The Press MONDAY, MARCH 11, 1935. The Australian Exchange Rate

Press, Volume LXXI, Issue 21419, 11 March 1935, Page 10

The Press MONDAY, MARCH 11, 1935. The Australian Exchange Rate

Since the beginning of the year there has been much discussion over the possibility of a rise in the Australian exchange rate on London; and naturally enough the discussion has had echoes in New Zealand. A rise in the Australian rate to, say, 135 on sterling would almost certainly produce an agitation for a similar rise in the New Zealand rate in order to prevent Australian exporters of meat and dairy produce from underselling New Zealand exporters on the London market. Professor Melville, the economic adviser to the Commonwealth Bank, is at present visiting Wellington; and whether or not his mission is an official one, it is reasonable to assume that he will discuss the exchange situation with the governor of the Reserve Bank. The position has to some extent been clarified by a statement made on behalf of the Commonwealth Bank, quoteu in the cable news this morning, which denies " current rumours that the Aus- " tralian exchange rate on London "is to be altered." The implications of this statement are more interesting than at first appears, since it can hardly be denied that a situation has arisen which calls for measures to adjust Australia's balance of payments. Figures issued recently show that, for the first six months of the financial year ended December 31, the excess of exports over imports was £ 1,164,000, which is about £19,000,000 less than for the corresponding period of the previous year. The following table, which is on a sterling basis, gives the comparison in greater detail: Half-year to Dec. 31, Dec. 31, 1933. 1934. £ £ Exports .. 49,118,000 38,402,000 Imports ~ 28,940,000 37,238,000 Balance .. 20,178,000 1,164,000 As Australia has to find in sterling about £26,000,000 a year for the service of her external debts, it will be seen that unless exports increase and/or imports contract of their own accord the Commonwealth Bank and the Federal Government will, have to take measures to restore equilibrium. It is a mistake, however, to suppose that the present situation demands an immediate increase in the rate of exchange. Accumulations of Australian funds in-London, which at present total about £68,000,000, will probably be quite adequate to meet any deficiency in the balance of payments at the end of the current financial year, even supposing that the adverse trend continues. The important question is whether the trend will continue. The financial editor of the Sydney " Bulletin," a confirmed opponent of exchange inflation, anticipates an improvement and boldly predicts better returns for wbol and butter. Mr J. K. Gifford, a Queensland economist, guessing more intelligently and impartially, suggests as a possibility an adverse balance of about £11,000,000 sterling for 1934-35. If that happens, corrective measures will be unavoidable, though once again it should not be assumed that the only remedy is a higher exchange rate. Indeed, the balance of probability, assuming continuance of the present political situation, is in favour of a policy of reducing imports by a contraction of credit and a decline in internal prices, supplemented if necessary by a higher, tariff. That impression is strengthened by Sir Claude Reading's emphasis on the benefits of exchange stability. The main disadvantages of such a policy, compared with a policy of raising the exchange, are that it will increase the difficulty of absorbing the unemployed and raise costs to the primary producers. The main advantages are that it will keep wage rates stable and prevent the exchange question from becoming a political issue. If the political aspect of the question could be eliminated, the use of the exchange to control the balance of payments would be preferable to manipulation of credit and the tariff. The English exporters who are now congratulating the Commonwealth Bank on its decision not to raise the exchange rate had better think again if they are under the impression that a low rate is necessarily in their interests.