HIGH EXCHANGE RATE

Waikato Times, Volume 112, Issue 18805, 29 November 1932, Page 2

HIGH EXCHANGE RATE

“NO OTHER COURSE.”

MR JAMES BIGG'S OPINION.

DEPARTURE FROM GOLD. Mr James Begg, who xvas a member of the National Expenditure Commission, and occupies a seat on the Meat Producers’ Board, sees no other practical course open to the country than a high exchange rate. “As you know,” said Mr Begg, ”1 have always been against artificial interference in these matters, but we are now in a position where something lias to be done, and I see no other course open. Sound currency as we understood It in the past and happier years is now an impossibility. It was a simple matter when a pound represented so much gold and the quantity remained constant from year to year New Zealand currency has been depreciated for a long time now, and no one proposes that it should be restored to its former glory. “ Depreciated currency may be good or bad, but It Is the only thing that has saved this country from hopeless bankruptcy. "If we return to the gold standard prices for our exports would be so low, about 40 per cent, below tho present levels, that universal default would have taken place long ago.” PROPOSAL TO MANIPULATE FUNDS

DESCRIBED AS FORM OF INFLATION Describing It as merely a complicated form of inflation, to which, it was stated, there is still strong opposition in the commercial community, Christchurch business men criticised Mr W. Machin’s suggest lon that by processes involving manipulation of exchange funds and conversion and redemption Of New Zealand debt in London, currency in New Zealand could be swelled, says the Christchurch Sun, Mr Machin’s scheme involves issue of paper money in New Zealand. “ If we arc to embark, as the Germans did, on a campaign of issuing paper money, and eventually, repaidialion, then lot us have a financial orgy and he done with it," one broker remarked. "But people in the outside world will not buy New Zealand currency as they bought German currency." Mr Macliin suggests that New Zealand should create wealth — but we don't possess the patent rights over money.” The proposal is straight-out. inflation. Why not issue Treasury notes as currency right away.?" Mr Machin’s scheme includes conversion of a large portion of New Zealand’s London debt to 3i per cent. Interest, but considerable doubt was expressed to-day as to whether the British holders would consent to such a reduction, while New Zealand was Inflating her own currency. One contention was that Mr Machln’s scheme was based on the redemption of New Zealand loans in London bearing a high rate of interest, whereas much of the total amount bore comparatively low interest. “Mr Macliin claims that it will he possible, by savings In exchange, and by ‘using for a sinking fund Interest which would otherwise have had to be paid, to redeem the loans in their new form in a fairly short period of years. On that basis, lie proceeds to show that it will pay New Zealand lo convert at the rate of i 110,000,000 a year for 10 years. The fact is, however, that, according to the latest year book, New Zealand has borrowed only £0.500,000 in London at Die high rate or G per cent., and that Hie average rate of interest payable on her total debt —of which about 50 per cent. Is held in London —is only £i 10s 5d per cent. Mr Machin’s figures hinge on the redemption of 0 per cent, loans, and only some 17 per cent, of the total loans bear interest higher than 5 per cent, Of the £154,-000.000-odd domiciled in London, only ■about 23 per cent, has been borrowed at 5 per cent, the remainder being below that figure. " Mr Macliin appears to assume that his project would pay the Dominion only for high-rated loans, by the saving I 'in interest hrough conversion. As the bulk of our British debt Is not high-rated, will the margin of saving in interest by conversion be sufficient to justify Ills” scheme?" The scheme, it was agreed, was likely to appeal to the New Zealand banks, as a means of disposing of the big funds that they would build up in London if a high exchange rate were introduced, providing the hanks were certain that they would receive full value at this end. As it was, the advances made by the banks to the Government Iliad increased considerably in the past few years. “ This thing boils down to inflation amt on the face of it, extravagant lunation," one man declared. “The business community in general still feels that inflation should bo avoided. What wc want is reflation, by careful methods.’' The banks would have to be paid back fullv for allowing Hie use of their London funds, and ultimately the people of New Zealand might have to bo called upon to foot the bill, It was slated in another quarter. It was again a caso of mortgaging the future In the hope that better times would “ if the scheme is adopted, we will be increasing our national debt through the issue of paper money, but doing It. in a round-about way. The Treasury will issue notes foi oil culation —and to expect ibat overseas people, will at the same time be content to convert their loans to 31 per cent, seems fantastic."