Key John: Motions — Reserve Bank Funding Agreement—Ratification 
Key John: Motions — Reserve Bank Funding Agreement—Ratification 
[Volume:616;Page:12400] 
JOHN KEY (National—Helensville) 
: 
 This is one of the more significant days dare I say it in this Parliament as it relates to financial matters. It will probably go relatively unnoticed but I make the prediction that this may be a day that a future Minister of Finance will rue was ever allowed to pass in this Parliament—mark my words. Just as Frank Cicutto the chief executive of the National Australia Bank is no longer in his job if the chickens do come home to roost and there is a substantial loss by the Reserve Bank of New Zealand people will look no further than to the poor Minister of Finance who happens to be in the chair on that given day and they will seek answers to those questions. I do not wish that on the Reserve Bank or the people of New Zealand but I do hope that I am not the poor Minister of Finance in the chair on that particular day if it occurs. That is my only prediction. 
I want to say with some degree of sadness that this day is passing without proper consultation. The people of New Zealand have not had an opportunity to come before a select committee and reflect on the changes that are taking place. Indeed the largest exporter in New Zealand Federated Farmers—the people whom we would most expect to be supportive of this move—are opposed as are a great many exporters in New Zealand. National supports the increase of $1.9 billion to reserves in New Zealand. Our reserves have not been increased since 1988 and it makes sense with the size of our economy to be running slightly larger reserves. We do not support a capital injection of $1 billion into the Reserve Bank to allow it to undertake currency intervention under the conditions outlined by the bank which were to quote it “exceptionally and unjustifiably high and low”. 
In the speeches that will follow my speech a great many finance spokespeople for various parties will tell the people of New Zealand why they care more about exporters than the National Party does why they care about doing more for them. 
Rod Donald 
: You’ve read my speech. 
JOHN KEY 
: Mr Donald will come up and say that and I have no doubt that Mr Peters will as well. The argument will be that the National Party is made up of a bunch of ideological laissez-faire economists who do not understand what is going on. What a load of rubbish that is. If these parties really care about the exporters of New Zealand and making sure that the New Zealand economy operates properly and efficiently under rules that everybody can understand and where moral hazard is not interwoven within our economy they will not support this legislation because it will not work. 
I will start by making the point that this intervention will be based on the Australian style of intervention. What can we say about the Australian style of intervention? The very best we can say is that it made money for the Reserve Bank of Australia—that is the very best prediction that can be made about Australian-style intervention. Between 1984 and 1994 the Reserve Bank of Australia made $3 billion as a result of its intervention. But it has not made an iota of difference when it comes to volatility of Australia’s exchange rate. In fact last year when the Reserve Bank of Australia increased its reserves by the order of A$10 billion the Australian dollar still rose faster than the New Zealand dollar did. 
The international trend of exchange rate intervention goes completely against the grain of what the Minister of Finance is suggesting in the House this afternoon. We only need to look at the Japanese position. Japan has been arguing basically that it will cease intervention in the exchange rate. Why? Because it lost £50 billion since September of last year. It set aside US$500 million for intervention in this year alone. If the Bank of Japan with all of the reserves and might that it has cannot influence the exchange rate why on earth does New Zealand believe it can? Why on earth would we want a barrel of clean whisky—if that is the way we could look at the New Zealand exchange rate—and tip into it a quarter of a cup of mud and make it a dirty barrel of whisky? Why would we do that? 
People should not just accept my view that it will not work. We should look at the Treasury documents that were written to advise on the position that was outlined by the Minister of Finance today. I quote Treasury: “Net gains likely to be small and not without risks.” It goes on to say: “The international evidence of whether foreign exchange intervention can successfully moderate excessive movements in the exchange rate is mixed.” 
The Minister talked a little bit about when intervention would take place: on the highs and the lows. He relies of course on New Zealand sitting on a cyclical exchange rate and it is certainly true that since the float of the New Zealand dollar in 1984 the Kiwi dollar against the US exchange rate has been cyclical in nature. But if it is so easy to predict the cyclical nature why does New Zealand not just take a bigger position? 
Why do we not become the greatest currency speculator since George Soros because if it is easy and one can pick the tops and bottoms then surely we must have stumbled across a great way to make money for the people of New Zealand and why would we not become a hedge fund because— 
Hon David Carter 
: You can’t lose. 
JOHN KEY 
: The Hon David Carter says we cannot lose but he knows well and truly we can. The Treasury document talks quite a bit about this point. It states that it is very difficult to pick the turning point. It says that intervening against the economic fundamentals may prove to be ineffective and costly in both economic and financial terms. 
It is good that the Reserve Bank at least acknowledges that there are risks and that it wants to front up to those. Adrian Orr Deputy Governor of the Reserve Bank made it very clear that the Reserve Bank wanted to be operationally independent and accountable for those outcomes. I commend the Reserve Bank for that. But one has to ask the question: when the Reserve Bank writes such a ginger proposal as this one and when Treasury gives the most qualified support it possibly can why is it taking place? The answer is that Treasury is simply the messenger for the Minister of Finance who is sick of going up and down the woolsheds of New Zealand and apologising for not being able to do anything when it comes to exchange rates. He does not believe that this is going to be— 
Clayton Cosgrove 
: What would that member do? 
JOHN KEY 
: I would not intervene because for 20 years it has worked successfully. 
Clayton Cosgrove 
: What would you do? 
JOHN KEY 
: I would fix all the infrastructural issues that this Government will not fix. I want to talk for just a moment about an experience I had when I was giving a speech earlier this morning. One of New Zealand’s largest exporting hedging companies came up to me and said it was massively opposed to this move that was taking place today. 
Darren Hughes 
: Who? 
JOHN KEY 
: Roger Kerr. Why? The reason is that the company knows that the moral hazard of this position is enormous. The message this is sending to the exporters of New Zealand is that the Government can control the exchange rate when the Minister of Finance the Reserve Bank and Treasury blatantly know that that is not the case. 
This will challenge the independence of the Minister of Finance a Minister who has been saying since we were 47c against the US dollar that the New Zealand exchange rate has been overvalued. He will no longer be able to be a Monday morning quarter-back on the New Zealand exchange rate as he has been in past years. This will attract hedge funds to New Zealand that are likely to take and challenge the risk parameters of the Reserve Bank and this will not be the panacea to our problems. 
I do not have time this afternoon to go on but I want to make one final comment which is simply that although the Reserve Bank has asked for multiparty support National will not be supporting this legislation as it passes now. We will review it in time. We recognise the long-term nature of foreign exchange intervention and the 3-year cyclical nature of the parliamentary term.