INFLATING THE CURRENCY

Hokitika Guardian, 23 December 1920, Page 3

INFLATING THE CURRENCY

Tho “Auckland Star” comments as follows on the evils of currency inflation as practised in this country : —“The local banks here several times during the last week have raised their charges for the safe of drafts oh London. The tremendous importance of this move is not yet thoroughly realised. It means that the pound sterling has already a different value in London from what it had in New Zealand; that this disparity of value is likely to increase and to fluctuate continually, introducing another element of complication into the vexed question of exchange, just as the dollar in Canada, has today an entirely different value from the United Stales dollar, though previous to the war they were on the same footing. How can it be otherwise? In our opinion the only matter for surprise ns that this disparity ini the exchange has not occurred sooner. The gold or purchasing power of an inconvertible paper currency depends mainly on the quantity which has been put into circulation. This is no matter of theory; it has been the invariable experience of every Government which has issued an inconvertible paper currency, no matter how high its credit. Under these circumstances it is difficult to maintain, the parity of exchange' between the two countries, which all use the same currency, hut both of which have departed from a gold basis and both of which have nowtaken to issuing inconvertible paper in an eveiry-varying proportion. The banks already make an important distinction iietween the “London parity and the “New Zealand parity” of exchange; in other words, they recognise that the pound has no longer the same value in both countries. The departure from the gold basis on the part of the New Zealand Government was effected in such a stealthy manner that scarcely anyone was aware when it had been done. Successive issues of incontrovertible paper have appeared in an equally surreptitious manner; for it is one of the most serious defects of the incontrovertible paper system that such issues can be made quite clandestinely without the public being aware of the fact. In 1914 the notes in circulation in New Zealand totalled a shade under two millions; in the September quarter of this year, the aggregate was 1 £7,500,000. Our currency had been deluged, said Professor Murphy in AA’ell.ington some months ago, with soft shoddy paper money. AVe have over-

production of . money, and under-pro-duction of goods. There will be no remedy till we stop relatively over-produc-ing money. Yet in the face of this the 'Government lias now given the banks authority to issue, on advances on Government loan and on produce, additional notes which might in a. short while double the existing note total. is high time the public fully realised the serious danger of this financial policy and that they insisted that a. stop should be put to the Assue of more in controvertible paper. All over the world economists are insisting that deflation is an essential remedy for the financial ills of the day—one of them • being the cost of living—yet here is our Government embarking on a. policy that must lead to a still further enlargement of our already inflated currency.” mm ■ iim ini ■niu'.'i ,