THE COLBECK PLAN

Rotorua Morning Post, Volume 3, Issue 676, 31 October 1933, Page 6

THE COLBECK PLAN

FRANK

COLBECK.

(To the Editor) Sir — I have been asked to explain how the adoption of the Egyptian plan of exchange would enable the New Zealand Government to restore "parity of exchange" within the Dominion. The Egyptian plan is as follows: — | All notes are issued by the Egyptian Treasury. Banks have to buy notes at face value; the cash' obtained from the sale of notes is invested in gilt-edged securities, mostly British Treasury bills and Government stocks, and stored in London. The notes paid in Egypt for drafts on London are taken out of circulation' . The cash paid in London for drafts on Egypt is held and converted in London and the encashment is effecfc•ed in piastre notes that go into circulation. The Egyptian pound equals 100 piastres, 100 piastres equal £1 0s 3.77d. The exchange is fixed at 971 piastres to the £ sterling; this' is equivalent to an exchange, of roughly, £2 10s 6d per cent, so th'afc the Government make a very handsome profit on the business. The Egyptian Government and' the

E&yptian National Bank divide, over £1,000,000 per annum made out of exchange. The effect of this stabilised exchange prevents any fluctuation of prices except such as is due to a rise or fall in world's parity. Let us suppose that the. New Zealand Government were to adopt this plan. They could restore "local" exchange parity in one of two ways. (1) They could lower Customs duties. and, since "import parity" governs local prices, they could reduce all prices to British levels plus freight and charges; (2) they could leave Customs duties as they are and pay out an increased price for exports — again, "local" prices . could not rise above "import parity"; (3) they could adopt any plan between these two extremes. The fact that they have freed exchange prevents any rise above import parity. The Government could •equate local prices at any point between free trade and high protection levels. — I am, etc., *

Morrinsville, October 14, 1933.