WAS REVALUATION OF THE N.Z. POUND WISE?

Wanganui Chronicle, 8 February 1950, Page 5

WAS REVALUATION OF THE N.Z. POUND WISE?

Question Prompted In The Light Of External Payments Deficit

LONDON, Feb. 7 (Rec. 6 pm).—“Last week’s disclosure that New Zealand had developed a substantial deficit in her external payments during the past year has naturally revived discussion about the wisdom of that country’s decision to revalue its currency in mid-1948,” says the “Financial Tinies.”

“By raising the value of the New Zealand pound from 16s to 20s in terms of’the British potfiid the former Government hoped both to curtail internal purchasing power arising from export ineomes, and to provide a firm check to a rise in prices of imported goods.

“The main danger of the operation, ot course, was that the resulting decline in yield in terms of New Zealand currency of export sales would discourage exports, and, so force down her foreign exchange earnings. A secondary danger was that reduced internal prices for imported goods would so stimulate demand that foreign exchange expenditures on such goods would be increased. “Recent official statements that New Zealand's payments deficit in overseas funds during the current year, on the basis of import licences already issued, may be in the region of £10,000,000 to £15,000,000, do not indicate to what extent this gap may be due to repayment of overseas indebtedness. But there seems to be little doubt that to some extept, at alt events, this gap is a result of a deterioration in the country’s current account payments. Fears expressed at the time of revaluation, that relief from internal monetary pressures would be obtained at the cost of accentuating the external monetary disequilibrium, have not proved to he altogether unfounded. In particular, a drop in internal prices for foreign goods, coupled with a tendency for incomes to rise, had evidently led to considerable expansion in New Zea-

land’ s import requirements. Up to date the figures of her external trade, unfortunately, are not available, but British statistics show that New Zealand’s exports to the United Kingdom rose by £7.3 million sterling in the first 11 months of 1949, whereas her imports from this country rose by £lO.l million sterling. "Many observers take the view that New Zealand external payments situation need not have suffered seriously from the revaluation operation had the authorities adopted appropriate policies. It is felt that the tendency in New Zealand in the post-re-valuation period has been tr take advantage of relief from internal monetary stresses afforded by this adjustment, in order to press forward with plans involving increased Government expenditure, which otherwise would have been ruled out because of the danger of gravely aggravating infla tionary stresses. It is suggested that had this mistake not been made, revaluation would not have led to external payments disequilibrium. "The point Is of importance for its bearing on the question that the New Zealand Government must now be asking itself: "Does deterioration in external payments make It advisable to reverse the 1948 revaluation operation?”

"If revaluation has lea to trouble because of unwise internal monetary policies, the Government’s first reaction to recent developments, presumably, will be to see whether internal policies can be reshaped to make revaluation’succeed rather than to decide in favour of an early devaluation of currency.”—Special N.Z.P.A. Service.