EXCHANGE RATE

Hokitika Guardian, 25 February 1932, Page 5

EXCHANGE RATE

NEW ZEALAND ON LONDON. PROFESSOR GREGORY’S OPINION (United Press Association.—By Electric Telegraph.—Copyright.) LONDON, February 24. Professor Gregory, who has been consulted with the object of obtaining the best opinion in tlie City of London, on the question of advancing the rate of exchange for New Zealand on London begins hv agreeing that since primary production in New Zealand iw carried on for export, there can •be no question of a. diiect and short run. The effect of raising the premium on London money in New Zealand must be to increase the receipts accruing to the primary producer. How lar this immediate benefit to the primary producer means eventual and permanent improvement in his position is another matter, for even if it can be shown that part of the increased receipts, can be permanently retained by farmers, this does not dispose pi', the matter finality, for other aspects must also be taken into account.

Professor Gregory then shows how wholesale prices inthe United Kingdom have begun to rise, and can be expected to continue rising, he remarks, under the combined influence of;' the tariff and suspension of the gold '• standard, to the extent that sterling prices rise, He holds that th 6 position of the New Zealand primary producer would improve even without a change in the exchange rate „on the wholesale price levels index of both Great Britain and New Zealand. The margin is appreciably narrowed, and lie .suggests it would appear not unreasonable to defer action in the immediate future, in order to establish more clearly than is possible at the moment, the trend of British prices. Caution in this respect is especially necessary, in view of the fact- that the rise in the premium exchange rate is bound, in any case to effect the* level of import prices.

Pursuing jn detail, the many issues involved, Professor Gregory makes the point that while there might he a fall in wages they would eventually rise as from a number of considerations there must he a rise in price levels. He says that Customs revenue would fall, also, and that New Zealand securities would decline in value, making conversion, or a new loan, either impossible or extremely expensive to finance. If the exchange rate is allowed to rise further, it must be recognised it will ultimately prove impossible to revert to the old parity between sterling and New Zealand money, for if the rise in sterling lags behind the movement in. exchange, it would he impossible to regain parity with the British pound except by means of drastic deflation of New Zealand prices. If, on the other hand, British prices did not advance, after Llie exchange rate had been allowed to advance, an equally difficult problem presented itself, for unless such exchange rate was at once forced down, primary producers’ receipts must expand, and all conditions for a sharp rise in land values and local over-expansion he created.

He directs attention to New Zealand's trade balance for 11 months of 1931 which shows a cumulative balance in favour of the Dominion of seven million, That was a fact that robbed the argument, that the present rate of exchange seriously over-valued the New Zealand pound, of a good deal of its force,

'Professor Gregory’s opinion was furnished to the National Dank of New Zealand, in response to a request to headquarters, for an independent opinion of a British economist of high standing on the New Zealand exchange position.

FREE MARKET ADVOCATED. EXCHANGE CREDITS POOL. WELLINGTON, February 24. A statement was iesued to-day by the Associated Chambers of Commerce of New Zealand, explaining the attitude op the exchange credits pool. The Association declares its opposition to the artificial pegging of exchange, and re-affirms the opinion that there should be a return to a free open market for exchange. It considers the method chosen by the Government to extricate itself from the difficulty of making overseas payments by commandeering the export |,,coine of the Dominion in London, wrong in principal, and inimical to the commercial and productive welfare of the Dominion. ft considers that simpler and better plans conk] have boon devised than those forced on the community, without consultation, by Order-in-Coun-eil at short notice, and without adequate explanation of machinery for working. The Associaton is still of tin' opinion there is no necessity foi die present svsteni and no reason why banks should insist that' all export moneys should be remitted to New Zealand, and all mono vs for import requirements remitted back to London, thereby duplicating a large proportion of the exchange business.