Wairarapa Times-Age WEDNESDAY, JUNE 8, 1938. CREDIT AND PROSPERITY.

Wairarapa Times-Age, 8 June 1938, Page 6

Wairarapa Times-Age WEDNESDAY, JUNE 8, 1938. CREDIT AND PROSPERITY.

* from any question of political controversy, a commanding detail of the financial position of the Dominion emphasised by the Leader of the National Party (the Hon A. Hamilton) in his address on Monday evening has or should have its interest for all thoughtful citizens. Mr Hamilton pointed out that during the last two years, the total of London funds standing to the credit of the Dominion has shrunk somewhat alarmingly—his estimate of the reduction being something over £17,500,000. The latest “Abstract of Statistics” shows that in one year, from March, 1937, to March, 1938, the net total of London funds held by the Reserve Bank and by the trading banks on account of New Zealand business fell from £34,384,000 to £26,564,000, or by over £7,800,000.

At the most immediate view, a continuing decline on this scale in our oversea balance cannot be called reassuring. In two years of considerable prosperity, our surplus of exports over imports has fallen considerably short of the amount needed to pay interest on our oversea debts. At the same time, the amount standing to the credit of the Dominion in London two years ago has been further heavily reduced in a manner yet to be explained.

The real basis of this country’s prosperity is its ability to produce a volume of exports sufficient, to pay for imports and to meet charges on debts domiciled overseas. If we are not able to do this with a margin in years which, as Labour spokesmen so often tell us, have been marked by exceptional prosperity, what is to be expected in less prosperous years—in the event, for example, of any general fall in the prices offering overseas for our export produce ?

The state of affairs now reached gives added interest to some relevant passages in a statement on banking and currency in New Zealand submitted by the Treasury to the Monetary Committee of 1934. Having pointed out that a debit balance in our oversea transactions (usually brought about by a fall in export prices or excess imports) normally led at that time to restrictions on credit expansion within the Dominion which eventually eased the drain on London funds, the Treasury statement added: —

In fact the pressure on the London balances of the banks is what limits the amount of credit that can be created in New Zealand .... If the credit structure is enlarged, apart from any increase in local production, the additional resources will be used to buy additional imports, and thereby impose a drain on London funds. Failing internal action to lower the volume of credit, such a situation can be met only by raising the exchange rate, which in effect means that more must be paid in New Zealand currency to obtain a given quantity of imports. Thus the additional credit created is neutralised by a depreciation in the purchasing power of the monetary unit. Air Hamilton declared on Monday evening that if the present trend continued,- Air Nash would have to face up to one of two alternatives —he would have to raise the exchange rate still higher, or to ration imports. It will be observed that this contention is in conformity with the dispassionate statement submitted by the Treasury to the Monetary Committee in 1934. A steep rise in internal costs, a heavy decline in the balance standing to the Dominion’s credit in London and a tremendous increase in imports—these last increased by nearly £10,500,000 last year as compared with the preceding year—are plain danger signals which cannot wisely or prudently be ignored. The state of affaire brought into prospect is one which gives point to some recent observations by the London “Daily Herald” —no unfriendly critic of the New Zealand Labour Government. Denouncing a malicious campaign in London against New Zealand credit, the “Daily Herald” spoke of the surplus announced last month as a ' fine tribute to the soundness of the (Savage) Government’s financial policy and. added: —■ . The success is partly due to the boom in New Zealand’s exports, especially butter, but if exports fall the real test of the New Zealand policy will come. The Government may have to choose between drastically controlling imports and devaluing the New Zealand pound. It will be observed that the conclusion reached by the “Daily Herald” is much the same in essentials as that stated by the Leader of the National Party on Monday evening.