Reserve Bank Governor Alan Bollard has next to no chance of talking down the New Zealand dollar today. Photo / Ross Setford
What is to be done about the high exchange rate? What, indeed, can be done?
Reserve Bank Governor Alan Bollard will no doubt have another go at trying to jawbone it down today. History suggests he will be wasting his breath.
When he released the March monetary policy statement last month he noted the fact that all the major central banks are, in their different ways, easing monetary policy.
It would be a shame, he said, for the world to have come this far through the recession without beggar-thy-neighbour trade wars breaking out, only to have something similar happen through competitive monetary policy.
Greens co-leader Russel Norman says there is a kind of currency war under way.
"And you can't be a pacifist in a currency war. You don't have that option, because if you do nothing you become collateral damage."
The status quo - in which we constantly have to borrow more abroad, and sell assets, to cover the current account deficit and service the foreign liabilities we have racked up over decades of living beyond our means - is completely unsustainable, Norman argues. It is a downward spiral which will end in a catastrophic crash when our international credit is exhausted and only the debt remains.
"We can't just say 'There is no alternative' because the greatest risk is what we are doing right now. The path we are on is the most dangerous path."
Prime Minister John Key is naturally more sanguine.
The way to assist exporters is through the kind of regulatory reforms that assist business generally - to the Resource Management Act and employment law, for example - and through running a tight fiscal policy that takes pressure off monetary policy and, with any luck, the currency.
Key accepts the exchange rate is a problem for non-commodity exporters. "But it also takes pressure off oil prices and imported inflation, which also helps the Reserve Bank. So it's not all bad news."
The former forex trader does not believe in direct intervention in the foreign exchange market.
"Never have and frankly never will. Dreaming you can somehow get the exchange rate down through intervention is la-la land stuff."
Labour's finance spokesman David Parker says the current account deficit, which New Zealand has run continuously for decades and which is set to expand again, is the country's largest economic problem.
"This Government is not willing to pull some of the levers essential to remedying it, including broader and higher rates of saving and taking away some of the tax biases that drive investment to the speculative sector at the expense of the productive sector. And it refuses to address some of the issues of concern to exporters around the implementation of monetary policy," he said.
"What we are proposing is essentially what they have in Australia, which is broader objectives [for monetary policy], a different decision-making structure and a broader representation of manufacturers' interests around the table."
It is a long-held belief on the left that either the Reserve Bank Act, or the way the bank has gone about its given task, has laid waste the manufacturing sector over the past 25 years.
It wasn't, say, the reintegration of China and India into the global economy or revolutionary advances in information and communications technology, it was the wording of some 1980s legislation.
"We can reduce the pressure on the exchange rate and the tradeable sector by empowering the Reserve Bank with a mandate beyond inflation control to include managing exchange rate levels and volatility," Norman says.
But the Reserve Bank of Australia has multiple objectives and that has not prevented the Australian dollar from going through the roof.
"It's not a panacea," says Parker, "but it is part of the mix."
Over the last two or three decades Australia has had much better external accounts than New Zealand.
"A number of policies have driven that: they have better tax policy, better savings policy and arguably better monetary policy."
When it comes to trying to engineer a lower exchange rate, economists talk about an "impossible trinity" or "policy trilemma".
Let's say we want an independent monetary policy (to control inflation), a border open to capital flows (so that our growth rate is not hobbled by only having as much investment as we are prepared to fund though our own saving) and to control the exchange rate. We have to pick which two we want most; we can't have all three.
In particular it is difficult to lower the external value of the currency without lowering its domestic value as well, that is, letting inflation loose.
Inflation is hardest on the economically powerless and it penalises savers. It would be completely counterproductive, if the objective is to reduce the current account deficit, given that the deficit is the gap between investment and saving.
New Zealanders have around $100 billion on deposit at the bank.
Lowering the external value of the dollar also makes New Zealand assets cheaper to foreign buyers, not just exports. Putting up a big "For sale, going cheap" sign over the country would be a bit of an own goal, too, if you are worried about the external accounts.
"But we need to start by recognising that the orthodox approach isn't working. In fact it is having incredibly detrimental effects on the economy," Norman says.
"We need to have a look at the smorgasbord of options available internationally and choose some."
He points to the bold move the Swiss National Bank made last September to cap the Swiss franc's appreciation against the euro.
It was threatening parity, when the long-run average had been 1.50 francs to the euro.
The Swiss central bank said it would no longer tolerate an exchange rate below 1.20 to the euro and was prepared to buy foreign currency in unlimited quantities.
In the course of that quarter it expanded its holdings of foreign currencies by more than 50 per cent, creating more than 100 billion additional Swiss francs in the process.
What that will do to the domestic value of the existing ones remains to be seen; a similar policy in the late 1970s was followed by several years of what was by Swiss standards high inflation.
But as an exercise in stabilising the exchange rate it worked. It has remained just above 1.20 since then.
A more difficult question is whether - having said in effect it would pay any inflationary price to limit the damage of an overvalued exchange rate to the real economy - the Swiss National Bank can subsequently recover its credibility in terms of inflation targeting. Is that something that can be turned on and off, or is it more like virginity?
In any case the Swiss embarked on this experiment from a much stronger position than New Zealand is in.
They are among the richest people in the world, and have run a current account surplus for at least the past 10 years. The result is a net international investment position that is in the black by almost 900 billion Swiss francs ($1.2 trillion), whereas New Zealand's is nearly $150 billion in the red.
Similarly with any other country pursuing unorthodox policies; you can always point to some difference, which could make all the difference, between their position and ours.
That includes the United States and Britain, which have undertaken quantitative easing.
With the official cash rate at an all-time low, and floating mortgage rates at 47-year lows, it is hard to argue that New Zealand's monetary policy is too tight.
The central banks which have embarked on quantitative easing have done so because they are up against the zero bound and cannot cut their policy interest rates any further. That is not New Zealand's position.
The plain fact is that there are some positive factors supporting the kiwi dollar right now. Our forecast growth is nothing to write home about, but still better than most developed countries'.
And while export commodity prices have fallen from their highs last year, they remain pretty good by historical standards.
The Reserve Bank says no new information was disclosed in the speech.