The Wanganui Chronicle. FRIDAY, JANUARY 30, 1948. THE STABILITY OF THE CURRENCIES

Wanganui Chronicle, 30 January 1948, Page 4

The Wanganui Chronicle. FRIDAY, JANUARY 30, 1948. THE STABILITY OF THE CURRENCIES

fT is regrettable that France should have devalued her currency because by so doing she has set a bad example to the rest of the world, gone counter to the efforts that have been made to avoid competitive currency devaluations which ended in the Great Depression of 1930-32, and macle international trade the more difficult to negotiate. The advantage to be gained by a reduction in the value of the currency lies in the short-term fillip which foreign buying enjoys. The American buyers of French goods will be able to purchase more for their dollars when cue hundred francs represents fewer dollars than when the interchange of dollars and francs is more favourable to the franc. But this process cannot go on indefinitely because each country cannot capture by currency manipulation a larger share of the export trade of the world than what is normal for it to enjoy for the simple reason that no country is able to live unto itself. As M. Ramadier said of France she must trade with the world ‘(‘from Russia to the Argentine.” In order to export France must also import. When the manufacturer commences importing lie finds that he is compelled to pay many more franco for a given quantity of raw materials and the enlargement of his requirements for francs is in precise relationship to the fall in its value in relation to the currency of the country from which purchases are made. To this extent then the advantage of the currency devaluation is immediately offset. But while rents and wages remain at the same level as before the devaluation the- manufacturer is overall enjoying an advantage which reflects itself in lower prices for his products on the international market. This gives a fillip to his business and he is satisfied. Bnt what about the landlord, the wage-earner, the saver who has loaned his capita! to the Government for a fixed term of years at a low interest rate? These three classes of citizens have a right to be considered and together they make up a considerable and important section of society. They, too. make their demands and some of these in the end are satisfied. But in the meantime what has actually occurred as a result of the devaluation is that they have been legally robbed of what is rightfully their own. The immediate effect is they have a disrespect for the law and this puts a keen edge upon their undeserved poverty. The social results which must follow from such action need not be elaborated here: they were made plain enough in this Dominion when the New Zealand pound was reduced in value from its former parity with sterling to its present devaluation of 25 shillings New Zealand for one English pound. In New Zealand the Labour Party was swept eventually into office and that Party immediately set about redressing the wrongs wrought by the Exchange. Ever since then the farming community has been complaining of continual rising costs of production, the rise of protected industries and the impairment of the position of the primary industries. Only the lack of the market has saved this country from the full dire effects of the aftermath of the Exchange blunder perpetrated by the Coates-Forbes Ministry. Prior to the Great Depression it was customary to raise the exchange rate slightly with a view to encouraging exports and discouraging imports. It was a temporary expedient which no one thought to use as an instrument of permanent adjustment. It was known for what it was, a means of readjusting a temporary disequilibrium in the national trading account. When the exchange rate was employed as a permanent measure it called into being a counter movement, namely the import control. Immediately import control came into being the whole value of exchange manipulation passed away. In the present post-war period efforts have been made to avoid the exchange—import-control situation being implemented once again. It was appreciated that unless this dual process was avoided another World Depression would be generated. In order to avoid such a catastrophe the World International Bank was set up and the plan of action decided on at Bretten Woods was finalised. The whole of this machinery has been set aside, the experience of the past twenty years has been thrown to the discard by the French Government. And what for? This has vet to be revealed. It is to be expected that there will be introduced into the various countries with which France trades restrictions on French imports into those countries. Then will follow negotiations for the harmonising of the situation, during which time the condition of France is likely to deteriorate still further. The outlook is certainly not promising. The over-riding disadvantage for France lies in the destruction of confidence m the economy of France. New Zealand has already granted a substantial loan to France to enable her to purchase wool. The repayment of that loan is, presumably, to be wiM not S JV varia ‘ ,on ln , the exchange rate of the franc will not affect that loan. But what if France requires further loans to enable her to buy more wool? New Zealand will be rnoie chary of making new advances until she is thoroughly assui'ed ot the ability of France to repay the loans. W re establishing of confidence is often a much longer task than its primary establishment and certainly very much longer than the process whereby an established confidence is destroyed