INFLATING THE CURRENCY.

Taranaki Daily News, 4 January 1921, Page 5

INFLATING THE CURRENCY.

DISPARITY IN VALUES. The Auckland Star comments as fol- ' lows on the evils of currency inflation as practised in this country:—“The local ; banks have several times during the last weeks raised their charges for the sale of drafts on London. The tremendous importance of this move is rot yet thoroughly realised- It means that the pound siertmg has already a different value in London from what it has in New Zealand; that this disparity of value is likely to increase and to fluctuate continually, introducing another element of complication into the vexed S’ question of exchange, just as the dollar ' in Canada has to-day an entirely dif- ' ferent value from the United States . dollar, though previous to the war they were on ,the same footing. How can . it be otherwise? In our opinion the only matter for surnrise is that this [ dispaiity in the exchange has not oc- , curred sooner. The gold or purchasing power of an inconvertible paper eur- , rency depends mainly on the quantity which has been put into circulation. [ This is no matter of theory; it has . been the invariable experience of every • Government which has issued an incon- . vertible paper currency, no matter how . high its credit. Under these circumL stances it is difficult to maintain the 1 parity of exchange between two couni tries which nominally use the same currency, but both of which have departed ( from a gold basis and both of which have now taken to issuing inconvertible paper in an. ever-varying proportion. , The banks already make an important ( distinction between the London parity and the New Zealand parity of exchange; in other words, they recognise that the • pound has no longer the same value in , both countries. The departure from the gold basis on’ the part of the New Zealand Government was effected in such a stealthy manner that scarcely anyone was aware when it had been done. Successive issues of inconvertible paper appeared in an equally surreptitious manner; for it is one of the most serious defects of the inconvertible paper system that such issues can be made quite clandestinely without the public being aware of the fact. In 1914 the notes in circulation in New Zealand totalled a shade under two millions; in the September quarter of this year the aggregate was £7,500,000. Our currency has been deluged, said Professor Murphy in Wellington some months ago, with soft shoddy paper money. We have .over-production of money and un-der-production of goods. There will be no remedy till we stop relatively overproducing money. Yet in the face of this the Government has now given the banks authority to issue, on advances on Government loan and on produce, additional notes which might in a short while double the existing note total. It is high time the public fully realised the serious danger of this financial policy and that they insisted that a stop should be put to the issue of more inconvertible paper. All over the world economists are insisting that deflation j is an essential remedy for the financial • ills of the day—one of them being the cost of living—yet here is our Government embarking on a policy that must lead to a still further enlargement of already inflated