RATE OF EXCHANGE.

Evening Star, Issue 21744, 12 June 1934, Page 8

RATE OF EXCHANGE.

Financial, and commercial circles in Auckland appear to be desirous of stirring up the question of the rate of exchange. On successive days messages have come from that city. The first announced that the regulations governing the transfer of money from London to New Zealand had been tightened up, and that for certain classes' of remittances the New Zealand pound and the English pound would in effect be treated as equal in value. The reasons proffered for this remarkable discrimination were that the primary purpose of the exchange rate was to benefit the New Zealand farming industry, and that there must be some safeguard against British capital transferring large sums here in anticipation of the lowering of the rate of exchange which some people believe to be likely when the Reserve Bank of New Zealand begins operations. For example, if £IOO on its transfer from London became £125 here, then on a lowering of the exchange rate to, say, 15 per cent., the original £IOO on retransfer to London would become about £IOB 10s. Under these circumstances it can easily be understood that the New Zealand Government, which has arrogated to itself the control of the exchange rate, discourages this form of private speculation or investment, and one of its methods of discouragement is to maintain a sphinx-like attitude regarding probable or possible alterations in' the rate. A rather ingenious way of seeking to induce the Government to break silence has been tried. To the Government was referred a London cablegram received’ in Auckland, stating that owing to renewal of the agreement between the Government and the trading banks for a further six months the exchange rate would remain stationary. The Ministerial answer is that, as the period of the agreement is indefinite, there is no need for its renewal. Furthermore the promise that there would be no disturbance during the export season now drawing to a close does not imply that there will be any change thereafter. ~

This is no doubt satisfactory from the Government’s point of view. Currency instability is a grave obstacle to the revival of trade. Undoubtedly the inward trad© of the dominion has been minimised by uncertainty as to the rate of exchange being lowered, and it appears to bo the Government’s aim to dispel the idea that this is in any way imminent, so that overseas purchases may not be restricted. Of such restriction the Minister of Finance has already complained when explaining tho accumulation of surplus funds in London, which is a matter of considerable expense to the Government under its arrangement with the banks. But, much as the Government may desire currency stability, it is, . in ultimate eifect, impossible of achievement when it is a matter of common knowledge that the fixed rate of exchange is an arbitrary one, quite at variance with what it would be under an untrammelled law of supply and demand. In the March issue of the 1 Round Table —a most impartial and able periodical —the Minister of Finance comes in for somo searching criticism over the Government’s handling of the exchange question. It states: “ Hopes, fears, and suspicions are the inevitable outcome of uncertainty, and the Minister eliminated the principal causes of uncertainty [by his statement as to the maintenance of tho current rate of exchange till the end of tho export season], but in other respects, and especially on this question of the disposal or the surplus London assets, he still

allowed ample room for uncertainty, uneasiness, speculation, and contention.” Since that was written the situation has in no fundamental altered, and the Prime Minister’s comment this week on the Auckland message suggests a determination to prolong or perpetuate just those conditions on which the ’ Round Table ’ animadverts.