New ideas to manage the exchange rate welcomed
The CTU strongly supports taking initiatives to bring down the exchange rate, says CTU economist Bill Rosenberg reacting
to the proposal from the Green Party this morning.
“Alongside broadening Reserve Bank objectives to include the level of the exchange rate, we need to have a range of
tools available to suit the circumstances, combined with policies aimed at the underlying trends that lead to
overvaluation of the New Zealand dollar. We have seen too many exporters and firms competing with imports laying off
staff and moving production elsewhere in recent weeks. Another – up to 40 jobs at risk in the Christchurch Engine Centre
– was announced just on Friday citing the high dollar as a cause,” he says.
These tools could include macro-prudential policies that more actively control bank short term funding from overseas, or
a financial transactions tax on incoming funds. Underlying policies that would support a lower dollar by discouraging
property speculation include a capital gains tax or other assets tax excluding the primary home, and limits on loan to
value ratios for mortgages. However loan limits need to be accompanied by much stronger housing policies to ensure first
home seekers are able to find affordable good quality homes.
“The government should also be actively working internationally to build support for such policies, which would
strengthen their effectiveness. Unfortunately US proposals in the Trans Pacific Partnership Agreement negotiations on
financial rules could make exchange rate management much more difficult.”
“The Greens proposal for using ‘Quantitative Easing’ to fund the Christchurch rebuild, refinance EQC and help take
pressure off the exchange rate is a very interesting one and deserves serious analysis and consideration. Clearly there
are risks and benefits in all such policies, but the downside of current policies are all too apparent and Quantitative
Easing should be among the options considered. At a time of low inflationary pressures because of stagnating household
incomes and higher debt repayment, the risks are much less,” Rosenberg concluded.