BANKS AND EXCHANGE

Rotorua Morning Post, Volume 2, Issue 386, 22 November 1932, Page 4

BANKS AND EXCHANGE

Although there is justificaltiQn for his attitude, the Prime Minister was a little sweeping in the gesture with which he thrust re>sponsibility for the exchange question upon the Associated Banks. When he was asked whether the Government had approached the banks in regard'to the position, Mr. Forbes said: "The first move must come from the banks. They. accept responsij bility for the finances of the i country and they must make the ! move. It i^( not for the Governj ment to do so." In their present ! position, it is doubtful whether ! even the banks will be grateful J for the gratuitous bestowal of j the finances of the country upon 1 their shoulders. Mistakenly perj haps, the taxpayers of this coun-

; try have believed that the Gov- ! ernment which they established | in power accepted this responsi- ! bility. The facts have increasj ingly tended to disprove this be- ; lief but in spite of discourage- | ment, it has persisted. It is, 1 however, hardly fair to expect the banks to shoulder the initi- ! ative in the vital and difficult i matter of exchange control. In j the first place, although under I their charters, the banks have ! certain privileges in return for , their assistance with the finan- | cial management of the country, | they are very much subject to I political influences. Whether the | banks are regarded as sinister organisations, milking the unfortunate taxpayers for their doubtful ends, as wise and omniscient organisations, and corner stones of established authority, or as ordinary trading instituI tions endeavouring to pay as ! satisfactory a dividend as possible in difficult times, it must still be admitted that even the best laid plans of bankers and | bankers' men may still be entirej ly changed and disturbed by "the ipeoples' representatives in Par- | liament assembled. It is after all, Parliament which should accept | responsibility for the country's i finances and not the banks. Any Government is certainly better . advised to leave banking matters i to bankers and men of financial experience although in many quarters, this lesson has not yet been learned. But outside matters which fall entirely within the seope of banking and eifect the financial policy and prosperity of the country as a whole, it is the duty of the Government to give a lead and not to shelve responsibility on to someone else's shoulders. Undoubtedly it will be most convenient for the Government to be able to do this in this particular instance for all denials to the contrary, it is obvious that in acting as they did, the 26 members of the Government who advocated the pegging of the exchange, forced the hand of Cabinet in the matter. Without this impetus, it is extremely doubtful whether the • proposal to peg the exchange would have been ventilated at all. Politically, it is toqf dangerous. There will be general support for the very timely observations made by the members of the deputation in urging the necessity* for measures to alleviate the lot of the primary producer. There will, however, be a very marked diversity of opinion in regard to the remedy which the deputation advocated. The recommendation that the exchange rate should be artificially pegged at 30 per cent. may be called by many names but bluntly called, it is nothing more. or less than inflation for the purposes of raising prices. The question therefore resolves itself inj:o the old argument of inflation ; versus deflation. There is no ' doubt that the, pegging of the exchange as suggested would have ap immediately beneficial eifect upon the prices received /■

by the primary producer in the overseas market. But it must not be overlooked that a pegged exchange although it may assist the seller, reacts correspondingly against the purchaser. The effect of this proposal will be to raise the costs of imported goods with a corresponding increase in the cost of purehases within the Dominion. It will unquestionably make matters considerably harder for the importing community who will be compelled to pass- it on to the consumer. Ij: is therefore a question as to whether if the higher exchange pays the farmer a little more, it will iiot take from other classes of the commupity to 'do it. This, in the long run, must inevitably have a most serious effect upon the farmer himself.