READER REPORT:

It's so mind-numbingly simply

DEREK WATT
Last updated 05:00 01/12/2012

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A fix for the New Zealand economy seems so mind-numbingly simple when there is no asset-backing of our currency.

I am talking printing, but not in the simple sense of just printing more money for New Zealanders. No, I am talking about a very cunning plan.

The New Zealand dollar is generally regarded as too high for exporters. So the reserve bank can print money to reduce the dollar. Note that, before it does, this it could take out a large foreign-exchange position against the New Zealand dollar so as to profit from its fall; perfectly legal as I understand it.

Anyway, that is not the plan, just the start of it. None of the newly-generated money is spent in New Zealand, it is held by the bank and sold for foreign currency when and if it is needed to reduce the New Zealand dollar further (again at this stage a position could be taken out against the dollar to profit further, but that is not the grand plan).

Once the bank has foreign currency (which, remember, was generated by printing New Zealand currency to the benefit of our exporters) it can use the overseas funds to either pay-off Government debt or to buy shares in foreign companies, lots of shares across lots of companies.

This expenditure is non-inflationary for the New Zealand economy since it is spent overseas. These overseas investments can sit generating overseas income for tens of years or more until the NZ government sees fit. Eventually it could fund a large part of the economy, reducing the tax-burden on New Zealanders.

Returning to the start of this proposal, it is made possible by the non-hard asset backing of the New Zealand dollar. It is also a possibility because of the New Zealand dollar being a highly traded currency with a relatively high value and the small size of the economy so that the action does not disturb the international money-go-round. This is a unique position that we can take advantage of.

Perhaps it can be summed up in the old adage that foreign-exchange traders use: "If you can't beat 'em, join 'em".


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