Currency Intervention - not enough bang for your buck

Currency intervention, which is on the launch pad awaiting its final sign-off from Cabinet, will prove to be about as effective as a pop gun in a bank robbery, says National Party Associate Finance Spokesman John Key.

Mr Key is responding to an announcement by the Governor of the Reserve Bank, Allan Bollard, that the bank will formally seek approval from the Minister of Finance for the authority to intervene in the currency.

"As much as we all have sympathy for the current plight of exporters, currency intervention is the equivalent of a financial mirage," says Mr Key.

"In many respects currency intervention is not dissimilar to tinsel on a Christmas tree - it looks nice, and makes everyone feel better, but it achieves very little.

"International evidence indicates the risk-reward ratio doesn't stack up in the case of intervention. "At best you might knock a cent or two off the top or the bottom or the range, but you are more likely to create a false hope and a large public liability along the way.

"We are under no illusions about the value of our exporters to the New Zealand economy. Unfortunately, while it may well prove to be a money maker for the bank, it's very unlikely to do anything about the medium to long term direction of the exchange rate," says Mr Key.

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