National has rubbished the Greens' call for the Reserve Bank to create money in a bid to devalue the New Zealand dollar as a "snake-oil solution" but the measure could be used by a Labour-led Government.

Labour's shadow finance minister, David Parker, said that while he did not approve of a Government telling the Reserve Bank which tool it should use when, "quantitative easing", as creating money is called, could be used to meet objectives beyond controlling inflation that a Labour Government would set for the bank.

"I'm not in the camp that says the Government should direct the Reserve Bank as to what monetary policy tool it uses, whether it should be lower interest rates, or loan to valuation ratios or some sort of levy on capital inflows or quantitative easing," he said.

Quantitative easing was available to the bank now, as it was to other central banks, but inflation targeting trumped everything else at the moment.


The bank would behave differently if stability of the currency was also an objective.

Greens co-leader Russel Norman yesterday suggested the Reserve Bank create currency to do two things he believes would take pressure off the NZ dollar:

•Refill the natural disaster fund of the Earthquake Commission depleted by the Christchurch earthquakes.

•Buy earthquake recovery bonds for the Government's costs in the rebuilding of Christchurch, rather than the bonds being issued to largely overseas lenders.

Dr Norman said quantitative easing would mean the Government had to borrow less, domestic investors would invest in other markets, increased supply of credit would reduce interest rates for business and reduce reliance by banks on overseas borrowing. That would lead to lower interest rates and a lower exchange rate.

Economic Development Minister Steven Joyce said the Greens were offering a "snake-oil solution", adding that New Zealand had one of the strongest economies in the OECD over the past 12 months.

What is quantitative easing?

Printing more money, the principle being that greater supply reduces demand, and its value falls against other currencies.


Isn't that "funny money"?

Yes. But after the global financial crisis, some countries including Britain and the US started creating credit to stimulate the economy.

What would it solve?

A lower NZ currency would mean exporters would be paid more for goods or services, and fewer jobs would be lost.

Any problem with this?

Imports including petrol would be more expensive. It could add to inflation, reducing the value of savings. There would also be no guarantee it would achieve its goal because behaviour of the financial markets is based on perceptions of many factors, not one.