The Guardian And Evening Star, with which is incorporated the West Coast Times. SATURDAY, JUNE 13, 1931. THE EXCHANGE PROBLEM.

Hokitika Guardian, 13 June 1931, Page 4

The Guardian And Evening Star, with which is incorporated the West Coast Times. SATURDAY, JUNE 13, 1931. THE EXCHANGE PROBLEM.

At the political meeting this week some reference was made to the adverse rate of exchange between Australia and New Zealand and vice versa. Unfortunately the exchange rate is also adverse between New Zealand and London, but in the reverse it is to the advantage of the Dominion. The primary cause of a rising exchange rate is due to the depreciation of the national currency. The Australian and New Zealand trade is very closely intermingled, and the Australian pounu has been depreciated substantially for some time in oversea trading. The credit of a country abroad is due to its outside credit balances derived from trading. The New Zealand pound is also discounted abroad, the exchange rising as high as £lO, hut that is still much below the rate asked on the Australian exchange. The major business of both countries is with the Motherland, and it is chiefly in connection with the trading with the United Kingdom that the rates are based. However, the financial plight of Australia has become so demoralised that Now Zealand being so adjacent, is particularly and actually artifioally affected. The desire of the banks is to keep as much money or credit as possible in Australia, and where, money or credit bills are being sent out, to impose a high rate ol exchange to chock the practice. I his is happening with some intensity on the trading relations as between the Commonwealth and the Dominion. As indicating the artificial nature of the fixing of the rate, a special exchange was fixed for the transfer of credits on the timber trade. For a considerable time there was the comparatively low rate of Co per CUM). This was not an undue penalty, ami the lm>ei ~m l the seller were able to apportion the banking levy to their own satisfaction. But last week there was a jump upwards, about three fold, ami D,e burden of the exchange at once checked the trade. The cause for the rise so unexpectedly is not clear, but there is the suggestion, there was some

abuse of the privilege of the special rate for the timber trade, and that the hankers found money was going out of A,astralia for purposes other than legitimate trade in timber. Be that as it may. the rate is up. and the trade which was materialising, is again shut down. It seems obvious’ that the exchange rate can only he controlled by checking the cause or causes which create the adverse conditions. Unfortunately Australia has been all too slow to move in the matter of deal ing, with the national financial position. When n country like Now South Wales makes default, and its -Government rather glories in the action, faith and confidence financially are blasted, and it will take a long time to recover. Those who support flic Labour policy speak lightly of the action, or suggest other countries have defaulted, but that does not mend the situation. Action, is required to overhaul tlie finance and bring about a condition of .national solvency. When Mr v/TBrieii or other Labour supporters rail against a disastrous exchange i’atc. they should look to the basic cause of the financial distrust which lias led up to the penalty being imposed. No doubt, were Mr Lang to recant on his extreme methods and set about putting the financial house in order, the exchange rate would ease, and New Zealand sawmillers would soon derive a benefit:, hut while finances are so chaotic in Australia. New Zealand will continue to he penalised, and the people should he realising that even at this distance, they are affected by the ill-effects of Labour administration across the Tasman Sea. The immediate cause of the depreciated New Zealand pound abroad was the drop in export prices from last year onward. At the outset there was a fall of some 2b per cent. This, as has been pointed out. has reduced credit abroad, and exchange went up in sympathy with the adverse condition. It is another example of the timirlitv cf money. Security is the watchword for borrowing and as the safety of the investment varies so the price or cos! rises. The same applies to borrowing as to remitting money to another country; security is the basis of the transaction. The whole problem there, fore i.s tlic problem of a balanced budget. Just what Mr Forbes is attempting to do. The means of the country are heavily discounted by the fall in revenue, and the nationa' credit requires an adjustment to meet the decline. Air Forbes should he encouraged and assisted to the fullest limit, and when he succeeds money rallies will be normal and for borrowing exchange purposes will be at" a less r.Hacfing figure.