The Wanganui Chronicle. TUESDAY,’ SEPTEMBER 3, 1935 EXCHANGE RAISES ITS HEAD.

Wanganui Chronicle, Volume 79, Issue 206, 3 September 1935, Page 6

The Wanganui Chronicle. TUESDAY,’ SEPTEMBER 3, 1935 EXCHANGE RAISES ITS HEAD.

THE Exchange controversy was foredoomed to be a resurrected affair, firstly because the Government would be compelled io justify its policy at the elections, secondly because the question will have to be faced as to how the return to parity is to be arrived at or, iu the alternative, whether the New Zealand pound shall be stabilised at 25 shillings to sterling. Mr. Forbes would have found it difficult to explain his change of front, but his speech at Bangiora wherein he attempted to explain away an interpretation which lias been current with his own consent for several years, is belated to say the least. Mr. Forbes’ attitude previously was that the Exchange was a matter for the banks and one iu which the Government should not interfere. He reversed his decision in this regard and then requested the banks to carry out the proposal of rigging the exchange, to which the banks replied that such action was beyond their function. They did not conceive it to be within the ambit of their work to raise the Exchange to benefit one section of the community and it was then that the Government was forced to implement its own policy. Mr. Forbes’ attitude towards the rate of Exchange as far back as March, 1931, was expressed in the following words: “It would appear that relief can only come from a reduction in the rates of exchange which, of course, is a matter that rests entirely with the banks.” Mr. Forbes then suggested that the association of certain local bodies ‘‘should direct its representations to the Associated Banks with a view to obtaining a reduction in the rates at the earliest possible moment.” Nothing could be more clear. Mr. Forbes would have been wiser to have stated plainly that he had changed his mind and not to have tried as he did to make it appear that his view on the matter of the Exchange had been consistently iu one direction.

It is desirable indeed that stability in the rate of Exchange should be achieved and while it remains a matter for controversy it will operate as a retarding clement in economic recovery. To stabilise the Exchange at its present level would be to increase that part of the public debt domiciled in England when that poi-tion is calculated in New Zealand currency and this would involve a heavy and unfair additional burden upon the general taxpayer. The leader of the Democrat Party, Mr. Hislop, has declared in favour of allowing the rate of exchange 1o attain its natural level and this appears to be the most desirable way of handling the problem. There is authoritative approval for this line of policy for no less an important journal than the Economist, London, on February 27, 1932, commenting on the suggestions of raising the New Zealand rate of exchange on London to the Australian level, declared that “New Zealand should allow the exchange rate to find its natural level.”

The Governor of the Reserve Bank claims that the present level of the exchange accords to a natural one and there may be justification for this at the present time, but it should also be borne in mind that when the Government determines to maintain a certain level of exchange business accommodates itself to the new condition and by such accommodation the exchange bears the colour of being a natural one. The readjustment of the Exchange, cannot, however, be regarded as an isolated problem; it must, on the contrary, be considered in its association with the condition of the money market in the Dominion. The present desire of the Government is to maintain easy money conditions at least until after the general election and. to ease the exchange rate may have the effect of hardening interest rates. Until the Mortgage Corporation has secured sufficient funds for its requirements it is hardly likely that the Government, would countenance any action which would tom! to raise interest rates, but whether the best interests of the Dominion are served in the long run by the maintenance of low money rates is quite another question.