EXCHANGE RATES

Hokitika Guardian, 20 October 1930, Page 7

EXCHANGE RATES

PRESENT POSITION ABNORMAL. The latest bulletin issued by the Canterbury Chamber of Commerce deals with recent fluctuations in exchange rates. In its final conclusions the article says:—

There is thus nothing apparent it the financial relations between New Zealand and London to justify the present abnormal rates of exchange, it appears rather that the rates have been pulled down in common with those of Australia, but without reference to New Zealand’s more favourable exchange position. It is generally believed that the rates for both Australian and New Zealand exchange are set by agreement among the Associated Banks in London, and it appears that, in setting these rates, either there has been a failure to dissociate the diffe/rent financial positions of New Zealand and Australia, and to separate the exchange funds available in London on New Zealand and Australian account respectively, or a merging of Australian and New Zealand business as though they constituted a single national unit. In either case it is highly undesirable that New Zealand currency should be made to appeal' depreciated, and that New Zealand should suffer the penalties of insecure and unstable exchange owing to influences emanating in Australia. While our currency and exchange system is subjected to no effective legal regulation, as ic has been since the war, dislocations of exchange due to extraneous influences are difficult to avoid. It is unfair to throw on the existing banks the whole responsibility for maintaining stable exchanges, for they are commercial banks, sensitive to financial changes outside New Zealand, and not organised for this specific purpose. It is rather the duty of ihe Government £0 determine the conditions upon which currency is to be controlled and thereby decide the limits within which exchanges may fluctuate. It probably lies within he power of the banks to take such steps as will bring our present rates nearer to par.

CURRENCY REGULATION. But the permanent remedy for the situation is to be found in effective legal regulation of currency, such as that -which operated before the war, which was suspended during the war, and which has been little considered and never imposed since. Currency regulation everywhere has aimed ai maintaining currencies at parity with gold. What New Zealand needs now is such regulation as will maintain her currency at parity with gold, and so fix her exchanges within narrow limits alid at approximate parity with toe English pound sterling. This would mean exchanges stabilised within the gold points between New Zealand and London, where most of our exchange business is transacted, independently of what happens in other countries. The broad principles of such regulation are everywhere the same. They consist in making currency exchangeable directly or indirectly with gold. But their detailed application depends < n the monetary and exchange system operating in any particular country. New Zealand is fortunate at this juncture in obtaining the advice of so eminent an expert as Sir Otto Niemeyer. It is to lie hoped that his visit will <esult in a new and effective regulation which will safeguard our currency against depreciation, stabilise our exchanges, and at the same time secure the maximum of economy and convenience in the operation of our currency and banking system .