NEW ZEALAND EXCHANGE

Hokitika Guardian, 18 September 1930, Page 2

NEW ZEALAND EXCHANGE

DNJUSTIFIABLE. RATES

POOLING SYSTEM LONDON, August 8. The “Economist” publishes a special article on trade situation in Australia. and New Zealand. New Zealand has also suffered a reduction of national income due to the fall in export prices and she has undoubtedly been involved in some measure during recent years in a vicious circle similar to that of Australia, with high internal costs and falling external prices occasioning some unemployment. But her borrowing abroad has not been curtailed, her recorded exports exceed her imports by 20 to 25 per cent, in 192728 and 1928-29, and for 1929-30 her trade balance can he at worst hut a little unfavourable. Hence her balance of'payments, on account of these main items, shoud not be markedly unfavourable, and there is nodung in purely New Zealand conditions to hiove her Oxchalige more thaii, say t per cent, from par.

But New . Zealand is very close to Australia, In business associations as well as oil the map. Most of her banks have their main interests in Aug. tralia, and investment funds (low fair ly freely between the two countries. There is much evidence of a steady outflow of New Zealand money to .Australia during the past two yed r s, attracted by the high interest rates there, and it is probable that New Zea land has locked up in Australia money which she will herself need during tlie coming year. Moreover, it is sustoin ary for the banks to pool funds ueld on Australian or New Zealand account in London and other centres abroad, and to fix similar rates for New Zealand and for Australian exchange. At the present time this practice is being followed, greatly to the disadvantage of New Zealand, whose rate is nulled down in sympathy with that of Australia. Protests have been made, but bankers explain that their system of rationing exchange cannot be perfect in application, and that, if New Zealand rates on London were more favour able, Australian buyers of exchange would find means to remit funds to New Zealand and from New Zealand to London. Comparatively little oi such Australian transfers might exhaust New Zealand’s smaller balances, and it is safer to protect them by observing rates similar to those of Ausralia. The argument may not be alto gether convincing, but the practice is explained.

The fact tetri,l ins, however, that there is nothing in New Zealand’s recent or present balance, of plymehkabroad to justify the markedly tittfav ourable exchange rates quoted. Australia has had serious difficulties with a very unfavourable balance of payments, which are reflected in the raid of exchange, and these have pulled down the rates of her smaller neighbour in sympathy. The tendency of the present rates is to stimulate ’-oth an early return to a favourab’e trade balance for the Dominion and a con tinued flow of New Zealand fund- to help Australia over her diffiemu is.