Next steps on a fair exchange rate

The Greens are committed to pragmatic steps to get the dollar down and stabilise the exchange rate so that our exporters and local businesses have a level playing field against international competitors. That will mean more jobs and higher wages for New Zealanders.

Last year, I released a proposal on monetary policy. Today, I’m launching a new member’s bill based on that discussion document and the feedback we’ve received.

My Bill will make the Reserve Bank’s Board responsible for setting the Official Cash Rate (OCR), not the Governor alone, and require the Board to publish their minutes within a fortnight of meeting.

No other country in the OECD gives full responsibility for the OCR decision to one person – the Reserve Bank Governor.

This is decidedly antiquated. It leads to poorer decisions; decisions which don’t reflect the wider economic interests at stake when the Official Cash Rate is set.

We’d bring the Reserve Bank into the twenty-first century by making the Reserve Bank Board accountable for setting the Official Cash Rate, rather than the Governor alone.

In Government we would also ensure that the Board includes representatives from the export and manufacturing sectors so that Reserve Bank decisions represent the broader economy.

That discussion document also proposed the use of quantitative easing, as has been widely used in other countries, to help lower the dollar. The feedback we’ve received on that element of our proposal made clear it did not have the broad support it would need to work.

New Zealanders expect their politicians to listen, the Greens do listen, and so we’re not pursuing the QE element of our monetary policy package.

Instead, we’re focused on the pragmatic changes I’m announcing today, along with the rest of our agenda for improving the New Zealand economy, creating jobs, alleviating poverty, improving child health, making housing more affordable, and reducing power costs to families and businesses.

31 Comments Posted

  1. Yes, I was only quibbling with the inflation occurring at the time of the asset being created. Not necessarily as there is often unused capacity so no inflation results. The government here has been investing in infrastructure (by debt) without any inflation because there is spare capacity.

  2. I think that that is sort of the flip side of the issue I was raising when I described the use of “foreign” goods and services. Fundamentally, if you are spending the money locally, the labour and material are sourced there and the capacity to produce such is going to be supported/stimulated there. This is if there is a shortage, inflationary. Prices will rise in that case. Supply will follow the rising price.

    The question remains whether the additional capacity created will then lead to lower prices when the demand slackes, or merely to a boom-bust cycle with suppliers going out of business when the demand is reduced at the end of the construction.

    It seems to me that a well run government could keep stimuli running sequentially in such a way to build up enough of a base to allow more local manufacturing to prosper with only a very little support/protection to keep it competitive with foreign made stuff, and maintain the lower dollar that supports it throughout the process.

  3. bjchip, if the printed money is creating an asset that would not have existed without this, there is an inflationary factor in the demand on labour and material to build. Of course at some times in the economic cycle this can be negligible as there is spare capacity.

  4. If the spending creates NO asset, is just to cover operations of government on the other hand, it is purely inflation.

  5. Printing money is an alternative to increasing tax or debt. It has it’s own cost – it is as inflationary as debt spending

    MMMmmmm… yes… and no? What the money is used for is an inherent part of the question of “inflationary” as in the long run an asset created by the spending is what backs it as “work done”. The ability to “overdo” this is related to the degree to which the money is spent on foreign labour, goods and services in the pursuit of that new asset. If the domestic economy supplies the work to create the asset I would hold that there can effectively be only “inflation” while the asset is created and that once created there is none.

  6. Why the GFC is a “continuing” rather than “over” event… look at the credit mess in China. Notice that the re-working of the relationships between the Fed, the Treasury and the “TBTF/TBTJ” bankers basically removes from the banks any responsibilities. If that be the case, why have that arrangement at all? The justification of it, EVEN under Fractional-Reserve, has disappeared.

  7. The idea that we are “post” the GFC is I think, wrong. We have passed the first post, but there is a long run ahead for this.

    The problem is fundamental. Understanding of what current money actually is and what real money has to represent is scarce… and we have elected a master of this….

    .. corruption. Worse, there are people here who STILL just “trust” him. My wife describes New Zealanders as “naive” without prompting from this New Yorker, her home town is in Russia. There is not ANYONE from New York who would trust the “smiling assassin”, though there are many who would pretend to do so for a fee. Which is why I am “from” New York.

  8. Given the proposal last year was not actual QE, nor the printing large enough to impact on currency value it was hard to argue a case for it. It was more like fighting the fires of misrepresentation – that amounts too small to impact the currency value were also too small to be inflationary. The advantages were also small and thus were they worth the political cost of arguing for radical change to economic orthodoxy (when fear is driving political/economic policy post GFC)?

    Printing money is an alternative to increasing tax or debt. It has it’s own cost – it is as inflationary as debt spending, unless private sector money is restrained to compensate.

    Any alternative to tax that involves restraining private sector money faces the same opposition as a tax increase on those on higher incomes – as it is those on higher incomes (and the corporates they invest in) who receive most of the private sector finance.

    IMF economists see a time when, post this round of QE and because of high national debt, there will come a time to ration access to money supply and allocate zero cost money to government.

    “IMF’s epic plan to conjure away debt and dethrone bankers.

    So there is a magic wand after all. A revolutionary paper by the International Monetary Fund claims that one could eliminate the net public debt of the US at a stroke, and by implication do the same for Britain, Germany, Italy, or Japan.”

  9. “I see your an ardent advocate for the Green Party Values, especially number 6”
    Blog commenters aren’t bound by number-anything. We can be ill-mannered if we so choose. Pig’s-bottom! There! I’ve said it!

  10. Oh Yes
    I remember the hero of mariners, the one-eyed Admiral, explaining to everyone that there was no sign of the Armada!

  11. Gregor
    re “I think it comes back to your suggestion of a Tobin tax”

    The problem with a Tobin Tax is that a government can only impose it on transactions that take place within its own direct jurisdiction. It makes great sense for the Euro, because all the member states are heavily involved in balancing their foreign currency reserves, both public and private, so the EU would benefit. In our case, most of the transactions involving the NZ$ take place off-shore, and so would not be subject to an NZ domestic tax.

  12. Kerry

    I know that, Key is an arrogant, narrowly educated, bullying ass.

    I see your an ardent advocate for the Green Party Values, especially number 6

  13. “How anyone cannot discern the snake oil salesman is beyond me.”
    Such salesmen learn how to talk in a manner that turns people’s heads, has them nodding along, feeling that they are right in what they always thought and will prosper from listening to the sales-pitch/spiel. That’s how they progress their careers.It’s no surprise that when one rises to a position of high-visibility, they are supported by a nodding horde. Countering that effect is the challenge and it takes a clever person to do it, especially when they don’t occupy a similarly high ledge.
    A group of clever strategists can do it though. These people exist.

  14. “How anyone cannot discern the snake oil salesman is beyond me”.

    I have seen so many like him. Particularly in high school. The head bully with his bunch of unthinking and sycophantic followers.

    I always wondered how others couldn’t see that at school, too.

    Unfortunately, the only way to confront them successfully is head on.

  15. It would be nice if labour could show publicly, that they are capable of being a competent and capable Government, with the Greens.

    And not just National lite with a bunch of self serving apparatchiks in charge.

    With all the absolute fuckups by National, Labour still cannot seem to get past continually shooting themselves in the foot, and making even Key, Brownlee and Joyce look competent by comparison.

    Bring on BCIR.

  16. We have to have some actual political say in order to do the education necessary to put the idiots and treasonous liars in their place. The issue is simply one of rejoinder. Every time a jackass brays it is reported, and any time we speak reason we are ignored.

    There isn’t a lot one can do about that. The neo-liberal agenda will remain until all the poor and average folks realize that voting for National makes them chumps. National is the party of the 5% which is to say that the top 5% are the beneficiaries of the policies that the party they own promotes. 50% of New Zealand think that they are in the 5%… and that actually DOES make them chumps. Not to be respected. The ones we see are loud, and incapable of reason. I have run into others though “I trust John Key” being one of my few non-signer’s comment. My rejoinder was that no New Yorker could, and that she probably should not in that case sign the petition. It was a short conversation. 🙂

    How anyone cannot discern the snake oil salesman is beyond me.

  17. Those interested in alternative ways of doing the banking thing.

    Have a look at

    Especially about the positive effects of the State Bank in North Dakota.
    Their largely “Red State* voters are hardly a bastion of left wing policies. But they know that State banking, works!

    * In the USA red is the Republican right colours.

  18. Newsflash. Any honest Government works in their own countries citizens best interests. That is what we elect them to do.

    Pity we havn’t had one for a while. And Labour and the Greens backing down under pressure assures us we are going to have to wait a lot longer.

    Playing by the book is simply foolish.

    Our abandoning, tariffs, workers rights and industry protection, for neo-liberal economic orthodoxy, has failed.

    Now we have allowed sloganeering and bullshitting bullies, to shut down discussion of alternatives, AGAIN!

  19. to QE or not to QE? such a tough question under complex situation…

    US led and many other countries followed when they cheat…those countries playing fair (NZ is one of them) got screwed…

    so shall we all cheat and screw each other then see which countries survive this global financial mess (be the fittest)in the end??? I wonder…

  20. If you want to fix it, what’s your plan for the mechanics of that?

    jc2 – I think it comes back to your suggestion of a Tobin tax (or derivative mechanism).

    I essence, the purpose would be to discourage cheap offshore credit from flooding our economy.

    We still need some offshore capital – primarily to finance private debt – so there would need to me some ratio or instrument that allows for example, no more than 10% growth p/a of offshore funded debt, with a significant tariff associated with capital influx payable by the receiving bank (1% above the OCR?) that exceeds this threshold.

    Or possibly, mandating that offshore capital be collectively negotiated and purchased by the Office of Debt Management @ Treasury which can then be priced domestically and on-sold to private banks, though that is starting to get into currency control territory.

  21. Good or bad, QE ended up being a distraction that played into the hands of the opposition. In a conservative social, economic and political environment, it was a bridge too far and shouldn’t have been considered/promoted without a lot of confirmed party support behind it. The Green Party has to play to its strengths and not give the opposition the opportunity to paint it the way they like. Put it down as an opportunity to live and learn.

  22. I know that, Key is an arrogant, narrowly educated, bullying ass. I have met many John Keys.

    And that type of person is very wearying, and hard, to counter. Because they can spin bullshit memes much faster than you can reply with the truth, which is much less simple than he makes out..

    However it is even more important that the perception does not arise that Key, “owns” the narrative.

    Patrick Gower, this morning, put across the impression that the Greens dropped QE discussion, because of Key’s bullying in Parliament.

  23. Hi Gregor,

    To some extent, the Core Funding Ratio thing that was imposed on the banks is an attempt to force them to borrow locally instead of overseas, which regulates capital inflow by quantity rather than price. If you want to fix it, what’s your plan for the mechanics of that?

  24. Reality is fast getting to New Zealand.
    When the interest, on debt to overseas banks, far exceeds our net export earnings.

    The fact is QE worked for us, and many other in the past, and is working for those using it now!.

    How well did Muldoon’s borrowing work? again!

    Or Nationals for tax cuts?

    If you don’t like QE you should be advocating increased taxation to pay for developing New Zealand’s capability, not borrowing.
    Like the Greens suggested levy for Christchurch.

    Borrowing as at least as inflationary as QE, if not more so, as our housing market proves. And it kicks the can onto the next generation.

    The same rates of income tax as Australia should be enough.

  25. I am open to people who want to expand my range of imagination.

    Another option is to fix the capital inflow as a proportion of GDP (with an acceptable margin of error).
    Another might be to enforce negative interest rates on foreign currency holdings in NZ banks that exceed a retail deposit – say 100k Euro or USD equivalent.

    Combined with firming up the loan-equity ratios of retail banks and fixing their rates at no higher than 1% above OCR…

    The trouble is, all these measures cause a leak to occur elsewhere in the system!

  26. I don’t think someone got to Russel. I think reality got to Russel.

    Although some will disagree, this is actually a good thing. Politics is the art of the possible, and you cant make a change without getting the hands on the levers of power…

  27. Our most immediate problem with their quantitative easing is that we’re the dump-ee for their excess capital.

    In order to avoid being the dump-ee, we need an effective market signal for the amount of capital that we want to import.

    In my ignorance, the only signal that I can imagine is to make the Approved Issuer Levy variable, which I think would work only if it was accompanied by a Tobin tax. I am open to people who want to expand my range of imagination.

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