DOLLARS AND SENSE

New Zealand Listener, Volume 17, Issue 430, 19 September 1947, Page 16

DOLLARS AND SENSE

[ Written for "The Listener’

by

L. S.

D.

HEN Mrs. Jones, of Wellington, buys an American picture book for her small daughter she gives the salesman a 10/- note .which disappears into the bookseller’s till and that transaction is ended. If Mrs. Jones has an enquiring mind she may wonder how the publisher in the United States receives payment for the book and perhaps she is puzzled about whether her 10/- or any part of it is sent to America to pay for her book. If this New Zealand mother is puzzled so’ are many others, because the methods of paying for imports from another country are not simple nor are they widely understood. When paying for the book, along with others costing in all 100 dollars the book importer would find that neither his own cheque nor New Zealand bank notes would be acceptable in the United States. He must therefore find some way in which he can pay 100 dollars to the publisher. He may do so by buying from the Bank of New Zealand a dollar draft which is in effect a request from the Bank of New Zealand to its agents in the U.S.A., the National City Bank of New York, asking that 100 dollars

be paid to the publisher of the books. The bookseller in Wellington sends the draft to the publisher, who presents it to the National City Bank, which pays the 100 dollars to the publisher in exchange for the draft. To enable the National City Bank to meet such drafts the Bank of New Zealand periodically pays to it lump sums in dollars. In the main such dollars are purchased from the Bank of England, London, through the Reserve Bank of New Zealand. It should be eaplained that New Zealand exports to Great Britain exceed in value the amount required to pay for New Zealand imports from Britain and to meet other New Zealand payments in Britain such as interest on New Zealand loans raised in Britain. As between New Zealand and the United States the opposite is true and the usual way for this country to obtain dollars to meet payments in the United States in excess of the sums realised from goods and services supplied by New Zealand to the United States is to buy from

Britain, dollars in exchange for some of the British currency accumulated as a result of the sale in London of New Zealand produce. The final result of the purchase of a picture book in Wellington was therefore to reduce the dollars held by the Bank of England, and to reduce similarly the United Kingdom currency held by the Reserve Bank of New Zealand in London. In the light of this example, let us now consider Great Britain’s dollar crisis which, as we have been told repeatedly in the Press and from the platform, is of grave importance to this country. Britain Must Import to Live Twin facts which provide the key to understanding dollar crisis are that Britain is a small island with a population of nearly 50 millions and that she has just fought a war the exertions of which have gravely affected her economic strength. Because of her large population and relatively scarce land, Britain must import to feed, clothe, and otherwise supply the needs of her people. She must be a great importing country and to pay for her imports she must be a great exporter. No other country would go on sending goods to Britain without receiving payment in

some way or other and receiving payment means being supplied with some goods or services in return for those supplied to Britain. Britain has fought a war which Nie increased her need to import, but has seriously impaired her ability to pay for imports. She is short of manpower and of productive resources to restore the physical damage of war to her buildings, her machinery, and her people, ‘In pre-war days the produce of British mines and factories for export was augmented, in that contributions towards the payment for imports came as income from foreign investments, from earnings of British ships and from insurance earings and trade commissions on foreign trade. Part of the cost of the war to Britain was the loss of much shipping, the sale of overseas investments to pay for war supplies, and an added external interest burden on overseas debt which increased by £3,000 million. All of these difficulties existed in the later years of the war, but their effect was masked by lease-lend assistance from the U.S.A., valued at more than £5,000 millions and by stringent economies in consumption by the British people. The American Loan It is no wonder that in the years following ‘the war Britain has found difficulty in financing her imports. The (continued on next page) "

(continued from previous page) temedy attempted was a volume of exports 75 per cent. higher than the prewar level, coupled with prolonged austerity at home and the drastic restriction of imports even when goods much needed by the people of Britain were available as surpluses ir other countries. To provide time for Britain to meet her difficulties and to give her the means of purchasing much needed industrial equipment and raw materials, the celebrated loan of 3,750 million ‘dollars was negotiated with the United States and it may be that the 100 dollars used to pay for the books mentioned above came from the loan. It was hoped that the loan would provide a respite of several years during which Great Britain could recover from the effects ,of war and reach a stage when she could pay from her own resources for the imports she needs. A principal reason why the loan is not proving sufficient is the increase in U.S.A. prices which has automatically curtailed the real value of the loan in terms of goods supplied. Other reasons are delays in Britain’s industrial recovery, including the crucial lack of coal for industry and export. Another factor has been Britain’s attempts to provide food for Germany and other European countries. > Restrictions on Convertibility One term of the loan upon which attention has recently been directed is the clause providing, in effect, that as from July 15, 1947, persons and countries having bank balances in London could convert them into dollars on demand. It was intended that this arrangement apply only to balances resulting from current trading, but it appears that in the event there were substantial sales of British currency for dollars for speculative purposes and to supply the dollar needs of other countries whose exports to Britain had enabled them to accumulate money in London. The dollar resources of the United Kingdom diminished rapidly and in order to conserve the remaining dollars the United Kingdom authorities restricted considerably the convertibility of the British pound

into dollars. It was made clear that these restrictions, applied on August 20, were intended to be temporary, and that they did not preclude payment in dollars for trading transactions with the United States. New Zealand has been asked to do all she can to assist Great Britain in her financial and economic difficulties. The normal practice is for the greater part of New Zealand’s exports to be sold in London. By selling our produce there, the New Zealand Banks, and principally the ‘Reserve Bank, accumulate money in London which is usually more than sufficient to pay for our imports from the United Kingdom. On request, dollars or other required currency are supplied by the. British authorities in exchange for United Kingdom currency. New Zealand exports little to the United States or to such countries as Sweden and Switzerland. It follows that our purchases from such countries must be financed by Britain from her diminishing supply of dollars or other scarce currency. How New Zealand Can Help There are a number of ways in which New Zealand can help Britain in her difficulty. Every ton of additional food sent means so much more energy available in British industry to meet the needs at home and improve production for export. Every dollar purchase that we can do without means that many extra dollars available to Britain to finance her much needed imports. Further, by restricting in the meantime purchases from Britain of goods which Britain can sell for dollars, the strain on her-dollar funds will be eased. In contrast with Britain, New Zealand is a great farm rather than a great factory. It is only because we have such a good customer as Britain that we can maintain our own living standards. Having specialised in primary production and depending so much on importation to meet our needs above bare subsistence, New Zealand must, in her own interest, do everything possible to help her best customer and greatest friend in time of trouble.