But I’m not holding my breath.

One solution is for the government to control its spending and run surpluses. The surpluses can then be reinvested back into the economy in the form of tax cuts when the economy needs stimulation.

Brash had some ideas for controlling consumption. One was to vary the gst rate.

It’s pretty tough though, the law of unintended consequences usually bites you in the bum.

“Our Reserve Bank policy targets are not well designed to produce a stable and competitive exchange rate, nor to keep interest rates as low as possible,”

Of course they aren’t. They are designed to keep inflation within the bracket set by the policy targets agreement. Diciplined fiscal policy, including both:

A) limited government spending and
B) taxes and other policies which encourage private earning/savings/industry while discouraging private borrowing for consumption

are what will ensure low interest rates and a competitive exchange rate. Basically the opposite of everything labour did over the past 9 years.

I still do not think the high dollar is due to the interest rate differential. We have not appreciated that much against other currencies. It is a case of a weak US dollar, and having higher inflation in NZ will not cause the US dollar to get stronger.

Hmm, partly agree. Some of the relative value in our currency is due to Obama minting 100′s of billions of greenback dollars thereby causing it to devalue. Smart players in the US would have read the signals well in advance of Obama’s election and moved assets offshore to places where there was less potential for their governments to run the cash print presses 24×7. Places like NZ I’m guessing.

But, we kiwi’s also have a lifestyle that outstrips our productivity. Don’t have the charts, but recall seeing the non-public debt levels climbing pretty consistently (while public debt has fallen) and that money’s gotta come from somewhere. Carry trade? It’s just a shame that this money has been used to inflate the housing bubble rather than improve our international competitiveness. Our children won’t thank us.

Didn’t agree with Peters about much but listened to what he had to say about this and agree that changes need to be considered. After all I think I’m correct in saying that any reviews have been run by self interested and not necessarily very intelligent politicians and the reserve bank staff.

The rationale for the guarantee (late 2008) was a response to perceived risk driving currency flows. As our Current Account had risen to record levels, we remained dependent on foreign sources for covering our imports.

The current interest rates in NZ are not high. An OCR of 2.5% and a CPI inflation rate of 1.9% only gives a real return of 0.6%. The willingness to hold NZ dollars at this point has more to do with the perceived risks of different currencies. The USD and the UK pound have lost a lot of favour. But this is not true of all our trading partner’s currencies- the NZD has for instance, depreciated against the AUD since early 2008.

I still do not think the high dollar is due to the interest rate differential’

Why else would anyone invest in the most indebted per population country in the world?? High returns and a government guarantee perhaps?
we are the size of a small Chinese town but we have the 11th most traded currency in the world.

Pegs sort of work if you have a lot of fiscal discipline as well- as Singapore has a times managed. But then, there’s not a lot of difference then to a float.

The main (historical) factors driving the high NZD were the inconsistency in fiscal and monetary policy. Getting better consistency and alignment in fiscal policy would probably be a nice, safe way of lowering the value of the NZD. But it also means you wouldn’t be able to indulge in the spending binges Labour was fond of.

Inflation in the UK is 1.1 to 1.5%. Latest CPI stats from the US are a 0.3% increase. NZ’s inflation rate is 1.9%.

In real interest rate terms the difference is smaller, not the 10 x you are describing. Plus the extraordinarily low Fed or Bank of England rates being charged at the moment are very abnormal. Historically it’s been largely in a 2-4% band. In the UK there is a fairly clear attempt to transfer wealth from savers to debtors. Under such circumstances, it is hardly surprising UK savers are looking elsewhere,

Our OCR is one of the highest in the developed world. Look at US, Japan, Britain, Euro Zone, all well under 1%. US under 0.25%. Whether our rate is low by historical standards is entirely irrelevant. It’s whether it low compared to the prevailing rates in countries who have savers who might be look for somewhere else to invest. If you’re Japanese or Belgian or American or Canadian why save in your own currency, when you can save it ours with our extraordinarily high interest rates – over 10 times higher than rates in US or Canada.

We’re a very small country, significantly smaller than large numbers of cities in other countries. It seems a little odd that we allow ourselves to have a floating currency that offers no protection to business owners in NZ whilst allowing currency traders to decide the value of our exports.

In terms of what can be done I’d be most interested in a currency fixed against a basket of our major trading partners adjusted regularly inline with our export ratio to each country rather than “one rate to rule them all”. Also, I don’t see why Goff has to have an answer, he’s not an economist and wasn’t elected to be. He’s raising the point that a lot of businesses discuss and bringing in to the open.

Yes, the NZ$ is reasonably high against the US$ and the pound at the moment, but compared to the Aussie dollar, the Japanese Yen or the Euro we are either about normal or even a tad on the low side.

I’d say the current situation is much more about the US economy than about ours.

Helen got your tongue? No doubt.