THE EXCHANGE COMMANDEER

Hokitika Guardian, 30 January 1932, Page 6

THE EXCHANGE COMMANDEER

~ N.Z. FINANCIAL TIMES The recently publish regulations under which the Government has taken control of the London exchange, unexpected as they were, have naturally staggered tlie business world; and importers specially, who have been sorely tried with the primage duties, exchange premium, and poor buying power will find tlie new situation even more difficult, and be inclined to regard it as almost the last straw 'While the effect of those regulations is not as yet completely determinable, and certain reactions will surely arise which wore contemplated by the Government, is it already plain that the movements to a commandeer of London funds for public requirements, and that the Government itself will be both judge and jury as to what those requirements are. Competitive rate fixing has also gone by the hoard, it being proved that the Government, in consultation with the hanks, shall determine the rates to be paid to exporters for London funds. This elimination of a competitive exchange market, in addition to the virtual control of our import and export business, is tlie most remarkable aspect of the new regulations. In Australia the hanks came to the aid of the State with exchange, priority, but they did not establish a compulsory commandeer and eliminate, private dealings, with the result that the Australian rate expressed the true situation of the Commonwealth currency. Under the'arrangements made for the Dominion this safe-guard does not exist, since there is a monopoly control on the demand *. side, and the Government can fix an arbitrary rate, for a considerable time at least, that will naturally be placed at the point most advantageous from the point of view of Government remittance. In all probability this will mean lower exchange rates than would establish themselves in a competitive market. Possibly this may be in the public interest, but we are opposed to all price fixation, unless the public needs are shown to demand it most urgently. It can however hardly be held that regulations are a material discouragement to primary production, since we normally produce and export to the limit, irrspective of price considerations, and will continue to do so.

The broad reasons for the exchange commandeer are clear enough. It is due to the break-down of borrowing facilities in London, that centre having for the time being a considerable dearth of short term funds, owing partly to the collapse in Central Europe, and partly to the unsatisfactory British trade balance. Deprived as we are of traditional expedient of borrowing to square our balance of accounts, we have to rely on our own resources ; and to avoid default the Government takes first claim. Where however will this claim cease, and what guarantee ;s there that the Government will net interpret its needs in a very broad sense, endeavour to make provision ahead, and virtually deprive importers of remittance facilities altogether? We see' nothing in these drastic regulations to prevent such a contingency.. Suddenly deprived of our loan facilities, we have been brought up against much the same unpleasant situation as faces a confirmed toper suddenly deprived of his whisky.

Nobody wants the Government to default, yet at the same time few win view with satisfaction the enormous extension of State control of our import and export business involved in these far-reaching regulations, which go much beyond any form of business control hitherto attempted in the Dominion. As tilings stand the Government, having taken control of all remittance facilities, is in a position to dictate what shall be imported, in what quantity, and by whom ; since by securing an effective control of the means of payment it necessarily indirectly governs the volume and nature of imports.

The step also introduces a further arbitrary element into our economic life, and prevents the exchanges from being a true register ol the condition of our currency and balance of trade The rate is to be pegged at a figure decided not by the supply and demand, but by the Treasury requirements; and this will place on the shoulders of the Government not only the power, but the necessity to regulate imports, which otherwise would be regulated by free exchange movements. For tbjs task no Government lias the necessary qualifications. On what principles, further, will it decide who is to have remittance facilities, and who is to go short? One cannot resist the conclusion that in our efforts to react from tie moss into which past policy lias plunged us we are adopting liamT-to-inoutli expedients that inav ultimately make our position materially worse. Every well-meant effort, at rehabilitation lias involved a further measure of State Control, a further drift to State Socialism. It seems rather ironical that a Government just elected <>n an anti-Labour programme should signalise its success by the most drastic venture in State control of business that/the country lias ever bad to experience. It may be necessary to give the Government prior claims over London funds, but. if in tin* process wo ruin or seriously hamper our import industries our last

state may lie worse Ilian the first. The major grounds for criticism the olimiiiatL i of a competitive exchange rate, the absent a of any principle of distribution of the balance

muting importers- and the *' an ' assurance that any such balance will in fact he available. KEEP UP with THE “FINANCIAL TIMES.” Tn financial times like these you need the “N.Z. Financial Times”— New Zealand’s financial monthly. Learn tho real truth about the slump. The Thames Borough Council has borrowed 200 per cent, of its assets. Coal Oil (N.Z.) Ltd. is in immediate danger of losing £170,000 of shareholders’ money. Many other matters of public interest to New Zealand shareholders are in the November issue of the “N.Z, Financial Times,” which is not sold anywhere. Tt can be obtained, post free, for tho modest subscription of only One Guinea per annum. Order through your stationer, or write direct, enclosing subscription and giving full postal address to — The N.Z, Financial Times, Wellington.