INFLATION OF EXCHANGE

Taranaki Daily News, 20 January 1933, Page 3

INFLATION OF EXCHANGE

PROTEST OF BUSINESS MEN

DANGER OF AN ARTIFICIAL RATE.

REPLY MADE .TO THE FARMERS.

The renewed agitation by farming interests to raise the exchange' rate was considered -at .a‘largely-attended . meeting of Wellington businessmen on Wednesday. Mr. Edwin Salmond presided. ■ ’ * The following resolution was carried unanimously: That this meeting views with grave concern the advocacy of the Farmers’ Union in favour of a 25 per cent, exchange rate. It considers that ( - the farmers’ conference is. advcxating, as some of the members present admitted, a high artificial rate, and that . such a rate being a false rate can. only ’ be maintained by the Government, guar; anteeing the banks against losses./ Such an undertaking rqust involve the Gov- . emment in. heavy expenditure, the exact amount. of. which cannot be; determined, : and which must lead to higher .taxation rates, etc. ' ‘ /'iZiW-Z The following statement was . issued by the meeting:— ? ■."V-': “We wish to place on record our op-.; / position to the renewed campaign bn behalf of rural interests for currency . inflation through the’ medium of. artificially increased rate of exchange. Since this question was last prominent, circumstances have changed in such , way as greatly to weaken the plausibility of the inflationist case.- It- was advocated mainly on the ground that the fall in export- prices was temporary, and that the relief to the farmer (at the expense of the rest of the-com-munity) ■ would'be sufficient to tide over the brief period before a price rise. It was in other , words advocated as -part of *a gamble on a rise in ’world: price?./ . ' It seems clear now that there.: is’ no >?: probability of an early rise in export prices, and that the present level must be regarded as more- or less permanent. .- INFLATION OUT OF CONTROL/ “In such conditions a bounty .through exchange. manipulation would ,soon lose / any beneficial effect, since it could’, not/'./, be indefinitely repeated without finan-./.' cial ruin. ’ This is one of the principal 7/ dangers of’ the policy. For a while, per--haps, though it has never been proved, the position of the farmer may be iin-i / proved, but-as soon as ■ exchange inflation exercises its normal effect in‘raising local and import costs the relief to. the farmer will cease, and he-willv demand more of ■ the same medicine.-.’ By , • this process, with exchange the plaything of politics, our currency ‘would finally become worthless, or very nearly so. Theoretically exchange inflation-can be controlled; but inflation, once started,'always gets out of control, especially when it becomes a political matter. “In any case the working farmer would probably benefit very little.; 7 of the benefit will go to others in higher charges, but the bulk will go banks and the stock and station agents, whose excessive credit expansion tin’.the ~ past is one of the main causes'of'btir jz troubles” to-day. Inflation would thus; riot put fresh working capital 'at trie ■ disposal of the farmer. It might, broad-. - ly speaking, lessen bis debts, ’ a gbbd, thing as far ’ as -it goes, but’ why riiould.7 the community at large be bled through exchange manipulation to build up for' . the financial institutions’ bad debt’ re- . ■ serves that they did not' have the wisdom or ability to provide when times were gpoci, for themselves? This is what the policy, in effect, amounts' to. , ‘ “A rise in the rate of exchange will heavily increase the burden of the Government and the local bodies in l tnakIng remittances abroad qf, . pirinwpai ■ and interest on external debt.. Exchange inflation means a larger ' sum ,to be found , for debt service, measured -tin New Zealand currency,, out, of rates ;and taxes. < Since . taxation is stretched ;', to' the limit, and exchange inflation, by its disastrous effect on : business, 1 will reduce urban taxable capacity still more, it would appear impossible to finance >. our oversea debt commitments, with, an inflated exchange. This might easily ; ’ lead to total or partial default on oversea commitments, and complete loss of credit in London that would; do irreparable damage in the future. ■ • i ■ 'I “MEANS A SUPER-TARIFF” . ’. “Exchange' inflation means the imposition of a super tariff against out- ' siders, Britain included. ,It is . thus contrary to the agreements arrived; at Ottawa, an# constitutes 'a deliberate breach of faith with Britain.. weaken our position in British business circles. How exchange inflationists can, in almost the one breath, demand / an artificially. raised rate, arid’ai . ■ same time call for downward revision to the tariff, is difficult to see, but selfinterest is ; stronger than logic. .. . “The exchange rate and the policy- qfv 7 determining it, should, as brith ' * Prime Miifister and the Bank of Nqw Zealand have stated, be a business and financial, and not a political matter. Jt / should be determined by the state- of London balances, and. not by political 7 pressure by powerful, interests; or eolations of voting strength. Once fin-/ ’ ance becomes the toy of politics corruption is ultimately inevitable, and’ addi- ; tional uncertainty is imparted to ness, thus destroying confidence-and rii- ; tarding recovery. The way rnut .qf /qur ‘ troubles, does not -.consist of fiirthqr pqli-', tical expedients, but..of giving ;industry. and commerce ia. chance to develop .as : i far as possible without further politipal interference. In any case, who .'is going yi to bear the loss if the artificially fixed exchange; rate breaks down?’’- -’ • ~ ■