THE PATH OTHERS HAVE TROD

Wanganui Chronicle, Volume 80, Issue 255, 27 October 1937, Page 6

THE PATH OTHERS HAVE TROD

MEW ZEALAND intends to follow a financial path—that of borrowing from the Reserve Bank—which others have trod, consequently it is interesting to learn how those others have fared. This is made an easy study by reason of the publication of a volume by that impartial body the League of Nations Secretariat, entitled “Monetary Review,” being volume one of “Money and Banking.” Dealing with the fall in the value of the various currencies of the world, the writers of this volume point out that “the currencies of the important raw material exporting countries . . . were the first to depreciate or be subjected to exchange control.” In this group New Zealand is included. “Currency depreciation began in Uruguay as early as May, 1929, followed in Argentina and Brazil at the end of 1929, and in Peru, Bolivia, Australia and New Zealand at the beginning of 1930. The Venezuelan bolivar started to fluctuate in September, 1930, and the Mexican and Chilean pesos were quoted below par in August, 1931. By the middle of 1932, other LatinAmerican currencies not linked to the dollar had depreciated or been subjected to exchange control. The pressure on these currencies since the beginning of 1929 was due primarily to the heavy decline in value of their staple exports and, io a lesser extent, to the cessation of capital inflow and the fact that import values declined less rapidly than export values.” In the case of Venezuela the gold parity of the bolivar kept pace roughly with the price of crude petroleum, that country’s chief export product. The Brazilian milrei also moved in harmony with the gold price of coffee in the United States of America. The comment on the next two countries is, however, of considerable interest at the moment. This comment is as follows:“The pressure of the inflation in Bolivia resulting from Government borrowing at the Central Bank to finance the war with Paraguay, which began in July, 1932, is only partially reflected by the official rates, which had depreciated by 84 per cent, in December, 1936. At the same date, the rates at which the three principal banks sold foreign exchange, or bank rate, was equivalent to a depreciation of 95 per’ cent.” “The inflation in Chile, also the result of Government borrowing at the Central Bank, was of a smaller magnitude and shorter duration than in Bolivia.” Direct Treasury borrowing of the Central Bank of Chile increased from 34 million pesos at the end of September, 1931, to 84, 507 and 673 millions at the end of 1931, 1932, and 1933. At the end of 1933 this debt was consolidated into a single loan. Loans for the account of the Treasury and other public bodies continued to rise, though at a very much reduced rate, in 1934 and 1935. The share of the public advances in the total assets of the Central Bank, which had soared from 15 to 67 per cent, between the end of 1931 and 1933, rose further to 75 and 78 per cent, at the end of 1934 and 1935 respectively. “The initial depreciation of the Equadorian sucre was due to political disturbances in the latter part of 1931, which led to a serious run on the banks and to a flight of foreign and domestic capital. Exchange control was imposed in May, 1932. The sharp depreciation during 1933 and 1934 is accounted for by the inflation which developed Iwtween March, 1932, and June, 1934. “The Peruvian sol was devalued to 28 United States cents in April, 1931, largely as a result of the flight of domestic capital and deterioration in the balance of trade. As this continued in the following year, the convertibility of the sol was suspended in May, 1932. The pressure on the sol in the following two and a-half years appears to have been due primarily to Government borrowing at the Central Bank.” Each of these countries experienced that fall in export income which is ahead of New Zealand. Each of these countries appeal’s to have considered that it could borrow from itself and owe itself the money which it spent (the logic is that of the Prime Minister of New Zealand, Mr. Savage), and each country failed to “insulate” itself from the results of its own conduct. It is reasonable to assume, seeing these countries could find no solution to the problems inherent in overspending, that there is small prospect of Mr. Nash’s formula of insulation being any more efficacious