EFFECT OF DEVALUATION OF ENGLISH POUND

Chronicle (Levin), 17 January 1948, Page 3

EFFECT OF DEVALUATION OF ENGLISH POUND

Bumours about the'possible devaluatiou of the pound sterimg have gained some ground lately, and more than passing interest has been shown in the likely effect of any sueh rnove. In view of the faet that New Zealand 's eurreney is tied directly to sterling, any sueh development would have an iminediate effect here. If sterling were devalued, for exaniple, in terras of dollars, it would rnean that sterling would be worth fewer dollars, and automatically the New Zealand pound would also purchase fewer dollars. In other words, United States goods would be dearer to buy in England and here, wkiie English exports to the United States would be cheaper tkere. The effect would be to diseourage imports froni the United States, and encourage exports to that .market; it would rnake for a freer flow of goods" from the sterling area to the dollar , area. If sterling were devalued tkere are two tliings New Zealand could do. Oue would be to leave the present rate of exchange £100stg equals £125NZ and let the dollar rate svving; or we could alter the exchange rate with England so as to appreciate our money in terms of sterling. In the latter event the dollar exchange rate with New Zealand would not fall so niucli. As against that, of course, is Ihe fact that New Zealand is iniinitely more concerned with sterling trade than with dollar trade, so that any interfcreiice with the existing exchange position wrth sterling niay be ruled out. Internally the only eff'ect of a devaluation of sterling would be that goods purchased from the dollar- area would be dearer, and that would be reflected in incrcased costs. With the dollar position as it is today, it would, of course, be an added discouragerueiit to buy in the dollar countries. As is pointed out in the London Einancial Times, huvvever, no Governnient contemplating a change in. the value of its eurreney "would be foolish enougli to advertise its intentions in advance. ..."