Is New Zealand ready for the currency wars that are breaking out all over the globe? Our policymakers seem remarkably relaxed about the implications of the turmoil that threatens to push our currency through US80c in the coming months and destroy any exporters not reliant on booming commodity prices.
Other
countries are not so relaxed. In fact, they are panicking. Brazil described the situation unravelling across global foreign exchange markets as "currency wars".
The growing talk of a US Federal Reserve money-printing to push down long-term interest rates and the US dollar is forcing others to think about similar devaluations.
New Zealand seems set to stand aside and let its currency rise as others desperately act to hold theirs down. So should we also put up our shutters?
The collective groan from our policymakers ingrained in 30 years of orthodoxy is already emerging from Wellington. Trade controls worsened the Depression, they say. New Zealand is now an open country and we can't be seen to be doing the "wrong" thing, they say.
We cannot step aside and play the "holier than thou" card when our export sector is being smashed and we are again being swamped by cheap foreign capital that leaves us in a hollowed-out wasteland of indebted consumers, beneficiaries and public servants.
There is precedent for intervention, even in New Zealand. Despite its history of arch-orthodoxy, the Reserve Bank has been the most pragmatic arm of the Government under governor Alan Bollard.
It intervened in 2007 to push the New Zealand dollar back below US80c. It should consider it again if we head towards that mark.
It introduced the core funding ratio (CFR) last year, which in effect is a type of capital control.
It makes it much harder for the banks to borrow heavily and cheaply overseas and then shovel it through to the housing market. It is no accident that the currency has been relatively stable between 65c and 75c over the past year since the CFR kicked in.
But it won't be enough once the Fed's printing presses start rolling later this year. Standing aside and waiting for the music to stop is not an option.
