Wheel Of Fortune

    If you want to make things or grow produce commercially in NZ, one of the biggest difficulties you have to deal with is the way our government chooses to use a floating exchange rate to help regulate our economy and discourage inflation. I wonder whose bright idea it was to use our unstable dollar in this way and delivering Kiwi business profitability into the hands of fund managers who handle the savings of people living in other countries.

    To get a take on what is happening overseas, just imagine how you would have to cope if the NZ internal economy operated like the global economy - where districts (or provinces) had their own exchange rate that was changed daily by professional gamblers in the Sky City Casino. To further complicate matters, some districts would also set their exchange rates to ensure a continual economic advantage over other districts.

  

   If you travelled around NZ, imagine how frustrating it would be trying to work out the going rates every day so you could control your spending and income expectations in localities only a few hours from your front door. I think it would be incredibly complicated, inefficient and unfair.

  

   Obviously, in our domestic economy, we need a single exchange rate for commerce to run efficiently along with one main language, commercial and social laws etc. Perhaps there is a solution here to help the World's economic woes by eventually having one world currency and the same commercial standards. Fair trading agreements would also need to be negotiated to establish a real level playing field – in the same way perhaps as the EEC takes in new members, except in this case each country would initially keep their own currency.

  

   A logical place for us to start would be to get an exchange rate parity and a real free and fair trade deal with Australia; then (in steps), negotiate the same sort of arrangement with the U.S.A., Canada, Europe, Japan and then the rest of the World. If a shared exchange rate became established, as it does within our domestic economy, we would know at last the real costs of goods and services. The USA is waking up to the way its generosity has been exploited and I think we have a real cheek to ask for a free trade agreement while we sneak our stuff in with a weaker exchange rate and thereby also inhibit their exports. No wonder the USA is reluctant to play ball. 

There are many business people in NZ who think that a low NZ Dollar rate against the USA dollar will help sort our economic woes and the NZ trade deficit. Such thinking is in effect saying that unfair trade practices are what we need for prosperity. In my view, this is short -term thinking and unsustainable. Unfair trade practices are destroying the US economy and in the long term, an economically weak USA will eventually be militarily weak as well and this would threaten our national security. Fair Trade currency values would help prevent this because it helps all trading countries in the same way it does within their national boundaries.  

   Notice here that I am not suggesting using the same currency. That will come in time when the World requires it, so initially for cultural and practical reasons parity is what I am advocating as a first step. Obviously, the best parity partners would be countries that we have the most in common with (ie English speaking – Aust., USA, Britain, Canada). Beyond that would require a complex evaluation and adjustment system to establish fairness and remain true to keeping international trade using money as a means of exchange instead of speculation and unfair trade manipulation. 

This concept might help stem the wealth transfer taking place from the West to Asia and allow wealth to be generated within each country influenced by its own natural advantages. It might also help environmentally by exposing the real cost of transport and energy.

   Initially, in New Zealand, export returns might fall in real terms. However quotas and tariffs would be less justifiable and the economies of scale and natural advantages would reduce costs. Spending power would increase greatly and so input costs would decline as well.

   I heard President Obama on the radio saying that his government will strive to lift his country out of the recession by reforming the finance sector and promoting ‘Fair and Free Trade”. He has not been able to do this, but could we succeed with our less complex economy and political set up? I would say “Yes We Can”, while we are still able to establish and maintain trading relationships on our own terms.

   Currency speculation and exchange rate manipulation are unfair and distort world trade. They are not tolerated inside most economies and it is time to remove them internationally. World peace and continuing rises in world wide prosperity are at risk if we just sit back and hope that the invisible hand of the marketplace sorts it out somehow. Surely the wars, recessions and depressions of the last century are enough to warn us that changes are needed and leaving it to traders to sort it out does not work well. It is time to establish a fair international trading system and freedom to offer more trading opportunities to every person across the globe based on a real level playing field.

I realize that poorer countries will need faster rates of economic growth to catch up with richer countries, so openly transparent trade assistance could be used until they become unnecessary.

Postscript:

I am sure that many business people and economists will dismiss these ideas as simplistic, impractical and unrealistic. However to these critics I would like to point out that I am advocating here only a beginning to establish a clear and big picture World View to make money work internationally as it does within national economies. Beyond these ideas are of course the complex problems of human relationships that interfere with money doing its job efficiently by distorting its essential functions. That is another bunch of very complex issues far too huge to deal with here. As a parting shot I ask you to imagine how difficult life would be if most of the World did not accept GMT as a basis for international time settings. In my view we also need a common international currency to help us all in much the same way. A start in this direction would be to get parity values established and then move out from there to deal with each obstacle that threatens Fair and Free Trade. I am convinced it can be done and must be done soon if we want a prosperous World that fairly rewards innovation, natural advantages and efficiency. The trick will be how to do it and find better ways to keep a cap on inflation than floating and manipulating exchange rates.