Casting himself as some kind of self- anointed Harbinger of
Economic Gloom and Doom, Winston Peters this week warned it
was now only a question of time before New Zealand's currency
reached dollar-for- dollar parity with its American
Quelle horreur. To listen to Peters speaking in Parliament on
his private member's Bill which sought to end the Reserve
Bank's "myopic focus" on inflation targets, you could be
excused thinking parity between the kiwi and Yankee dollars
Admittedly, that may be so in recent history. But go back to
1979 and the two currencies were on a par.
Moreover, exporters coped.
They coped because they were actually better off than they
had been six years earlier when the New Zealand dollar was
nudging nearly $US1.50.
But memories quickly fade. The debate on the exchange rate is
framed by the here and now. In the intervening 39 years, the
New Zealand dollar slipped to a post-float low of just under
US40c in late 2000 before clawing its way back up over the
Now close to 82c in value, the "high" dollar is undoubtedly
hurting exporters. The dollar has previously hit similar
highs only to ease back.
This time National seems to be copping a backlash, however.
That was evident in the party's behaviour in Parliament on
Wednesday afternoon when National MPs filibustered on
legislation higher up the order paper to dash Mr Peters'
chances of making television's early evening news bulletins.
The New Zealand First leader's Bill - which would have
required the Reserve Bank "to maintain an exchange rate that
is conducive to real export growth and job creation" - was
always going nowhere thanks to National and its Act and
United Future allies.
But the measure's political cachet lay in it providing a very
timely opportunity to thrash out the arguments for and
against widening the Reserve Bank Act's objectives.
Labour, the Greens and NZ First argue that New Zealand no
longer has an inflation problem. It has a jobs problem.
But those who want to see the Reserve Bank give more
attention to the supposedly overvalued currency have to
answer some questions - such as how high is too high and
equally how low is too low?
And is it the role of the Reserve Bank to gamble millions of
dollars on the foreign exchange markets to prop up exporters
who rely on a low exchange rate rather than address
inefficiencies in their workplaces?
Such questions are easily glossed over in Opposition. They
are impossible to ignore once in Government.
That may explain why Mr Peters was a lion in Opposition in
the 1990s when it came to promising to make the Reserve Bank
take more cognisance of the exchange rate.
He turned into a lamb as Treasurer in the National-New
Zealand First coalition in accepting a policy targets
agreement with then Reserve Bank governor Don Brash which did
not even mention the words "exchange rate". The only
concession was mention of maintaining a stable general level
of prices so that monetary policy could "make its maximum
contribution to sustainable economic growth, employment and
Nothing changed. It was business as usual for the Reserve
What is different now?
The exchange rate has simply become a high-profile means by
which Labour, the Greens and New Zealand First seek to
supplant the prevailing economic orthodoxy.
For perhaps the first time in this Administration, the walls
of National's economic fortress have been breached.
Even better from the Opposition's point of view, National can
do precious little about it because it is against intervening
in the foreign exchange market.
The broader battle lines are clear.
The Opposition knows that if National's economic orthodoxy is
still the prevailing world view in 2014 - as it was in 2008
and 2011 - then Labour and its friends will struggle to win
that year's election.
So the Opposition parties are seeking to turn the tables on
National by proclaiming the economic orthodoxy of the past 30
years has run its course.
They say the global financial crisis and its bitter lingering
recessionary after-taste has seen to that.
The time has instead come for a new, more interventionist
Take the exchange rate, for example.
Once upon a time, a high exchange rate would be cause for
congratulation rather than commiseration. It was the measure
of a healthy, well-balanced and growing economy.
Labour argues everything has changed. The high New Zealand
dollar simply reflects the cold hard fact that other
countries are ruthlessly devaluing their currencies to
provide some desperately needed stimulation for their
The speculative foreign exchange market is consequently
driving the kiwi even higher - and at the cost of jobs.
The latter is the other prong in Labour's strategy to loosen
voters' attachment to economic orthodoxy.
Rather than debate job cuts across the board, Labour is
trying to focus the debate on job losses in manufacturing.
It argues that a modern economy requires a manufacturing
sector that is not solely consumed with just processing
pastoral, fishing and forest products. It requires a skilled
manufacturing sector that provides jobs for those who would
otherwise flee to Australia.
Labour knows that weaning voters off economic orthodoxy is
not going to happen overnight. While it has big-ticket items
in the policy mix - a capital gains tax, lifting the age of
entitlement to national superannuation and rock-solid
adherence to a workplace-based savings scheme in the form of
KiwiSaver - it has yet to show how these fit together in a
coherent, easily comprehended economic plan.
For now, the basic message is that the current orthodoxy is
However, voters must have confidence in whatever replaces it.
No surprises then that Labour eyes looked skywards when
earlier this month the Greens' Russel Norman floated the idea
of allowing the Reserve Bank to follow the American and
British examples of "quantitative easing" to stimulate the
This licence to print money was used by the central banks in
those countries to signal that they would not allow their
economies to slip into depression.
Unlike those central banks, the Reserve Bank here still has
some leeway for cutting interest rates, thereby stimulating
activity and easing buying pressure on the dollar without
jeopardising inflation targets.
The last thing Labour wanted was for the economic debate to
get sidetracked by quantitative easing which opponents would
decry as at best the resurrection of Social Credit and "funny
money"' and at worst raises the spectre of hyper-inflation
and people being forced to carry their money around in
Economic orthodoxy will not go down without a fight.
Labour, the Greens and NZ First may have capitalised on a
wildly fluctuating exchange rate, but there is a long way to
go before they can claim any kind of victory.
• John Armstrong is The New
Zealand Herald political correspondent.