AMERICAN VIEW

Hokitika Guardian, 24 July 1933, Page 8

AMERICAN VIEW

OF NEW ZEALAND EXCHANGE CURRENCY STABILISATION ESSENTIAL 1 he. June Circular of the Nationa. City Bank of New York, deals with the subject of currency stablisation, and in. the process comments on tli© action of various exporting countries to the United Kingdom in competitively depreciating 'their currencies. There can be no question,’ states the Circular, that an outstanding problem before the World Conference will bo that of achieving some restoration of order in the exchanges. Until this is done it will be difficult to see how much, progress can be made with the other problems before the Conference, including the question of tariff relations. When currencies are fluctuating violently against one another there is no firm basis for fixing tariff schedules. Countries which are feeling the competition of other countries whose exchange is depreciating are likely to want an elevation of their tariff walls, thus intensifying the obstacles to trade. Our readers may bear in mind the complaints ..of our own manufacturers against the alleged inroads of cheap merchandise from depreciated currency countries. That the President fully appreciates these difficulties, and desires a universal return to gold at the earliest possible date, is clearly evident from the statements given out at Washington. In previous issues of this Letter we have commented repeatedly on the services of the gold standard. We do not propose to repeat all /these arguments at this time. However, it is in order to draw attention to the hardships inflicted upon all foreign trad© by unstable currencies. The merchant who buys goods from afar must not only allow-for the usual fluctuations of the markets, but must gamb’e upon exchange as well. It becomes extremely difficu’ty to figure co«ts find prices, with the result that the sum total of business is restricted.

COMPETITIVE DEPRECIATION Even more serious, perhaps, is another danger that always exists when paper currencies are no longer fixed in Aheir relations to each other through some common standard of, value: that is, the danger of a.competitive depreciation of the currency. During recent months we have, , seen a number of evidences .of the endless chain of international price-cut-ting competition that, is set in motion when one country--seeks to .obtain advantage over a competitor in this way. In the. February issue of this Letter reference was made to the action of New Zealand in reducing the value of her pound from a niite 1 to a 20 per cent, discount in terms of sterling. At that time the Australian pound was selling at a discount of 20 per cent, in terms of British pounds, and Australia is a competitor of New- Zealand in the British markets. Hence is is to jbe presumed that a desire to “equalise” exchange had something to-do, with Nevt Zealand’s action. Hardly had this step been announced, however, when Denmark, also an important exporter of agricultural products to Great Britain, took similar action, altering the pegged rate of the krone from 191 to 22i- to the pound sterling. Thi". was in consequence of a political. crisis in which the Government turned for support to the Left, the inflationary party. It is the theory of this party that as the bulk of Danish produce is. exported the easiest wav to increase returns to the farmer is to reduce the value of the currency. But if is pertinent to ask why the previous depreciation of this currency- was not adequate to restore the profit-earning capacity of the export industries, what Denmark’s competitors will do to offset this move, and wliat will happen when th- ante, u.il ptr< hasing power of. the depreciated currency decreases ?

Will New Zealand, an exporter of products competing with Denmark, be content with her recent depreciation? What wif be the reaction in Australia, which has doubled her exports of butter since 1928?

Of course, this situation illustrates the truth that the competitive gains from a depreciating currency are rapidly lost in the readjustments that follow, unless the depreciation in continuous. The inducement to make it continuous is great, and so is the inducement to other countries to depreciate their own currencies further, since each can argue that its decision is defensive or retaliatory. The u’ti. mate end of such competition is the extinction of all currencies.