THE EXCHANGE RATE

Waipa Post, Volume 48, Issue 3480, 16 June 1934, Page 4

THE EXCHANGE RATE

“ CANNOT HAVE IT BOTH WAYS.”

MORE TRADE WITH BRITAIN.

(By Telegraph. Press Association.) WELLINGTON, Friday. As was only to be expected, reference was made at the annual meeting of the Bank cf New Zealand shareholders to-day to the position of affairs of the 25 per cent exchange rate on London. .. „ The chairman, Sir Harold Beauchamp, Referring to the subject said: “ You will expect me, no doubt, to make some reference to the exchange rates, the alteration of which in January, 1934, from HO to 125 (to £IOO sterling’) has been the subject of considerable controversy. “ The bank’s view regarding adjustment of exchange fates to meet variations in the price of pioduce was 'stated from, this chair at the annual meeting- in 1932, and again in 1933, and it is therefore -unnecessary for me to repeat what was then said. I w ill merely summarise the present position. “ It will be recalled that the Government, believing that the most satisfactory manner of helping the primary producer in his difficultiols wa» through the exchange uate,. as had been done in Australia, raised the rate from. HO to 125. At the same time, to ensure the co-operation ot the banks, the Government agreed to take over the surplus London funds arising fiipm, the banks’ New Zealand business, ‘ It may be assumed that the Government and their advisers anticipated that importers and others having payments to make in London, wpuld accept the position and continue to operate normally. Such, however, has not been the case, for the belief has been widely held that the exchange rate must have some relation to the balance of trade, that the 125 rate was unwarranted according tlo this principle and therefore could not be maintained. This belief, based on economic teaching which is now apparently old-fashioned, has persisted in spite of Ministerial assurances. Those desirous of remitting funds frcm London to New Zealand have also apparently shared this view, and the net result has been that the surplus funds taken over by the Government under the “ Bank!’ Indemnity (Exchange) Act,” notwithstanding the observance by the banks of the Government’s request that the transfer of capital moneys from London should not be made, have attained a volume far beyond expectations. rt The uncertainty regarding maintenance of the rate, whether justified or not, has been most unsettling, and has naturally given importers and others a good deal of anxiety in the conduct of their business. I am afraid that some of the trade which should rightly go to our best customer—. Great Britain —is being diverted to Australia. “ The Government has given an assurance that the rate will remain at its present figure until at least the end cf the present produce season. The Reserve Bank will commence business on Ist August, and as the determining - of exchange rates is one of its function:*, the continuance or otherwise of the present rate will be one of the difficult problems it will have to solve. On the one hand is the primary producer who has had the benefit of the high rate for eighteen months, whdse need of assistance (with the exception of the woolgrower) is even greater now than formerly, and whose competitors are still working high exchange or depreciated currencies. On the other hand there is the strong opposition of a large portion cf the community which considers the high exchange rate an additional burden placed on the general public for the benefit of a section of the people. There is, further,. a trade position and an accumulation of London funds which not. only do not justify a 125 rate, but which would in ordinary ccurise call for a rate not worse than par. “ It has been authoritatively stated that the adoption of high exchange rates by Australia and New Zealand had no bearing on Britain’s decision tc impose quotas, but it is difficult to understand that the imposition of what was virtually a substantial additional tariff on British goods passed unnoticed. It is a generally accepted principle that one can rarely have it both ways.”