"The New Zealand dollar has reached very high levels recently, driven by US dollar weakness and New Zealand's heavy demand for borrowing." As was recently said by Alan Bollard, the Governor of the Reserve Bank. The NZ dollar is currently sitting at US 81c, the highest it has been in over a quarter of a century. It may be argued that a high NZ dollar has some advantages, such as the cheaper imported goods, however it also has many disadvantages.
One problem is that our dollar has greatly affected most export-led businesses, putting some on a "knife-edge"."The higher the New Zealand dollar goes, the cheaper imported goods get." The high NZ dollar has brought some benefits to our economy, namely the import bargains. As the dollar continues to soar towards the US 85c mark, the prices of all major goods are plummeting down.
For example, in Noel Leeming Compaq Laptops have dropped from $1199 to $937, and Mitsubishi fridges form $899 to $629, all in the last week. These bargains, created by the high NZ dollar, can only exist whilst the dollar continues to rise. The high New Zealand dollar is also good for New Zealanders traveling overseas. At the moment they are enjoying the greater buying power of each dollar.It may be argued that the high NZ dollar has greatly impacted our economy, for the worse.
Apart from the dairy industry, primary product and manufacturing prices are flat or declining. Also, and more importantly, our export-led economy is hurting. Some of our exporters, especially small to medium companies, are on the brink of collapse. As the dairy industry only accounts for 25% of NZ's export, the other 75%, including meat, wool and wine, are suffering badly from the artificially high NZ dollar. Another problem is that the lower prices of imported goods, encourages more spending which in turn adds to the inflation rate.
Also our tourism industry is hit by the high dollar, as holidays to NZ have become increasingly more expensive and so a less attractive holiday option. The high NZ dollar is ruining our economy as our export businesses are collapsing and we are spending far more due to the massive bargains, causing inflation.In many regards our economy is suffering badly from the high NZ dollar as a result of two main factors, the rising interest rates and the weakening US dollar. Since April and the launch of the Reserve Bank campaign to drive up interest rates, our dollar has appreciated by around 10 percent against world currencies.
Alan Bollard, whose mandate as Governor of the Reserve Bank was to keep inflation under control, launched this campaign, but strangely enough it was not his job to worry about the effect this would have on the NZ dollar. However, by keeping interest rates high, the Reserve Bank made it tougher for export businesses, but easier for global capital markets to make healthy money from this country. The second factor leading to the rising dollar is that the US dollar is also weakening, resulting in the increased damage to export-led businesses.The high NZ dollar is damaging our economy and so measures must be taken to help resolve the situation. There are three main ways to solve the problem.
Firstly, the NZ government should be more careful with their spending. The more money the government spends in the economy, the more prices will go up adding to the inflation. The government should also promote their Kiwi Saver program more to encourage people to save rather that spend. This would reduce inflationary pressures. Lastly, the government should tighten immigration criteria to reduce the numbers and increase the quality of our immigrants.
All the new immigrants need somewhere to live so this puts a lot of pressure on the housing market. These are a few of the small changes the government needs to put in place in order to solve the high dollar issue.In conclusion, the high NZ dollar despite its minimal advantages is slowly damaging our economy. The high dollar makes it tougher for export-led businesses and encourages spending, causing inflation. The rising NZ dollar is caused by two factors, increasing interest rates and the weakening US currency.
This problem must be resolved before the economy suffers any more. The government must stop pretending the issue is not relevant and take action.