EXCHANGE RATE

Hokitika Guardian, 26 November 1932, Page 2

EXCHANGE RATE

BENEFITS OF STABILITY.

A BANKING COMMENT

Disturbing reactions which might follow a rise in the exchange rate are mentioned in the October summary of Australian conditions issued by the National Bank of Australasia.

The bank agrees that the small decline in the value of Australian exports in recent months and the expansion in import figures, compared with the totals for the corresponding period of last year, may lead to a revival demands for an increase in the exchange premium on London. But the problem is not as simple as it might appear. A. rise in *he exchange premium on British bills, which is the same thing as a depreciation in the exchange value of. Australian currency, would doubtless induce a prompt increase in local prices of export commodities. The position of the primary producer would be improved relative to other sections of the community. But there would be no addition to the amount of British currency, we would receive for our currency. Austra. lia would be no better off in its relation to the rest of the world.

DISTURBING REACTIONS. “In fact,” the summary states, “a rig* in the exchange premium would set in motion various disturbing reactions here, /affecting all sections of community effort. In particular, it would reduce the real value of each pound paid in wages, r.ent, and interest. Beyond these shores it would some tendency towards reducing price levels in general.' With' world finance and commerce in their present disturbed condition, it would be unwise to do anything likely to further depress the price levels of Australian export commodities. Though the action may he relatively small, the result cannot be determined in advance. The depreciation in the exchange value of the currencies of great nations which are off the gold standard has been accompanied by a marked decline in wholesale prices. Nearly a year , after England s departure from the gold standard, sterling prices were actually lower than they had been before that step was taken, though the decline in exchange was about 28 per cent. “A heavy Australian export season is in close prospect, while an increase in imports, should naturally accompany the improvement in trading conditions noted during recent months. A pronounced exhange in! the balance of trade may result and may prompt a renewal of outside attempt to influence a change in the current exchange premium on sterling. Any such agitation should be severely deprecated, a* temporary trade movements provide an insufficient indication to the real poii. tion. In fact, such movements may be morel than offset by invisible items. The exchange market is much more sensitive than it used to he, fthff traders are watching changes jn conditions more olosely than in the past. They prefer exchange stability, , and this can best be assured by leaving the controlling authority to/carry out its task free from carping and uniformed criticisms or the disturbing influences of political or Tress propaganda.

EFFECT ON NATIONAL CREDIT. “One important outcome of the strength of the : Australian exchange rate, following the reduction in the exchange premium on sterling from 30 to 25 per cent eleven months ago,” the hank adds, “has been its effect in adding to our national debt credit at a time when one of our oversea loans was approaching maturity. There is good reason for saying that, had the exchange been allowed to depreciate, it would have been almost impossible for the Australian Government successfully to convert the £12,360,000 which matured in London on November Ist.” ' ' .