HIGH EXCHANGE RATE

Taranaki Daily News, 21 October 1933, Page 4 (Supplement)

HIGH EXCHANGE RATE

MR. DAVID JONES’ VIEW CASE FOR DEFENCE PRESENTED. “PRECEDENT SET BY BRITAIN.” A defence of the present rate of exchange, New Zealand on London, was made in a statement issued by Mr. David Jones, chairman of the New Zealand Meat Producers’ Board, who returned last week from a visit to England, “I note that the exchange question is still a live question in the Dominion,” says Mr. Jones. “It creates a great deal more interest here than in England. We were promised that all sorts of disaster to our credit overseas would follow increased exchange. The success of the recent 3J per cent, loan answers that very effectively. It has not had the slightest adverse effect on our credit, but if the exporters from the Dominion had been allowed to drift into bankruptcy because of the disastrous fall in world prices, then our credit would have been seriously damaged and may have led to default. “I was chairman of the committee that carried on a vigorous campaign in New Zealand for a higher rate of exchange and we were vigorously opposed by the banks and importers and were led to believe that the whole weight of banking opinion and sound economists condemned our line of action. I have followed the criticism in the New Zealand papers since and have noted the great confidence of those in high places who opposed us, and who have stated in very definite t?rms that they hold the solution of our financial troubles, and refer to those of us who differ with them as quacks.

“FINANCIAL MODESTY.”

“The most striking thing in Britain to-day is the financial modesty of the banking and financial people, who frankly admit the great blunder they made in going back to the gold standard in 1925—a blunder of. the banking authorities and advised against by so many so-called quacks. The best of them are very loath to criticise. They see the world’s financial system rocking, they agree to put in props here and there, but they frankly admit that they are not certain that the prop will not have the effect of giving things a list too far in the opposite direction. “We are familiar with the statement a£ the governor of the Bank of England that he only sees a glimmer of light and there is a general agreement that the future is full of uncertainty, and forecasting is largely guesswork.”

One of the great cries in the Dominion was that .there should be no interference with the banks ■ and Government management of currency should be avoided: at all costs. Such criticism is never heard in London, because they know that nearly all countries are managing . their currencies and Government control more or less is considered imperative, says Mr. Jones.

FOLLOWING BRITAIN’S PRECEDENT.

“I gave the New Zealand address on ‘The New Zealand Market for the British Manufacturer’ at the Empire Advertisers’ Convention at London in July, and was asked the question whether New Zealand was fair to Britain by raising the rate of exchange,’’ said Mr. Jones. “My reply was: ‘Most certainly. There were two courses open to the Government. Our exporters were selling at 20 per cent, below pre-war and buying at 23 per cent, above prewar. A continuation meant national bankruptcy. These two had to be brought closer together; it could be done by a further drastic cut on all wages and longer hours of work and further serious curtailment of public and private expenditure; or by increasing the rate of exchange. The first would have had a more serious effect upon the British manufacturer than the latter, and would have been grossly unfair to the workers of the Dominion. The second —raising the rate of ’ exchange—was decided on, and we followed the precedent set by Britain.’ ■■ ■ “I never heard the question raised in Britain that the depreciation of their currency only favoured a certain class. They realise—and no one realises it more than the workers —that if the export trade of Britain falls, then Britain fails. New Zealand is in the same position.

“Britain did it to save her exporters who were the manufacturers and the life-blood of England. New Zealand did it to save her exporters, who were the farmers, the life-blood of the Dominion—for without their production and export, imports were impossible. I had made the same statement in the Dominion during the exchange controversy. My audience appeared to be satisfied with the reply, and I still see no flaw in my argument.

PRICES AND COSTS.

“The British Chancellor of the Exchequer, Mr. Neville Chamberlain, put it in these words at the recent World Conference in London: ‘ln the opinion of the United Kingdom delegation, an attempt to’ obtain equilibrium by further large reductions of cost would be attended by intolerable suffering, and holds out no hope of success. No doubt it would be possible to restore equilibrium between prices and costs by re-, ducing costs if only prices would . remain steady. Under present conditions that does not happen, but, on the contrary, an all-round reduction in costs produces further deflationary effects on prices, so that costs and prices chase one another downwards without ever getting to equilibrium.’ This statement definitely supports our views. “The House of Commons have placed £350 millions sterling in Mr. Chamberlain’s hands to use at his discretion for the purpose of managing the British currency and keeping it where the Government want it, and the management has been remarkably successful, and has enabled Britain to regain her financial supremacy,. “At Ottawa it was recognised that each country must decide for itself on this important issue, and Mr. Chamberlain said: ‘But the United Kingdom Delegation recognise that in practice exchange restrictions will not be abolished until the exchange difficulties which have given rise to them have been overcome. The United Kingdom delegation trust that the conference will take positive action to attain this end. A rise in wholesale prices of foodstuffs and raw materials and an increase of world trade would contribute powerfully to reduce exchange difficulties, and would assist in bringing to an end both standstill arrangements in respect of short-term debts, and transfer difficulties as regards external indebtedness as a whole.’ “It has been said that our exchange is against the spirit of the Ottawa Agreement. The Danish agreement with Britain was signed on April 24, 1933, three months after Denmark had increased her exchange under a Socialist Government to 25 per cent., and no reference to the rate of exchange is in the agreement nor are we aware that it was even discussed.

“Among others I saw in London was a banker whom I had reason to believe was against our present exchange. He was a man of wide experience, and I knew familiar with New Zealand finance, and I wanted to- get his opinion. I told him I had sought the interview with him because of the very great importance to tire Dominion of pursuing the right course. He said his opinion was that the Government had during the past 12 months handled the finance of the Dominion in a very satisfactory manner, and he was not alone in that view. The action that had been taken covering finance generally was one upon which he would like to congratulate New Zealand. “I referred to the prospect »of improved prices for our exports, and asked whether his opinion was that we should begin to reduce our rate gradually or leave it where it was at 25 per cent. He said: ‘No one knew what would be the result of the Roosevelt policy in America, for instance, and until finance was fairly stable and one could gauge land and other values on the higher price level that must come to give the world any reasonable prosperity, then his opinion firmly was that we should continue the present rate of exchange,’. “Here you have a very firm view expressed in favour of the exchange remaining where.it is until world finance is on a stable foundation,” Mr. Jones concluded. “I am very pleased to hear that the Government have stated definitely that they intend to pursue this course.”