No point in NZ trying to drop strong kiwi dollar: English

Finance Minister Bill English: We've got growth (Photo: TV3)

BUSINESSDESK: Finance Minister Bill English has no truck with mounting calls for intervention by the Reserve Bank to bring down the high value of the New Zealand dollar.

Speaking to news media after the release of the new Policy Targets Agreement between the government and the RBNZ's newly appointed governor, Graeme Wheeler, Mr English says the kiwi dollar was high because New Zealand looks healthy compared to other developed world economies.

He was responding to suggestions from JBWere's New Zealand head of strategy, Bernard Doyle, and Labour finance spokesman David Parker that tools are available and should be used to ease the pain felt by exporters by the New Zealand dollar trading consistently above US80 cents for most of the last 15 months.

"I just don't agree with them," Mr English says. "There can be a misunderstanding about what's happening in the US", where the Federal Reserve has committed to printing money for as long as it takes to get the world's largest economy moving again.

"They are trying to get interest rates lower and are willing to do almost anything to get them lower. We're not in a position where we need to do that. We've got growth, we've got employment growth."

Statistics New Zealand announced stronger than expected growth in the three months to June to produce annual growth of 2.6% for the year, the strongest since 2007, before the global financial crisis.

US benchmark interest rates are at or close to zero, so quantitative easing – or printing money – is the only course available to the Fed. The Bank of Japan also announced a quantitative easing policy yesterday.

Mr Doyle suggested earlier this week that New Zealand's financial stability was at risk because of the way central banks around the world are "breaking all the rules" of orthodox monetary policy, which New Zealand continues to run a conventional regime.

"The driver of our exchange rate is as much to do with the relatively positive outlook for our economy compared to the US," Mr English says. "If the US economy policy has a positive effect, it may be that the exchange rate will drop back."

He says the new PTA's instruction to the RBNZ to concentrate on achieving 2% inflation, in the middle of the bank's 1% to 3% inflation target range, was intended only to help manage inflationary expectations.

It neither implied a desire for looser or tighter monetary policy on the part of the government.

While the PTA also covers the use of new macro-prudential tools, which would allow the RBNZ to "lean against" emerging credit bubbles such as caused the mid-2000's house price boom, such tools were effectively "fighting the last war".

"The new war is just growth," Mr English says. "Central banks are getting into some pretty innovative policies and pulling levers they've never pulled before."

However, New Zealand's only long-term answer to a high exchange rate was further efforts to improve competitiveness in all other aspects of the way businesses were run.

"We are focusing on the basic competitiveness in the New Zealand economy. There is no free lunch with the exchange rate," he says. "Even if we could get it down, it's impossible to sustain for any length of time."

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36 Comments & Questions

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English knows full well that if interest rates went down, foreign banks would call their markers and the highly leveraged personal debt of NZers would drag the country into near oblivion.

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Lets remember Mr English is but a month piece for others.

Those others are benefiting from this high exchange, and its not hard to tell who they are.

Time to get rid of these pr*cks, and the sooner the better!

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Bill English as Finance Minister? This guy was unable to work out if he lived in Wellington or Dipton. And he is in charge of finance.

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Bill English as Finance Minister? This guy was unable to work out if he lived in Wellington or Dipton. And he is in charge of finance.

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In all due respect, Mr English is seriously doing the job.
Love them or hate them, this National led government have guided NZ through this roller coaster global financial meltdown well ahead of the pack and relatively unscathed. The strength of the NZ dollar only goes to reflect this fact.
Those who call for a lowering in the value of the NZ $ are either cruel or foolish...
Cruel to all NZ'ers, who would have to pay more for everything from fuel, vehicles and machinery, to clothes, construction & food...
Foolish, because when an economy is strong - the currency is strong and when an economy is weak - the currency is weak...
We should be celebrating, not demanding intervention.

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You are clearly a consumer and not a manufacturing export. Wake up, the only way out of the mess we are in is to sell more for more. The dollar has removed all profitability from a very large percentage of NZ exporters. Those that can relocate to get advantage have and will continue to do so and that is bad for this country.

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I do understand - we have a small export biz and yes it's extremely hard - but our machinerey and many of our inputs are imported(including the cost of international travel costs for sales) ...
But from an NZ Inc. view - NZ is way better off with a stronger economy than a weaker dollar... we've been misled for years - the truth is that you simply can't have both!

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Is it like thinking of the country as 1 person. That person can only make money by exporting and spend money by importing. What happens if that person starts exporting less than they import. Net loss right and eventual bankruptcy. Which makes the exporting far more important than importing right? Not an expert here but that's thoughts on this.

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As much as it pains exporters, English is right. The NZD is high because the US and Japan are printing truck loads of dollars and yen. Likewise the Europeans. They are all trying to lower their currencies and finance their operations and with demand so low, they are doing this without causing inflation. With everyone else doing this, there is no real likelihood that we could beat them either at printing money or at lowering interest rates.
Besides, a high dollar keeps our import costs down and inflation likewise and that is good. David Parker is like a pixie with a magic wand in thinking he can successfully intervene and tell the RBNZ to do all it can to lower thevNZD.

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They want inflation. They are working hard to keep it from dropping.

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A lot of people in this country have just to realize that it is not NZ that calls the shots in this game. The NZD is not high because NZ economy is so wonderful and succesful, but the USD low and weak as a result of the USA's incredible talent to spend and spend money they do not have and all the other odds going on over there at the moment. As it looks now this situation will not change anytime soon and the USD will continue to stay weak (not only against the NZD by the way). What can NZ as, sorry the expression, small fart in the world economy do about this? Not much, I would even say nothing. Let us concentrate on things we can influence and not so much on currency values. Other countries have lived well with high currency values and have improved their competivity because of this so why can NZ not invest its energy into higher competivity instead of moaning all the time about the high NZD.

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Just goes to show what a useless clown Bill English is. Zero vision. We must not let other countries get away with hurting us by devaluing unilaterally. We must match them.

English accepts other central banks are "breaking the rules" but won't let us. Idiot. What he needs to do is free our currency from the grip of interest-issuing banks and put it back under govt control. We can have all the funding we need, a competitive exchange rate, and a more stable monetary system if the government would just print the required money into society debt-free.

We can't afford to bring down the exchange rate via interest rates because all the new money is debt and we can't afford to pay it back.
Government is one hand of the people, their currency is the other. Let them work together, give us our sovereignty!

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Interesting doctrine that you espouse there.
Confusionism , is it?

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"Just goes to show what a useless clown Bill English is. Zero vision. We must not let other countries get away with hurting us by devaluing unilaterally. We must match them"
You clown, that reminds me of the two Winston Peters supporters who decided to have a crack at skydiving, so up they went and one jumped out okay, the second jumped but his parachute didn't open, he started waving and yelling, the first jumper looked up and said "Oh, so its a race to the ground is it you want"? and immediately tore off his own parachute.

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Not even funny... note, next time you try to make a point make sure you actually have one.

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True story, not meant to be funny, the fact you didn't get the point tells all readers they will ever want to know about Paul N.
Have a nice day.

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You don't know what you are talking about.

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You get my vote, its a strange thing when the govt refues to act in the best interest of its people.

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If the government controls the currency, then it must buy and sell currency at a price it sets, like it used to do before 1984. If it sets the currency price below the true (ie market) value, then the government would be subsidising exporter profits with taxpayer funds, like it used to before 1984.

It isn't at all clear why the Labour Party wants to transfer funds from ordinary worker and pensioner tax payments to give to famers and the mainly overseas shareholders of our big exporting firms.

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Lower the level of the NZDollar and internal infaltion will reach double figure. Fuel prices will skyrocket and everything, I mean everything will increase in price as this inflation hits home and the internal NZ economy will stop dead in its tracks. .
Winston Peters and David Parker would be responsible for the NZ econmy crashing. So much for Winnie looking after his natural constituency, those retired people on fixed incomesi
If I was an exporter, the last currency I would want to be paid in is Japanese Yen or USdollars, I would want to be paid in good money, not the toilet paper stuff from the USA and Japan.

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Managing inflation... what a joke, tell me what are the endless power, house price and rates increases it they are not inflation... these guys are in la la land, everyone knows our dollar is way over value and this has been a problem way longer than 'central banks printing money' and now the screws are going on even tighter. If exporters are hurting we are all hurting and they all tell us they are hurting, I would have thought Alisdair Thompson especially would have understood that. This is the attitude you get when there is a complete disconnect between the well paid trough feeders and average hard working people in the real world, I'm with the JB Were guy.

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"everyone knows our dollar is way over value"

"The Economist" doesn't. It's "Big Mac" index showed our dollar slightly undervalued. If you think it is over-valued, sell all yours and make your fortune. That's called putting your money where your mouth is.

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Paul. Then sell everything you own in NZ, transfer the money into $US and wait to make your fortune. Put your money where your mouth is.

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You understand nothing about how monetary economics works, present a conspiracy theory and then point to how there's a way we can live in an imaginary utopia with no credit, no financial leverage, no borrowing... Its infuriating.

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Translation: The New Zealand government ceded control of our currency to foreign banks so long ago that now it has no monetary sovereignty

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God there are some fools and idiots who post on these sites. Of course countries like NZ can't control their currencies, otherwise it wouldn't do the job it was supposed to do, which is float freely to offset pressures in the money markets. You can't just adjust one part of the system and expect everything else to stay the same, it would all adjust accordingly. Labour and the Greens just leverage off the fact there are so many dumb people out there that believe them.

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Why are these muppets in charge of our money,evidence is they have issues with a lemonade stand.With bad management from this government,previous governments,the Christchurch rebuild ,we are well and truly in the crap.We need serious professional,proven people in this position,not someone who at the start of election year puts his hand up and say''s "I think I can manage that portfolio".Save us from these imbeciles playing with our future.Drop the dollar for a start,otherwise we lose more jobs offshore.

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What staggers me about cunliff, Parker and others in Labour ponificating about our 'too high dollar' is they only seem to think it is too high against $U.S. Nothing like a low currency to encourage overseas purchasers of NZ assets, yet ext week they'll be hand-wringing because some overseas investor wants to buy something.

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The William Jennings Bryan revival movement is reborn!

Paul N: "everyone knows our dollar is way overvalue". Then short it Paul, short it. You're obviously the new Sage of Omaha (Nebraska, not north Auckland).

But before you do, you might want to take some advice. Readers of the Economist magazine, for example, might take the other side of your trade:

"A financial index based on the price of a McDonald's Big Mac has shot down the long complaint of exporters that the New Zealand dollar is overvalued.

The annual Economist magazine's Big Mac Index, published today, shows the kiwi dollar is around 10 per cent undervalued."

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Apologies, hadn't got down to your comment when I said exactly the same to Paul N.

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Its a good time to buy property in the UK - and buy electronics and clothes online!

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The nay sayers should really understand this point: intervention by the Reserve Bank to bring down the NZD requires a lot of money.

The Chinese government is able to keep the renminbi/yuan artificially low because they can afford to. That government is super rich.

In a world of volatile foreign currency movements, exactly how does China maintain a fixed exchange rate? First, China promises to redeem dollars for yuan at the fixed rate. To do so, it must keep a good supply of US dollars in reserve. Instead of holding dollar bills, it holds U.S. Treasuries, which it can quickly sell for dollars. As China's economy grows, it must buy more and more U.S. Treasuries to meet the growing number of yuan. As a result, China is the largest holder of Treasuries. In November 2011, China held more than $1 trillion in U.S. debt.

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If/ when the economy really slows down, the NZD will drop. It's simple economics. No government can control their exchange rate (in the long term). Just ask George Soros

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Instead of complaining that the NZD is too high we should be complaining that the US dollar is too weak.

That is where the real problem is, full stop.

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Shouldn't even bother doing that.
Only thing that concerns me is our monetary policy has often raised the value of our dollar by gifting a lovely interest rate ( an absurd tax on NZ's productivity) to Japanese housewives and others that get less return on their savings at home.
But, that's life, we have to get used to it and push ahead.
To deliberately drop our dollar is unthinkable.
Even "jaw-boning" it down is a foolish and dangerous illusion.

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Jacque Fresco - The Venus Project #moneyisoutdated

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