New Zealand First leader Winston Peters has proposed managing the New Zealand dollar within a set range, similar to how the Singaporean government controls its currency, TV3 and Radio Live report.
Mr Peters says currency speculators have been the only people to gain from the float of the dollar - with business and exporters paying the cost.
Prime Minister John Key said in October there was very little the government could do about the high New Zealand dollar in the face of currency wars between China and the US.
However he noted the NZ dollar was at a level where it was "starting to create some concern [for exporters]".
Last year New Zealand Manufacturers and Exporters Association CEO John Wally raised the issue of New Zealand managing its currency like Singapore on interest.co.nz. Read more here.
Meanwhile, the NZMEA today said New Zealand's currency problem was worse now than in 2007, and reiterated its call for changes to the government's stance on the New Zealand dollar:
Currency problem 'worse than 2007' - 1 November
The currency problem is worse than in 2007 despite slightly lower cross rates say the New Zealand Manufacturers and Exporters Association (NZMEA). The lower sales volumes in today’s market mean that the low margins are hitting exporters much harder.
NZMEA Chief Executive John Walley says, “When the dollar hit post float highs in 2007 we had strong worldwide demand to offset lower margins. Now coming out of the recession demand remains relatively weak, and it has to be remembered that firms that have made it this far have already cut out any fat from their processes.”
“There has been some talk that exporters need to use the high currency to buy equipment from offshore, or that exporters have somehow learned to cope with an overvalued currency.”
“Such comments are simplistic. Exporters who have made it this far are sharper, but they have been burnt once too often and they are not investing in capacity expansion. Why risk more capital? That is the question I hear most often,” says Mr. Walley.
“[A chart of the NZ dollar against the US dollar] shows that since 2004 there has not been any sustained period where the dollar has eased off. Short and medium term volatility coupled with consistent speculative pressure overvaluing the currency sap the life blood out of expansion and investment in the real economy.”
“It is clear that what we have is not working, we need to find a practical solution.”
(Updates with chart, link to Key's October comments, NZMEA release, NZMEA link)
Your view?
No chart with that title exists.
27 Comments
Attempting to control/fix the exchange rate is suicide - recall that a key part of the Asian tiger-economy crash in the late 90's was due to currency issues. NZ doesn't bring in enough USD to stockpile in the event that a large hedge fund, etc, wanted to see if it could break any kind of fixed rate. Besides, global opinion is against 'manipulated' currencies at the moment ('currency wars') so this wouldn't gain much favour in international political circles, either.
That being said, I'm sure Winston is aware of some of these concerns but realises that he's not going to be PM, so can sell this kind of fluff to his supporters, but then if/when a part of a government, conveniently have to put that policy aside.
And it was fantastic to hear his booming voice again on National Radio this morning - talk about a flash-back...LOL!
Dunno about you PI, but I was in Asia from '95 - '03, and the currency issues were across the board of fixed and floating currencies. Hong Kong's fixed currency came under the same speculators' attack as the floating currencies of Malaysia, Indonesia, Korea and Thailand. While Donald Tsang (then CFO for HK inc) threw collossal reserves at speculators to burn their fingers, Mahathir of Malaysia chose to fix his currency (against the advice of the IMF etc). In retrospect both were considered to have fared better than the floaters.
I'm not backing Winston, or posing this as a 'solution' to NZ's high $...just saying...
The truth is the Forex markets , the NZ$ is traded in volumes far exceeding the NZ Govt or NZ Reserve Bank's ability to influence it at all .
For example , if Dr Bollard started selling the NZ $ (ie buying US $ ) the return on the US$ would be zero or near zero , but the NZ$ he borrows to do this would cost us plenty.
Speculators know this , they know it cannot be sustained , so they will hedge or BET and take counter-positions against it, and we will be in deeper trouble .
Secondly , Singapore has an astonishing level of savings both State saving and citizens are forced to save in the compulsory pension plans . Their war-chest to fight currency traders, speculators and manipulators is big and strong.
Taxing capital flows has unintended consequences, especially when your domestic banks require offshore funds to meet liquidity requirements, and currency 'Pegging' can be disasterous ( Ask the Argentinians)
I cant see we could manipulate the exchange rate by buying and selling $....that would never work....
So the alternative is a tobin tax, yes that would apparently impact other areas, however then we could possibly look at re-directing that tobin income to a tax rebate internally to NZ to compensate...say an exporters tax allowance or refund....
regards
Winston is a political parasite who is a proven liar and is blatantly dishonest furthermore he is clueless economically and talks populist nonsense. He is a disgraced politician and his utterances should not attract any media comment other than the condemnation he deserves. Providing credible commentary just gives him oxygen.
Could you please elaborate as to the proven liar and blatant dishonesty? I seem to recall that when the SFO investigated the allegations into misuse of campaign funds it was only Rodney Hides ACT party that was found guilty.
Name one thing, without emotion, that Winston Peters has done that has negatively affected this country or its interests?
Voted not to sell Wellington airport so was kicked out of National?
Achieved free trade agreement with China as Minister of Foreign Affairs?
Gave pensioners free bus services through the Goldcard?
Chased down Faye and Richwhite to try to get back the millions they took from the taxpayer (you)?
I am not really a fan of his, I just get annoyed at windbags such as yourself that get all worked up into a lather espousing the tripe you just have.
Colin ,what bothers me is comments like yours. WP is far less a parastite and dishonest human being that the vast majority of the sitting MP's the country has to tolerate.
Go wash your mouth out, and use your brain to provide some evidence before coming over like an ignorant dick head!
Fairfax, thanks for putting some facts into the comments above.
I have voted for Winston Peers as long as NZ first has been around. I don't agree with everything he believes in, but, I do believe the world is a serious place and we have to protect ourselves. Winston is the only politician in New Zealand who is not a Pollyanna positive-thinking half wit.
Labour and National act like a couple of 16 year olds off to Kings Cross Sydney to further their modeling careers. When they get blind drunk partying (on our behalf, with our money) at "The Club (IMF, WTO etc)" do not be surprised if we all wake up with sore bums and empty pockets. Jeez we are a bunch of innocents. Just look at almost every NZ economic headline. We are being groomed by a bunch of 40 year old predators pretending that they are teens just like us!
This is a nice emotive troll, but do you have any technical/quantitative arguments to support his suggestion? It just seems a bit like the recent debate around the government's intervention to keep the Hobbit - those like me who supported the action taken could cite measurable reasons for doing so, whereas the minority who took a different view frankly seemed rather uneducated and could only argue on emotional grounds. My 2c....
And if you're worried about a sore posterior, just ask any of the Asian tigers who needed IMF intervention in the 90's what they think of fixed exchange rates now....
Also in his defence, when I was in charge of a budget/vote in central government - he was the Treasurer for 2 of those years - and he was absolutely committed to reducing government expenditure. Across the whole of government every budget manager had to reduce their prior years operational expenditure by 1% pa - no excuses, no exceptions. If you had granted pay rises in the prior years, these costs had to be absorbed and you still had to make your minimum 1% budget cut. Capital budgets were also seriously constrained.
As I've said before on here ... it didn't cause alot of drama ... that's how much "cream" there is in central government budgets. Now that was 10 years ago. Imagine if we'd stayed on that path?
Not a fan of Winston....never have been...in saying that often, what his current crusades at the time do need to be looked at
"Winston is a political parasite who is a proven liar and is blatantly dishonest furthermore he is clueless economically and talks populist nonsense."
That doesnt mean someone is wrong 100% of the time or what they say is always crap.
With the US printing money, the US China currency wars, as other situations have occurred over the decades, the oil crisis, Wool crisis, butter crisis, the end of the Muldoon yrs, I think we have to look into all possibilities and be ready if tweaking is needed...or at least have the legislation in place or ready to go ....
Unless the kiwi is at a level where we run current account surpluses we will go under.
Leaving aside the fact it's Winnies idea - many countries manage their exchange rates HK, Singapore Taiwan Korea Brazil Ukraine & China ie all the current account surplus countries.
Let's just do what works !
What is meant by manage the exchange rate?
Is there be just one definition or way to manage it, or others that are quite plausible for NZ's context?
Keen to hear ideas.
I think there ar some clues here:
'The New Zealand dollar through the global financial crisis '
http://www.rbnz.govt.nz/research/bulletin/2007_2011/2010sep73_3cassinowallis.pdf
Cheers, Les.
I guess it depends on the "problem" you are trying to fix.
I still don't get what the issue is with being popular. If your currency is increasing because it's seen as safe what's the big deal with defending it. If there's US$, Euros or other currencies flooding into the country surely all the central bank has to do is say, I'll buy them and print away in the local currency. Isn't this exactly the same as quantitative easing? Member banks go up to the central bank with the foreign currency and the central bank takes the FX and prints the local stuff. This doesn't cost a thing for the central bank surely.
Now obviously there is a risk that the FX the RB buys might go down in value, like the US$ surely will soon, so the obvious thing to do is sell it as soon as it's presented. What to buy? US treasuries no, Pay off debt = yes, and then of course gold. The issue, possibly, with buying gold is that it may be self defeating in that investors see your currency as an even better safe haven after you have bought it. But that's easily fixed surely, just keep it quiet.
In the paper you refer to;
"The existence of persistent profits from
a carry trade violates the predictions of the Uncovered
Interest Parity Hypothesis,3 which argues that the exchange
rate should adjust to offset interest rate differentials and
equalise returns across countries."
and
"There is still significant academic debate about why the
carry trade works and Uncovered Interest Parity fails. The
failure of Uncovered Interest Parity is often called the
‘forward premium puzzle’"
Oh well, the difference between theory and practice.
We could manage how attractive/unattractive we are, stuff like MnM is suggesting and more of the same, meaning monetary policy is executed with extra tools (note plural, there are reasonable althernatives - TARA) so it is not so vanilla and obvious. Plus, combine that approach with more tactical intervention, in an undisclosed band, which need not be as tight and flat as implied by a Singaporean band approach. The outcome would be more uncertainty than is created by our present intervention policy, which is to accelerate major turns - read dead certs for the RB to have an effect, like they did back in 07'. Singapore's MAS don't disclose their band. In contrast our MPS statements leave little to the imagination. Aren't they fun! We should keep stum. Oh, and savings, facilitated by some of those extra tools and higher earnings from export and tourism sectors that deliver higher returns.
As for the tools, see you at ITM, they got lots an' lots'a tools. (All well discussed on this site before.)
They key point is, we could manage how attractive/unattractive we are, or put another way, become a harder target. Presently our wee Kiwi wanders around the woods like a boar with a bullseye on it's ass. (Am sure RT could have fun with that line!) We don't have to be an easy target.
Cheers, Les.
" ... how the neoliberal orthodoxy has been religiously retained in NZ for this long, I'll never understand."
What we have is what I've called it before, "NZ's amusing interpretation of neoliberalism." The full, less amusing prescription includes broader taxation. That means more effective taxation of land/property/capital and gains, but we don't do that. If we did our PAYE and corp taxes could be much lower, our economy would be less lop-sided and be something that might keep our younger generations engaged in NZ. But ..... well Kate, as they say, "follow the money" and also spare a thought for all the dogmatic adherents who would have to admit, they have actually got it wrong. Why? Because their so called 'science' is much more art than they would have us believe and they actually ended up believing their own bs and lost sight of the inevitable assumptions and context difference when applying the insights from what little science they did have available.
From my book review of The Origin of Wealth - Evolution, Complexity, and the Radical Remaking of Economics, Eric D. Beinhocker, 2006, Harvard Business School Press.
"Beinhocker recounts that in developing Traditional Economics, to aid their understanding, the founding thinkers and philosophers utilised many metaphors and analogies from the developing physical sciences of the day, circa 1680 to 1930. However, whereas those sciences continued to develop along many new horizons, quite exponentially in some areas since that time, economics seemed to spend more effort on justifying/rationalising various equilibrium focused arguments and principals. This was assisted as more sophisticated mathematics and analytical technique became available, all in an attempt to improve correlation between theory, practice and policy. This contrast was captured nicely in a an exchange between physicists and economists taking part in an cross-disciplinary workshop sponsored by Citicorp in 1987 that initiated various areas of research focused on applying complexity theory into economics via the Santa Fe Institute; a not- for-profit set up with the goal of addressing some of the more awkward problems in science characterised as complex systems. The physical scientists had challenged the economists for continuing to use models that so clearly did not represent reality and were shocked at the magnitude of assumptions made. It appeared as if the focus was not on matching reality, but rather ensuring the currency of assumptions was common across the sub-theories and approaches being used in main-stream economics. Quoting from the book:
“The economists backed into a corner would reply, “Yeah, but this allows us to solve these problems. If you don't make these assumptions, then you can't do anything. And the physicists would come right back, “Yeah, but where does that get you – you're solving the wrong problem if that's not reality.”
I know you like a read Kate, so google this; 'The Science of Monetary Policy: A New Keynesian Perspective', by Richard Clarida, Jordi Galí, and Mark Gertler, (1999) - and then have a chocolate for each assumption and theoretical mismatch you find that does not match NZ's context. Track further forward in the associated literature (easy with Google - wish we'd had it during my research work) and find you are still eating lots of chocolate, till you get to about February this year when an associate of that thinking issued an IMF paper challenging the accepted orthodoxy in the context of economies like NZ. A quote used in the 1999 paper:
"Having looked at monetary policy from both sides now, I can testify that central banking in practice is as much art as science. Nonetheless, while practicing this dark art, I have always found the science quite useful.”
Sure, but it seems some forgot, "Assumptions are the mother of all ....... ups!"
Cheers, Les. (Engineer and Tribologist.)
PS - that book review with another on John Kay's 'Culture and Prosperity' is linked from the Events page of the NZMEA website.
The other one Les is to simply monetise the Government's debt selling the 250 mil NZ$ a week would lower our dollar.
A great post on ZH, here http://www.zerohedge.com/article/indiana-braces-violence-adds-armed-gua…
"Is it a joke that the middle class of foreign nations have their parliaments subjecting to austerity measures agains their will all in order to ensure that not a banker walking underneath the sun is subject to a haircot on their debt?"
Those who say that a Central Bank doesn't have the "reserves" to fight off the hedge funds etc are wrong. The central bank can print at will.
That too Fred. See:
'Prof. Yamaguchi's System Dynamics Analysis of The American Monetary Act'http://www.youtube.com/watch?v=Ikn6gSsPgW4
From AMI's recent conference where Steve Keen also presented.
Cheers, Les.
If the RBNZ had reduced the OCR due to the impact of the high exchange rate on inflation and if the government had introduced policy to limit consumer/housing credit growth (therefore encouraging business credit lending), this could have been a perfect opportunity for NZ businesses to take the long term view and secure offshore investments while the exchange rate is high, thus boosting future export earnings...
Unless you're prepared to revert to back to a non-floating currency (remember the end result of that in the early 1980's - disaster) you can not "manage" your currency, and NZ most certainly can not do so...it just does not have the foreign reserves to do that and every hedge fund or aggressive FX player knows it.
The current problem is that the owner of the reserve currency of the world, the US, is not acting in a manner to warrant that priveledge for much longer....it will continue to print money to suit its own ends for as long as it feels fit. All currencies are hurting with little ability to control the damage...eventually the inevitable will occur, the US will be bought to task either formally, or more likely, through trade being redirected through other currencies...then the US is really up a creek
Unfortunately, the whole issue is just part of the slow US fall as the pr-eeminent power in the world...all it now has is the military, and how much longer will that last ?
There has been debate around the exchange rate for years.As a small time exporter and with many colleagues in a similar situation it is really frustrating with all the experts saying that floating is the only way.
The floating dollar has quietly wiped any idea of profits in our industry and is now slowly destroying the industry. One can hold on so long.Forward cover has been tried.Every expense has been cut to the bone.
While the USA sorts itself out we go to the wall.
For such a small country should we be a cork in the financial sea and drown while saying we stuck to the theory.
Or should we say lets look after our bloody country first.Lets make things advantageous for our exporters.Lets balance the books.
Cheap flat screen TVs and electronic gear are fine for the masses but there is a cost.
I like the approach of Ganesh Nana.
Winston is either a dreamer or being dishonest. Singapore is a success story because they have visionary, strong and intelligent leaders (e.g. Lee Kuan Yew) and very good planning, very well educated workforce, they welcome skilled immigrants regardless of their race, best law and order, good infrastructure, good national savings (huge foreign reserves), stable government. They embraces all cultures (they even have Ukranian immigrants in their arm forces). Premier Teng from China visited Singapore in Nov 1978, he learnt from Singapore's success, the following year started China's trial economic trade zones in Szenchen and other cities in China, 30 years later the results speak for themselves. Can anyone name a politician in NZ (both past and current) who is as capable as Lee and Teng?
A very famous American investor Jim Rogers recently uprooted his family from America to live in Singapore. His two daughters are fluent in Mandarin. Please follow the following link if you want to find out his reason for moving to Singapore to live:
http://www.youtube.com/watch?v=fRfpAAIjEek&feature=channel
and an interview with Lee by Charlie Rose
http://www.youtube.com/watch?v=tNhcOwhpR1E
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