TRADE CREDITS AND DEBITS

Evening Post, Volume CXVII, Issue 21, 25 January 1934, Page 10

TRADE CREDITS AND DEBITS

In 1932 the Dominion had a visible trade balance in New Zealand currency of £10,964,000. Last year this rose to £15,425,000. This surplus is much more than sufficient to meet all commitments' for interest, shipping, and insurance charges and other invisible imports. The position on the face is not very clear. Exports, which arc recorded in New Zealand currency, rose from £35,610,000 in 1932 to £41,301,000 in ,1933. But as this currency was 15 per cent, more inflated in 1933 the sterling value of the exports for the two "years is approximately equal. The higher export value is really an illusion. We just pay it ourselves— to ourselves. On the other hand imports, recorded in "current domestic values in the countries of export, plus 10 per cent," show a,' decline from £22,990,000" to £21,451,000, about one and a half millions. When both exports and imports are expressed in New Zealand currency the excess exports are not £19,849,000 (as part of that difference is accounted for by the currency difference), but £15,425,000. This is still almost half as much again as the balance for 1932. '. This increase is accounted for partly by inflation of the currency «uid partly by reduction of imports. Any increase in production has been- sufficient only to offset the decline in unit- values of produce between 1932 and 1933. In considering tHe national effect of the greater credit balance, there are two points that claim attention: (1) The general effect on trade; (2) the effect on Government finance. In its bearing on trade a swollen favourable balance is not an unmixed blessing. It means thai we are selling more than we buy, even after allowance is made for payments of interest, freights, and insurance. As a debtor country "we could, of course, use part of the surplus credit \o reduce our indebtedness, if loans matured conveniently. But this would not be wise when the exchange is against us. The general result, therefore, is that, as the money is not required for imports, it will not come speedily into circulation so as to restore the prosperity of the general community. A considerable part ,of it, indeed, will remain on deposit with the banks, as there are few fresh enterprises to absorb it. The channels through which it might flow for the irrigation; of business and employment are choked by high exchange, moratoria, and other, con-fidence-destroying devices. , The moral is* to clear-the channels.

. Government finance is affected because the Government has agreed to purchase from the banks all surplus London credits. Every pound .of London credit that is not used for the purchase of imports or the satisfaction of English debts must be bought by the-general taxpayer. Except for that part, relatively small, which is required for private and local body debts, the whole of this £15,425,000 must" be taken over by the Government. Of course part of it will be used in meeting Government interest, but that will not lessen the true cost of the transaction. It merely means that part of the charge is made to interest and part to exchange indemnity. This, will go on until the obstacle which is blocking import trade is removed. In fact the position may become worse. Higher wool prices will increase the export credits and make the surplus greater. Importing is not likely to increase in equal ratio. Rather, there will be a tendency for buyers to defer their purchases as it becomes more and more apparent that the exchange rate must shortly come; down. The Government has declared that the rate will not be reduced before the present export season ends; but that declaration will not revive importing. The only sensible course for the Government to take is to eliminate the artificial factor, take out the peg, and allow the exchange rate to find its true level. If this is not done, the country will not be in a position to receive the full benefit of reviving trade1, arid the Government finances will become steadily worse, even though the deterioration may be covered upi*^ susyjgns§,*aceoants» B ,