Cut Rate Money

New Zealand went off the gold standard with Mother Britain. But was that going far enough? Last week secretive, soft-spoken Premier George William Forbes thought not. Really drastic reflation, he decided, is necessary to tide his Dominion through Depression.

While the Premier was drafting a Treasury decree rumors began to fly. New Zealanders rushed to buy English pounds, found that their New Zealand pounds were already quoted at 9% below English. When the Forbes decree was published it officially pushed this discount to 25%, meant that 1 3/4 Dominion pounds would thereafter be required to buy one English pound.

"I cannot swallow this last move of Premier Forbes!" cried Finance Minister W. Downie Stewart. "Many times I have subordinated my views to his but now I resign!"

Defending his program, Premier Forbes claimed that he had befriended the New Zealand farmer who should now be able to beat competition by selling his crops abroad in a currency cheapened by reflation. Himself a farmer of broad acres, Mr. Forbes admitted that producers in other Dominions may find themselves undercut by New Zealand's cheap money. To appease the expected wrath of such brothers-in-Empire, Farmer Forbes hinted at lowering New Zealand's import levies on Empire products.

As best they could English economists concealed their chagrin last week at New Zealand's disturbance of the "sterling area." Ever since England went off gold London has been told that sterling, not gold, is the best basis for the world's currency. Several small countries, such as Denmark, have linked their currency with the English pound. Last week Premier Forbes, by an act which amounted to offering New Zealand pounds at cut rates, injected profoundly disturbing elements into Empire finance.

In New Zealand the immediate result was a "reflation boom" with stock and commodity prices rising last week in terms of Premier Forbes' fallen money. This paper rise made many a New Zealander happy but it was slight enough to leave New Zealand prices (in terms of gold) lower than they had been before.

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