Snake oil salesman can’t sell two exchange rates


People calling on the government to do something about the exchange rate only look at only the benefits, without acknowledging the costs.

But as Economic Minister Steven Joyce explains we can’t have one exchange rate for what we sell and another for what we buy:

  A lot of exporters – I mean every exporter let’s face it, likes a lower dollar.  What they would love really is to have a lower dollar which they’d sell stuff, cos they’d sell their stuff for more, and they’d like a higher dollar for the stuff they buy.  They’d like two exchange rates.  And I understand that, cos I’ve been involved in an export industry myself, and you’d always love two exchange rates.  Unfortunately the world only gives you one, that’s right.  So their input costs are significantly lower.  So if you take oil and gas and a lot of those things that come in on world prices, the input costs are lower.  And yes it’s more challenging with some of the export costs or the sales costs, sales revenues that you get, but it is a mixed story. A lot of manufacturers are doing very well, some struggling, particularly the more commodity based ones. . . .

There is no question exporters would get better returns if the dollar was lower but everyone would also face higher costs for everything we import. That’s not just luxuries like electronic toys, it’s necessities including fuel, machinery, medicines and medical equipment and a lot of food.

. . .  Well fundamentally the real opportunity at the moment, and everybody knows this, is that it’s the Australian dollar, and we’re currently at quite low levels against the Australian dollar, about 78 cents, and you can’t have things changed, different exchange rates for different countries as we know.  If we went down further against the Australian currency, which is what for example Mr Wally recommends.  He suggests that there should be a 20% devaluation in the New Zealand dollar, 25% I think he’s looking for, but that would put us at 58 cents Australian which is just ridiculous.  And also it would put us against about 60 cents US, which people would say well that’d be nice.  But then of course you’d actually be talking about very substantial rises in living costs for New Zealanders.  So unfortunately you only have one exchange rate.  The exchange rate is the assessment of what people things of the future of the New Zealand economy.  The quickest way to get it down would be to do some very reckless things that would actually put our economy at risk.

The interviewer, Rachel Smalley then asked him about Winston Peters’ Reserve Bank Amendment Bill.

StevenWell with the greatest respect to Winston, he’s been around for 27 or 30 years. . . . he’s never come up with a solution.  If there’s a problem in this country he’s part of it, because he’s been around for such a long time.  He had a time as Treasurer and never promoted these views as Treasurer, so now because he’s worried, and because he’s rightly worried about you know the big commodity manufacturers, and I am too, he’s promoting a snake oil solution that would achieve nothing. Because here’s the deal…

RachelOkay, his Amendment Act does have the support though in part, in general by David Parker, the Labour Finance Minister.

StevenWell I’m sorry that gives me no comfort whatsoever.

RachelHe says we face competitive devaluation abroad and we ignore it at our peril.

Steven Well I’m sorry, it’s truly ludicrous, and fundamentally it is a snake oil salesman solution, and Parker was called on the left this week by his own supporters on the left, who said what he’s arguing for, is he’s sitting in front of exporters and saying I want to make life easier for you, and then he’s turning around to New Zealanders and saying it will have no impact on you.  And fundamentally that is not the case, it’s dishonest and you can’t say it.

The dollar’s value is making business harder for exporters but the snake oil Peters and Parker are trying to sell would make life much more difficult for everyone – unless they can find a way to have two exchange rates.

What’s “right”value for $NZ?


The Manufacturers and Exporters Association says the New Zealand dollar is too high and wants the Reserve Bank to intervene.

Chief executive John Walley says there seems to be an attitude of  helplessness, which must change.

“It’s been overvalued now for a long period, and exporters are starting  to get at the end of their tether,” says  Mr Walley.

Mr Walley says there are many options open to the Reserve Bank, and  all he asks is for them to take some form of action.

The bank’s main tool is interest rates which are very low and have been for some time.

It has the ability to buy and sell currency but our economy is so small it would be a minnow swimming with sharks.

Even if it could do much, what would the “right” value for the dollar be?

A high dollar does make exports more expensive but it also makes imports cheaper.

Farmers mutter about the high dollar too but what we lose on the price for our produce we gain to some extent from lower costs for imports like fuel, fertiliser and machinery.

The two main reasons our dollar is relatively high at the moment is the weakness of other currencies and the demand for our produce.

We can’t do anything about the former and should be celebrating the latter because that’s what we need for economic growth.

Rather than looking to the Reserve Bank for solutions, manufacturers and exporters should be looking at their own operations to improve competitiveness by increasing productivity, improving quality and/or cutting costs.

Having a floating currency isn’t without its problems but  it’ still better than the alternatives.

Exporters Irked by Nat’s Monetary Policy Stance


The NZ Manufacturers and Exporters Association is not impressed by National’s support for the current monetary policy.

The party’s defence of the current system failed to acknowledge the damage the policy had caused to New Zealand’s tradeable sector, association chief executive John Walley said.

The approach used interest rates dictated by the Reserve Bank’s official cash rate to curb demand and influence inflation.

That approach had seen exports dropping from 33% of GDP in 2001 to 22% in 2007.

“What we are seeing at the moment is increasing fuel and commodity prices driving inflation which in turn is holding up interest rates and exchange rates.

“These forces are unlikely to stop any time soon so we need to break the link between inflation and the exchange rate,” he said.

He’s right about the problems but I’m not convinced playing politics with monetary policy is the solution.

Associate Finance Minister Trevor Mallard last week announced that the Government was open to looking at alternative monetary policy settings.

National finance spokesman Bill English said now was not the time to start tinkering with a monetary framework.

The Reserve Bank recognised the effect that international oil and food prices were having and the central bank was not going to strangle the economy because of imported inflation.

“It has been well recognised by government officials and commentators that increases in government spending, poor quality spending and increases in government charges are also stoking inflation domestically,” Mr English said.

“Trevor Mallard would be well advised to focus on these inflation factors, rather than signalling a drastic rethink on monetary policy,” Mr English said.

Quite. I have never been able to understand Labour’s belief that their spending of public money is not inflationary but allowing us to keep more of what we earn would be.

Mr Walley hoped National was making a typical election-year response.

Unless policy changes were made, all that could be expected was more of the same as the trade balance deteriorated and the economic situation worsened, he said.

A more responsible approach to the spending of public money might make a difference without the need to make monetary policy a party political issue.

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