Govt must intervene to bring down exchange rate

Thursday 14 February 2013, 2:59PM
By Green Party

News today that the New Zealand dollar has hit a new post-float high against the British pound should be a wake-up call for the Government to intervene to protect jobs, the Green Party said today.

"The record post-float highs of the kiwi dollar should be a wake-up call to the Government that it needs to take action to bring down the dollar to protect jobs here at home," said Green Party Co-leader Dr Russel Norman.

Yesterday, the trade-weighted index (TWI) reached the fifth highest daily rate since the introduction of the Euro to the index in 1999, while January 2013 was the second highest month.

"Not only is the kiwi dollar at a record high against the pound, it is overvalued relative to all our major trading partners," said Dr Norman.

"We risk doing permanent damage to our economy if we sit by and watch the dollar go higher while other nations actively devalue their currency. The over-valued kiwi dollar will cost jobs, forcing exporters to the wall, and the economy to become further unbalanced.

"There is a global currency war and, by not defending ourselves, we are becoming casualties.

"The National Government promised a rebalancing of the New Zealand economy; instead we're facing record unemployment, a manufacturing sector in crisis, a widening current account deficit, and increasing overseas debt. As Westpac Chief Economist Dominick Stephens said this week, the imbalances in the economy are getting worse.

"We can't easily recreate a sophisticated, value-added manufacturing sector when the dollar eventually collapses. We should manage the dollar down carefully now keeping our tradable sector intact."

The Green Party have a number of proposals for addressing the high dollar including a lower Official Cash Rate (OCR), complementary monetary policy tools for managing inflation, a comprehensive capital gains tax (excluding the family home), and limited quantitative easing to help finance the Christchurch rebuild.

"We have a suite of measures which, in combination, will work to lower our high exchange rate and help restore our productive sector," Dr Norman said.

"Martin Wolf, the chief economics commentator at the UK Financial Times, yesterday came out in favour of using Government created money to fund infrastructure spending. The Japanese central bank successfully used quantitative easing after their tsunami.

"It's time for a new approach - one where the Reserve Bank and the Government work together to protect jobs throughout the economy but in the productive sector especially."