For people wanting to go overseas, right now could not be a better time in terms of the New Zealand currency. Continuing its unprecedented form of the last couple of years, it has never cost so little to convert New Zealand dollars into American dollars. And the New Zealand Government seems very reluctant to intervene, despite the damage being done to the export sector which has to cope with a high dollar on top of increasing operating costs; despite promising the export sector that it would help exporting businesses. Lowering the dollar won’t help the Kiwi tourist going overseas, but the artificial high that it has achieved cannot be sustained forever, and lowering it will go some distance towards assisting those struggling export businesses.
It must be tough at the moment working in sectors that require a weaker New Zealand currency than the one that currently exists. With the dollar at on average between U.S.$0.82 and U.S.$0.85 for the last year and some people expecting to break U.S.$0.90 in the not too distant future, there really is a good incentive to lower the New Zealand dollar through Government intervention. So, why is the New Zealand dollar trading at such a high value?
The New Zealand Dollar is one of the top ten most valuable currencies in the world at this time by the volume that gets traded. However, there are other factors responsible as well for the Dollar being at an all time high such as the Americans and European nations printing currency in an attempt to kick start their economies, which have been beset by high unemployment, debt issues and collapsing banks.
So, who would be best placed to carry out the intervention and how might they do it? The Reserve Bank of New Zealand is the logical organisation to take responsibility for an intervention. It is responsible primarily for maintaining a stable pricing regime through independent management of monetary policy. On 11 June 2007, in a bid to drive down the New Zealand dollar an unknown sum of money was sold by the Reserve Bank, which provided a few weeks of relief. In 2012, New Zealand First introduced a Members Bill to Parliament that sought to decrease the value of the dollar by introducing new tools for the Reserve Bank to use. The Bill was defeated.
New Zealand is still a primarily agricultural country, despite efforts to diversify our exports. Expanding the different types of exports and the markets that they are sent to, helps to take the pressure of the one or two sectors that make up most of our current exports, but do not address the operating costs businesses must account for in their budgeting. That brings one back to the idea of the Government intervening or giving the Reserve Bank more effective tools to intervene with when it deems necessary is a more effective way.
Even if one of those two options do not happen – and appear unlikely under this Government – the Reserve Bank could adjust its Trade Weighted Index, which has not been updated since 1999, and does not include the Chinese Renminbi, even though that is the currency of one of our biggest trading partners.