the unusually heavy obligations of the Government and local bodies in London—-estimated at £14,000,000 for the year—the rate, by skilful manipulation, could be forced up from 10 per cent, to 25 per cent., or eVen 30 per cent., or 40 per cent. Such rate* would, of course, have necessitated an equivalent increase in selling rates, thereby casting a most onerous burden on public finance, which would require tv be met by increased taxation. The banks made no alteration in rates because, with the exception of one bank, it was felt that, having regard to thenbalances iii London, and the prospective surplus of exports over imports for the season, no change co’uld be justified. It is certainly not the business of the banks to adjust exchange rates to meet variations in the price of produce. Nor can they be influenced by the rates prevailin'* in other countries which are'our principal competitors in the London market. Neither the Government nor the banks could view with equanimity the heavy depreciation of New Zealand currency which would result from any considerable increase in buying rates on London, and the wisdom of this is boine out by the very satisfactory terms which the Government obtained for its £5,000,000 loan raised in London in April. Further, control of the exchange enabled the banks to prevent the flight oi capital from the Dominion, also to prevent New Zealand’s funds in London oeintv used for the benefit of Australia. It may be added that it would pay this bank well to see the rate on London increased to 25 per cent., but the interests of the country must be regarded as paramount.