THE RATE OF EXCHANGE

Evening Post, Volume CXIV, Issue 124, 22 November 1932, Page 8

THE RATE OF EXCHANGE

GOVERNMENT'S ATTITUDE DEFINED

NO INTERFERENCE WITH BANKS

CENTRAL RESERVE BILL TO PASS

Another definite statement that it was not the intention of the Government to interfere with the banks in regard to the exchange question Was made by the Prime Minister (tlie Right Hon. G. W. torbes) to-day,,when replying to a large deputation organised by the J\ew Zealand Importers' Federation. The deputation advanced arguments against pegging the exchange at a higher rate, and urged that no decision should be reached until the return to New Zealand of. the Minister of Finance (the Hon. W. Downie Stewart). Mr. Forbes emphatically denied that any political pressure was being brought to bear on the banks, but defended the right of the Government to consult with the management of the Bank of New Zealand, which was the Government's bank. The Prime Minister scouted the suggestion that the Central Reserve. Bank Bill was being held out as a lever to the banks, and stated definitely that the Government intended to pass the legislation this session. He also stressed the necessity for reducing internal costs, and indicated that one of the first, things, the Government would have to tackle on the return of Mr. Stewart was a reduction in interest rates.

Mr. E. Salmond,.president New Zealand Importers'- Federation,' said the deputation represented the chief .commercial interest's, as well as representatives of harbour (boards and other local authorities.-- The deputation requested that any discussion in the House on/the exchange question should be postponed until the return of Mr. Downie Stewart. In submitting the re,solution of yesterday's meeting in reference to a bonus to exporters, Mr. Salmond said it would not be necessary to pay a bonus on. all forms of exports, - but that, of course, was a matter of detail. He did not think that the bonus scheme would cost anything like £5,000,000, as had been suggested. Mr. Forbes: "What is your proposal for raising the money? Mr. Salmond: We have not gone into that matterl'iOf two evils ;we are taught to choose-the; lesser.- We believe the bonus scheme would be the lesser evil. Mr. Salmond referred to*, the evils which would arise from a' high exchange, speaking-largely; on the lines of his speech at the protest meeting yesterday morning. He said there would be_:an increase in the cost of living, higher shipping freights for exports, higher taxation,- higher expenditure 'on unemployment relief, and wholesale dismissals from local bodies. The advantages of an inflated exchange would have to be very great to compensate for the obvious disadvantages. The effect on the Ottawa agreements could not be overlooked. ' . It was remarkable^ thats 26 members of Parliament who had a'week or so ago .voted for the ratification of the Ottawa agreement were now. agitating for something which would have the effect of defeating that agreement. He expressed the view. that England would have.every right to say that the thing should not be done. Any Parliament that agreed to break down the agreement made at Ottawa would be dragging the name of New Zealand in the mud. If Parliament was willing to do that, then the business men and the people of New Zealand were not so willing that it should be done. If it was done, then .they would have to carry the war all the way to England and get her assistance in'the matter. SOMETHING HAPPENING. The Associated Banks had been very definite in their attitude to the exchange question, and had expressed the view that; an inflated exchange was not required, and, in fact, was quite unwarranted; Those who . were agitating for a high exchange had waited on the higher officials of the Bank of New Zealand. Something happened at that meeting, something of sufficient importance to-induce the Bank of New Zealand to.call a'meeting of directors. The Prime' Minister: had stated that the Government would in, no circumstances' put political pressure on the banks so -far as the' exchange question was concerned, but apparently the group of Parliamentarians was not of the same way of thinking. ' ■;.■ ''This is a time for fra-nk speaking," said Mr. .Salmond, "arid we suspect that some temptation or some threat was held out to the banks to induce them to alter their decision." - MAYOR'S ATTITUDE. , The Mayor, .of Wellington (Mr. T. C. A. Hisl6p):said that it was not consistent with his office to take part in political matters, but the question, of . exchange vitally affected the municipality in' Wellington, and, indeed, the municipalities throughout New Zealand, and it also affected the people carrying on. business in the city. Thus he considered that he was fully justified in joining the deputation. They were concerned with the fact that representations from a section of members of Parliament has been made to the Bank of New Zealand, and not. to the Associated Banks; such action did.' not "allay the, fears' that political pressure was being brought to bear. The attitude of the banks on the exchange question had been reiterated only the other day by the- chairman' of ■ directors of the Bank of New Zealand, who had stated that a high, exchange was not in the best interests- of the country. They wanted-to: be, assured, that the Bank of New Zealand,;which;might conceivably be liable to political pressure, was as free from anything of that nature as the Central Bank which had been proposed by Sir Otto Niemeyer. It -had. been said thaj; there was no alternative to the high exchange, but they had an alternative—a bonus system. They did not. say that the bonus was a good alternative, but it was better than exchange-inflation. A bonus would- mean that there would be no increase in Government and local body debt service charges, no loss on. Customs duties, no loss in income taxation, and no increase in unemployment. ■ , . . MEETING OVERSEAS COMMITMENTS. Mr. Forbes: What do you mean by no increase in 4he debt charges? Mr. Hislop said.that if the exchange went up the "Government would have to find additional money to meet overseas commitments. If it were decided to give a bonus to~farmers,'there was no doubt that a loan for the purpose could be raised internally at a lower rate of interest than that charged for New Zealand's last loan. If the exchange were increased the-Government would have to find an additional £1,800,000 to meet overseas debt charges,, and the local bodies would have to raise an extra £400,000 for the same purpose. If the money for a bonus were raised in New Zealand through the banks, the Government would avoid the additional interest bill at Home. '."'... Mr. Forbes: Is' it nqt-better'to face the position thaii leave 'it;to -posterity? :'• ,; ; .--■■• ■■-■• ' Mr. Hislop: If you raise the exchange, how are you going to be sure that you will not be leaving it to posterity? ■ ' Mr. Forbes: We are not sure of anything just now. The Prime Minister said that even

when they had raised money with, an asset, behind it, the practice was not without an element of unsoundness, but in the case of money raised for a bonus there was no asset. ' Mr. Hislop said that he saw disadvantages in the bonus system, "but they were not as great -as those attending exchange inflation. Furthermore, there was no guarantee that the farmer would benefit as the result of, a, high exchange. The money would go to those who had made loans to the farmer. Under a bonus the money need not be paid through the lending institutions, but direct to the farmers themselves. The bonus was suggested only as an alternative to meet the situation, by avoiding an inflated exchange. However, in other countries' the position had been faced by other methods which involved many'; insolvencies. In Denmark during the . last eighteen months 1490 farmers had filed in bankruptcjvbut they were still on the land, and. the exports of the country.were being maintained; (Hear, hear.) - RESPONSIBILITY OF BAJSTKS. "As I have said before, the question of exchange-is a matter for the banks," said Mr.' Forbes. "I think the proper course for the deputation to adopt would have been, to wait, upon the banks; as it is not the intention of the Government to interfere with, exchange. 'If the banks consider it in the interests of the community, anil of their customers that relief should be given by way of a high exchange, then the Government would have to put up with the additional taxation that would'be necessary." '■'■ ■ '-' . - ■ ■■■ ;■ Mr. Forbes recalled the controversy that had taken place when the exports credits pool was established, and said that he had had representations against it from both farmers and the commercial community. -He went" on to refer to Mr. Hislop's statement at the meeting yesterday regarding political action being taken with the Bank of New Zealand, The position was that the deputation of members which had waited on-him had asked that their representations should be forwarded to the Bank of New Zealand. They did not ask that the Associated Banks should be consulted. All their communications were addressed to the Bank of New Zealand. A voice: Why? Mr. Forbes: You had better ask the members ofParliament. The only meeting I had with representatives of the Bank of New Zealand was for the purpose of handing on the representations of members of Parliament. ' "The idea has been created that the Government is ignoring the chairman of the Associated Banks, but. what I have said is exactly the position.' The Government is entitled to have consultations with the management of what is looked upon as the Government bank. I: don't see that there can. be anything out of order in discussing matters of finance with the manager of the Bank of New Zealand, even if we don't go to .the other banks as well;;.; After all, the Bank of New Zealand is the Government bank."' THE CENTRAL BANK. Mr.' Forbes said the suggestion had been made that the Central Bank was being held out as a sort of lever. Mr. Salmond: We suspect there must be something of that sort. • Mr.- Forbes: I want to say that the Central Bank legislation will be introduced on the lines of Sir \ Otto Memeyer's report. There are one.or two clauses, on which there is a difference of. opinion between the Government and .the banks, and I am leaving those clauses over until Mr. Downie Stewart returns. Mr s Stewart was in England to. make inquiries into the question of central banking. I can say definitely that it is the'intention of the Government to put the legislation through. I notice that one of the speakers at the meeting of protest yesterday said the Central Bank was going to'be used as a stick with which to beat the banks. The Central Bank has nothing whatever to do with the question of exchange: Mr. Forbes said that New Zealand had taken advantage of the opportunity of securing a report from Sir Otto - Niemeyer, who was looked upon as one of the greatest banking authorities in the world, and the Government was standing by his recommendations. He did not think that anybody who suggested that the Central Bank was being used as a lever was doing a service to the country, at the present time. . ' MOST DIFFICtrLT YEAR. The Prime Minister said that next year New Zealand would be faced with the most difficult year in the history of the country, and the Government would have to take steps to increase its revenue in order to meet its obligations. "There is no doubt that interest in New Zealand is too high," he added, "and that is one of the first matters the Government will have to go into when Mr. Stewart comes back. We will have to see what" can be done to lighten the load. If we don't lighten the load, we are going to get into far greater difficulties than we have known before. I know that whatever is done there will be a great deal of objection, to it. Whatever is done is bound to cause hardship to somebody." . CURRENCY SCHEMES. Mr. Forbes said there were many currency schemes before the. country at the present time, and. the attitude taken up by the farmers was that they desired to adopt the soundest policy. They were afraid that some unsound scheme of currency would be adopted, and they had turned to the exchange. A/voice: Don't you think that is an entirely selfish view? Mr. Forties: I have not yet been able to find an entirely unselfish man. RATES OF INTEREST TOO HIGH. Beverting to the question of interest, Mr. Forbes'said that the rates of interest in New Zealand were unduly high. In Australia they had been able to arrange a conversion loan of 3} per cent., but in New Zealand they were selling securities over the counter at 5 per cent., and were having'difficulty in having them taken up at that rate. If the bounty proposal were adopted,

would the business men be prepared to see that the money could bo raised at a reasonable rate? Sir.,, Hislop:\ An appeal to the patriotism of1 the people of England proved a great success. Mr. Salmond: It is worth trying. Mr. Forbest We have many things to do yet. He reiterated that there had been no Government interference with the banks. A voice: What about the Parliamentary group? Mr. Forbes: Nobody can prevent the Parliamentary group from exerting its influence. A LOAN SUGGESTED. Mr. Salmond said that the Government should consider approaching England for a loan at a low rate of interest for the purpose of assisting the farmer. In both England and Australia appeals had been made for the conversion of loan moneys at a lower rate of interest, and these had been an unqualified success. He urged the Government to explore this aspect of the question. There was no doubt that the farmers were not unanimous on the question of exchange. Many realised that if the traders no longer made a profit, the Government would have no source of income taxation, as the farmers certainly could not pay. Mr. Forbes said that the farmers, answering the question raised by the business people, pointed to Australia, where there was a 25 per cent, exchange, 10 per cent, primage, and a' 5 per cent, sales tax. Even with these burdens the manufacturers were able to carry on and the New Zealand manufacturers seemed to be more concerned with Australian competition than competition from England. Every Government in Australia was in favour of the high exchange. In the recent New South Wales election Mr. B. B. S. Stevens, a former Treasury official, had contended that the- exchange should be lifted higher than 25 per cent. Mr. J. H. Seullin, the Labour leader, had also stated that his party was definitely in favour of a high exchange. Mr. Hislop: .Was not the Australain rate actually the true rate when.it was first raised? Mr. Forbes said the farmers in New Zealand argued that they had been deprived of the advantage of v the exchange rate by the exchange credits pool. ..'...-'■ A .voice: Does Australia's credit stand as. high in London as ours? Mr.. Forbes said that Australia had been able.to float a loan at 3J per cent., and' Australian 5 per cent, stocks stood at £103.. .Australian credit had not been . damaged by the exchange rate, but by. the open-advocacy of repudiation. . They had to remember that there were . two', sides to, all these questions. THE OTTAWA AGREEMENT. . A member of the deputation asked whether a policy of high exchange would not be a breach of the Ottawa agreement. . » Mr. Forbes replied that tie had consulted Mr. Coates on this question,. and had learned that it had been decided at Ottawa that the financial policy of each country was a matter for that country alone. . ■ Australia had a 25 per cent, exchange rate wJiereas. New Zealand had only 10 per cent., but it was not considered necessary that Australia should reduce her rate and -come into line with New Zealand,, continued Mr. Forbes. A .voice: . What about the surtax? Xou lifted-that. jMr. Fanb&s.: That was a definite agreement. . The question' of exchange is a matter for each Dominion. Mr. Salmond asked why the memorial signed by 26 members of Parliament had been passed on to the Bank of New Zealand by the Government. They wish-ed-to know whether the memorial had Cabinet's blessing. ■ Mr. Forbes said the signatories of the memorial had simply requested Cabinet to send it on to the Bank of New Zealand. The matter had not been considered by Cabinet at all.- If the deputation' requested that he- should send a letter from them to the Labour Party, he would be very pleased to do SO. • : In conclusion, Mr. Forbes reiterated his previous statements that the Government intended to go on with, the Central Banking legislation, which was considered an essential part of the banking machinery of the country.