EXCHANGE ENIGMA

Evening Post, Volume CXVI, Issue 49, 26 August 1933, Page 14

EXCHANGE ENIGMA

EFFECT ON BUSINESS

IS A FALL IMMINENT?

MERCANTILE , VIEWS

There is no gainsaying the prevalent uncertainty among primary producers and business men throughout tho Dominion as to the future of the rate of exchange New Zealand on London. Tho overseas trade returns for the seven months in Now Zealand currency, and excluding specie, showed a credit balance to the Dominion of £12,000,000. They also showed the persistent fall in importing. In normal times an excess of exports of £10,000,000 was sufficient to provide for the payment of New Zealand Government and local authorities' requirements in London, and to fully satisfy the demands of merchants when imports were flowing to the Dominion in very much greater volume than they are today. These returns have accelerated the thinking of many AVellington business men in the direction of a scaling down of the rate as not only imminent but inevitable, so far as "The Post" has been able to learn from inquiries made into this matter. Besides, the question is also being asked, not without some anxiety, "what is this exchange business going to cost the country!" The Government gave an undertaking to the banks to indemnify them for any losses they may sustain in buying funds in London, by paying in New Zealand £125 for every £100 in London. This arrangement, it has been pointed out to "The Post" in the course of its inquiries, had much to commend it if REDUCED SPENDING POWER. But the trouble begins at. the "if." Provided New Zealand importers were able to obtain.from the buying public that extra 15 per cent in the price of their goods imposed by tho raising of the rate of exchange from 10 per cent, to 25 per cent., all would have been well. But with the people's income reduced by low prices for produce, cuts in salaries and wages, reductions in ininterest, suspended payments of rents and mortgage interest, increasing unemployment, and uncertainty of employment —the spending power of the people has been enormously reduced, necessitating in any case, a drastic reduction in importing. Retailers, "The Post" learns, know this lack of buying power to their cost. In any case, even if the exchange rate had remained at 10 per cent., imports would have been well down. But the raising of the rate to 25 -per cent, almost gave a knock-out blow to the import trade. Incidentally, it has been answerable in part for a large jiumber of vessels coming out in ballast to load Now Zealand exports, or coming out with about enough cargo to . serve as ballast. This fact alone is reflected in reduced earnings by waterside workers and lower receipts by harbour boards from discharge of cargoes. But that is not all. The high rate of 25 per cent, for London money—as high rates for any commodity will do— has brought competition into the field, for offers to provide £100 of credits in London have been made in the New Zealand market at £123 15s, as against the official bank rate of £125. Any considerable volume of business in these terms must result in increasing the indemnity the Government will have to meet in settling with the banks for London money that they are unable to sell at 25 per cent, premium iv New Zealand. PRICE OF A PREMIUM. Business men, so far as "The Post" has been able to learn, may havo been gratified that the- high exchange rate has represented l|d per pound more for butterfat, has raised the return on meat and wool to the producer by 25 per cent, above overseas' prices, or thereabouts. But they are now asking: At what further cost? Income tax cannot yield any more unless it is still further increased, the sales tax has already eaten into retail turnovers because so many people are buying less, demanding cheapness, or "going without." If, then, some millions will have to be found by the Government to indemnify the banks for London credits for which they have but very little demand, where is the money to come from? That large sums of money, the earnings or receipts of British domociled companies operating in New Zealand, and of other interests, are being held on short terni deposit with the banks of the Dominion is not at all improbable. These deposits may be held on three or six monthly terms, and are therefore, practically liquid. But their receipts, although not necessarily negotiable, would no doubt, be favourably regarded by banks in England as security for advances made to valued and important clients. The imposition of the 25 per cent, exchange rate was made with the express object of compensating the fanner for low prices for exported produce, at the expense of tho community. Prices have since slightly improved, but whether they havo reached a point at which tho crutch of high exchange can be safely removed from the primary producer is a question upon which there appears to bo some diversity of local business opinion. But there is no blinking the fact that in Wellington