Isn't it a good time for RBNZ to create money?

LETTER

They say “Fools rush in where angels fear to tread” but I’m going to take a risk here, as an engineer, by venturing into the realm of economics.

I’ve read with interest (no pun intended) the letters from Social Creditors who urge the use of RBNZ interest-free funding for investment in infrastructure.

The opponents of this policy might call it “quantitative easing”, and scream “devaluation” as if this is a bad thing but, as I understand it, most economists believe the kiwi dollar is currently overvalued and some correction is necessary anyway. When I put this point to Bill English when he was Finance Minister, his answer was a dismissive, “We don’t do things this way”.

So my question is, does a country’s currency need to be “strong” for the country’s economy to be strong?

When Britain devalued its currency in 1967 the then prime minister, Harold Wilson, famously declared: “It does not mean that the pound in your pocket has been devalued”; money would still buy the same amount of domestic product.

As I understand it, a lower-value currency would enable New Zealand producers to sell more goods abroad on a competitive basis. It would give overseas visitors more “bang for their pound/euro/yuan/yen etc” and encourage that “export” nearly everyone seems to be trying to promote, i.e. tourism. Although it would increase the price of imports, that might not be a bad thing; we buy too much stuff abroad (I’m not saying where most of it comes from) and have run up huge international debts as a consequence (debts that are costing the country dearly in interest repayments to foreign banks). If New Zealand needs a stimulus to increase its GDP then surely this would be it.

So, I’ve said my piece; call me a fool if you like but, if you do, please provide the counter-argument. Perhaps each candidate for the forthcoming general election might like to say where they stand?

Oh, I forgot, National doesn’t do things this way!

Peter Wooding

They say “Fools rush in where angels fear to tread” but I’m going to take a risk here, as an engineer, by venturing into the realm of economics.

I’ve read with interest (no pun intended) the letters from Social Creditors who urge the use of RBNZ interest-free funding for investment in infrastructure.

The opponents of this policy might call it “quantitative easing”, and scream “devaluation” as if this is a bad thing but, as I understand it, most economists believe the kiwi dollar is currently overvalued and some correction is necessary anyway. When I put this point to Bill English when he was Finance Minister, his answer was a dismissive, “We don’t do things this way”.

So my question is, does a country’s currency need to be “strong” for the country’s economy to be strong?

When Britain devalued its currency in 1967 the then prime minister, Harold Wilson, famously declared: “It does not mean that the pound in your pocket has been devalued”; money would still buy the same amount of domestic product.

As I understand it, a lower-value currency would enable New Zealand producers to sell more goods abroad on a competitive basis. It would give overseas visitors more “bang for their pound/euro/yuan/yen etc” and encourage that “export” nearly everyone seems to be trying to promote, i.e. tourism. Although it would increase the price of imports, that might not be a bad thing; we buy too much stuff abroad (I’m not saying where most of it comes from) and have run up huge international debts as a consequence (debts that are costing the country dearly in interest repayments to foreign banks). If New Zealand needs a stimulus to increase its GDP then surely this would be it.

So, I’ve said my piece; call me a fool if you like but, if you do, please provide the counter-argument. Perhaps each candidate for the forthcoming general election might like to say where they stand?

Oh, I forgot, National doesn’t do things this way!

Peter Wooding

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