POSITION IN CANADA

Rotorua Morning Post, Volume 2, Issue 490, 25 March 1933, Page 7

POSITION IN CANADA

i HIGH EXCHANGE GOVERNMENT ADOPTS A CAUTIOUS ATTITUDE. . After South Africa, New Zealand; and after New Zealand, Canada, re■xnarked the Eeonomist of February 4, in commenting on the downward trend of the Canadian dollar which that week had fallen from 3.91 to 4.11 to the £ sterling in London. Thus, orie hy one the Dominion exchanges are depreciating, said the Eeonomist, and the fundamental cause of pressure is'the same in each case, namely, the intolerable hurden thrust upen their primary producers by the low level of their prices, and their desire to snatch at least a temporary advantage hy the depreciation of their currencies. In Canada, the pressure ha.s been obvious for some tinie past. The favourite plan is to secure parity between the- Canadian dollar and sterling, the argument being that, th'ough the new dollar would be worth in gold probably ahout 65 cents as compared with its present gold value of 85 cents, nevertheless the purchasing power of the cheapened dollar would not fall in consonance with the drop in its exhange value, but would decline slowly, thereby giving primary producers a, period of respite during which they would have an increased supply of money without a corresponding rise in prices. Advocates of sterling parity point to the comparative steadiness of prices in Britain despite the depreciation of sterling in terms of gold by one-third. Last November the Government gave wa.y to this pressure to some extent, for they countenanced a modest dose of inflation by borrowing 35 million dollars from the Canadian banks through an issue of Treasury bills which were discounted .by the banks in exchange for currency. This led to an immediate break in the Canadian dollar in London and New York. Since then the Government have adopted a cautious attitude; and in a speech by the Finance Minister on December 2 it was allowed to be understood that the official policy was to maintain the status quo pending the meeting of the World Economic Conference. The Canadian banks, too, have set their face dead .against inflation, and have reinforeed the traditional banking view, that such action is dishonest if taken deliberately, by pointing out that a depreciation of the currency would automatically add to the already huge burden of Canadian indebtedness in the United States. Nevertheless, said the Eeonomist, the position was obviously hecominig delicate; for the very recent examples of South Africa and New Zealand have shown that a Government can be driven hy stress of circumstances to change its front almost without warning. Hence the development in January of a certain seasonal weakness in the dollar inevitahly aroused a feeling of alarm, and caused heavy saies of Canadian dollars. The speeulator was quick to seize his chanee, and the big fall in the London and New York exchange followed. So far, the Canadian Government are not disp'osed to allow themselves to be stampeded, but how long they can resist both political pressure from i the farmers and direct pressure upon ! the exchanges is quite another story. The Canadian exchange position has for a long time been regarded as unsatisfactory in the London market, on the grond that it is a hybrid rate, hoth linked to and divorced from gold. No douht every effort will be made to maintain the rate, if only because, should the Canadian dollar fall to parity with sterling, the burden of ; Canada' s debt to th'e United States would become intolerable, and there would be grave danger of widespread defaults. It is by no means certain that these efforts will be successful.