EXCHANGE CONTROL

Wairarapa Times-Age, 25 November 1939, Page 3

EXCHANGE CONTROL

NEW ZEALAND’S ECONOMIC PROBLEMS. VIEWS OF AUSTRALIAN BANKER. In 1938/39, Mr R. W. Gillespie, president of the Bank of New South Wales, observed in his address to shareholders at the annual meeting, that New Zealand’s export income fell by 6 per cent and that of Australia by 11 per cent, due to a dry season and a fall in world commodity prices. New Zealand was threatened with a shortage of London funds, following a continuous drain on oversea cash reserves during the last three years. To check this decline, the Dominion Government introduced exchange and import restrictions in December last. This associated with the Government's policy of fostering local secondary industries was likely to undermine the profitability of the primary industries. Mr Gillespie added that though it was intended to be a temporary expedient, exchange control was often difficult to remove .since it tended to aggravate the weaknesses of which it was a symptom. “The tendency for internal costs to rise while exporters are debarred from relief in the form of a higher exchange rate,” he said, “outweighs the advantages so often seen in the freeing of the exchange rate from external influences.” Moreover, the rigidity of the system necessitated arbitrary allocations of exchange which made conditions difficult for importers and hampered initiative. In the opinion of the bank the war organisation of the Dominion “is taking shape with commendable rapidity.” A pleasing reference was made to the improved position today compared with 1914-1918. The Dominion's economic assistance in the form of shipments of foodstuffs to the United Kingdom was now much stronger; but although the assured outlet for the produce of the principal industries simplified the economic problems of the Dominion, new difficulties would appear in other directions. Difficulties for Australia, as well as for New Zealand, in organising an economy to meet war conditions were outlined by Mr Gillespie. The nature of demand, he said, would alter, and resources must be transferred to uses that were most essential in time of war.

The transfer might bo effected by indirect control, through the taxing and borrowing policies of Governments and control of credit by the Central Bank, or through direct control of prices, investment, and foreign exchange. The Government’s economic policy should be co-ordinated, so that the country's resources could be employed in the war with the greatest, efficiency and least sacrifice. In addition to these matters, Mr Gillespie reviewed the position in primary industry in New Zealand. The winter was severe at times, causing losses of stock and a decline in dairy production. Seasonal conditions were now improving and there were reasonable prospects of satisfactory pastoral and agricultural production.