EXCHANGE RATE

Rotorua Morning Post, Volume 2, Issue 212, 2 May 1932, Page 4

EXCHANGE RATE

The statement tegarding the purpose and probable future of the exchange pool made by the Ministei' of Finance, the Hon. W. Downie Stewart, to a deputation representing the meat and dairy produce export boards and others, was long overdue. The primary producers were first and most heavily hit by the fall in the world price level, which was a sudden and not a gradual process. The result was that the farmers' costs, in terms of produce, rose with great rapidity, in some branches of production to more than double what they had been. As one means of easing their burdens they advocated a high exchange rate against the New Zealand pound. This, in effect, was a policy of inflation designed to inaiiitan a high export price level in terms of New Zealand currency. For precedent, they had the example of Australia, which had established a rate of approximately £130 Australian against £100 Fnglish. The Government, however, rightly or wrongly, adopted a definite policy of deflation with the object of bringing the New Zealand price level into closer relation to the ruling world level. This was diametrically opposed to the views of large sections of the people of the Dominion, wdio either wanted straight-out inflation or, like the farmers, partial inflation. The' farmers naturally looked upon the establishment of the exchange pool and the fixation of the rate of exchange at a comparatively low level as part of the policy of deflation, and though this was frequently denied, no clear, hon-technical explanation of the Government's reasons has been given them until now. With the example of the results achieved in Australia, where the purpose of the high exchange rate was not only to assist the farmer, but also to check an excessive inflow of imports, it was not surprising that the farmers failed fully to appreciate the significance of the difference in the situations of the two countries and it is difficult to avoid the feeling that the Government, by its lack of frankness, has succeeded merely in increasing the farmers' discontents and adding to its own difflcultes to no purpose. The explanatioii now given by the Minister puts an entirely new complexion on the matter. No one, no matter what his attitude on the vexed question of inflation or deflation, will deny the necessity of the 'Government to take the steps necessary to maintain confidence in London regarding the Dominion^ intention and capacity to meet her oversea financial obligatiohs. For this purpose, apparently, the pool was established and the fact that it was recently possible to float a £5,000,000 loan in London on reasonable terms is proof of its effeetiveness. The news that, at the preseht rate of progress New Zealand's financial positioh in London will probably be such as to justify the cancellation of the pool by the end of June, will also have a good effect in the country. Drastic measures, such as the establishment of a corhpulsory exchange pool and legislation like the National Expenditure Adjustment Bill, naturally have a disturbing effect on industry and finance and tertiporarlly, at least, often tend to aggravate the difficulties they are designed to relieve. On the other hand, the knowledge that they are achieving or have achieved their purpose, has a corfeSpondingly good effect, restoring confidence and encouraging enterprise in anticipation of a coming recovery. It is therefore, to be hoped that the Government will in future, ^ take every opportunity to keep the conntry informed of favourable developments. As an antidote to the dismal forecasts j of the recent past such iriformation will he of the greatest value.