The Daily News. THURSDAY, AUGUST 28, 1919. THE EXCHANGE BAROMETER.

Taranaki Daily News, 28 August 1919, Page 4

The Daily News. THURSDAY, AUGUST 28, 1919. THE EXCHANGE BAROMETER.

Sir Auckland Geddes, British Minister of National Service, has recently 1 drawn attention to some vital principles of political, economy that cannot be ignored. The intimate connection between production and the value of the sovereign is far too little known, but anyone can understand that if he is obliged to spend more in purchasing than what he can make by production there will be a day of reckoning to his disadvantage sooner or later unless he has a reserve fund of gold to draw upon. It is the snme, only on a larger ftUd more'i'ar-rewhina scale, with

nations,, and the British Minister has illustrated his point very convincingly by referring to the case of Britain's enormous indebtedness to America as adversely affecting the rate of exchange between London and New York. Ho points out that America is largely a producer of raw material and foodstuffs, requiring little in exchange for herself from abroad; therefore the exchange rate moved in her favor, but after a given point in that direction it so lowers the value of gold held by her customers that her exports of food and manufactured goods become almost unbuyable. International trade is carried on by what may be termed a refined system of barter—goods being exchanged for goods through sys-, tems of bills of exchange based on a money valuation. If, therefore, an increase of money raises prices in a country, it becomes a good country to sell to, but. a bad one to buy from, so that imports increase and. exports tend to fall off, gold or securities adjusting the' balance. Britain, during the war period, imported from America to a very 'large extent and had very little to send back, so that the rate of exchange became so affected as to necessitate handing over to America certain liquid securities and subsequently gold in order to adjust the rate of exchange and safeguard currency. Then loans were raised in America, and gave temporary relief. Nothing, however but increased production and bringing imports down to a minimum will effect permanent relief. Increased production means harder work, hence there is an obligation on all classes of the community to assist in the process of stabilising the currency by contributing their quota to increase production. It has often been said that money, of itself, is a mere instrument of exchange, and nothing more—a symbol of the possession of goods or services rendered, having certain specified values. It replaced the primitive system of barter and its evolution from a piece of the hide of an ox to the standard gold or silver coin is well known. Although New Zealand exports goods far greater in value than those she imports, yet as part of the British Empire she has to bear her share of the depreciation of the buying value of the sovereign and the fall of the rate of exchange against us. Sir Joseph Ward, in his recent manifesto, proposed to take steps to improve and regulate, as far as possible, rates of exchange to overseas countries, hence his advocacy of a State bank, which at most could only save expense to its customers by carrying out exchanges at cost. Whatever advantages can be claimed for a State bank in New Zealand, that of regulating exchange can certainly have no place. According to Professor J. P. Grossman, of the Auckland i University College the reason why the rate of exchange is favorable to America if unfavorable to Britain and the Dominions, is chiefly the fact that enormous issues of temporary inconvertible paper money, through the floatation of loans and otherwise, has caused an inflation in our currency, thereby reducing its purchasing power below that of American currency, and this is an effect which is entirely apart from any adverse balance of trade. To suggest, therefore, that the creation of a State I bank in New Zealand would have I any effect on the exchange question implies a lack of knowledge of the currency question that is surprising. The power of the Dominion to influence exchange rates is, for instance, about equal to that of the Tongan Government in controlling the result of the Franco-Prussian war. "What, is wanted is more capital. Efficient credit will help us to apply capital, but will not create it. That is why the stimulant for greater production is needed, for thereby alone can real wealth be created, so that the advice and warning of Sir Auckland Geddes should he taken to heart by Britain and the whole Empire. It is the people with fixed incomes who suffer most by the lowering of the exchange barometer, so that the workers are directly interested in the adjustment of exchanges. Production is the sheet anchor of New Zealand, and proportionately as that iucreases so will valuable assistance -,be given to Britain in equalising the exchange with America. German financiers are greatly alarmed at the headlong down- j fall in the value of the mark due to the flood of paper money and the late blockade. The issue of paper money beyond the value of gold reserves may be inevitable in an emergency, but its effect is bound to be felt, and no State bank can nullify the consequences. There is only one remedy and that is increased production and greater economy.