Greens' money plan 'wacky' - Key

Prime Minister John Key doesn't think much of the Greens' plan to lower the dollar by printing more money. Photo / NZ Herald

Prime Minister John Key says the Greens' call for the Reserve Bank to print more money in a bid to devalue the New Zealand dollar is "pretty wacky'' and could create a financial crisis.

Greens' co-leader Russel Norman yesterday suggested the Reserve Bank create currency to take pressure off the NZ dollar.

Dr Norman said quantitative easing, as creating more currency is called, would mean the Government had to borrow less, domestic investors would invest in other markets, and increased supply of credit would reduce interest rates for business and reduce reliance by banks on overseas borrowing. That would lead to lower interest rates and a lower exchange rate.

But this morning Mr Key dismissed Dr Norman's suggestion.

"If printing money made you rich, Zimbabwe would be the richest country on the planet, and it's not,'' he told TVNZ's Breakfast.

Increasing money supply would increase inflation, which meant interest rates, mortgage rates and business costs would go up.

"It means the cost of everything you buy would go up. It means the price of petrol and the likes would go up. So yes, it might bring your currency down, it might be a by-product of that, but at quite a cost to the rest of the consumers.''

The Greens' suggestion might work in a place like Spain, but New Zealand does not have a crisis, Mr Key said.

"They could create a crisis for us, but we don't currently have one.'

Under Dr Norman's proposed scheme, the Reserve Bank would also buy Government earthquake recovery bonds to help pay for the Christchurch rebuild, and buy overseas assets to restore the Earthquake Commission's Natural Disaster Fund.

Labour's shadow finance minister, David Parker, said while he did not approve of a government telling the Reserve Bank which tool it should use when, "quantitative easing'' could be used to meet objectives - beyond controlling inflation - which a Labour Government would set for the bank.

"I'm not in the camp that says the Government should direct the Reserve Bank as to what monetary policy tool it uses, whether it should be lower interest rates, or loan to valuation ratios or some sort of levy on capital inflows or quantitative easing,'' he said.

Quantitative easing was available to the bank now, as it was to other central banks, but inflation targeting trumped everything else at the moment.

Q&A

What is quantitative easing?

Printing more money, the principle being that greater supply reduces demand, and its value falls against other currencies.

Isn't that "funny money''?

Yes. But after the global financial crisis, some countries including Britain and the US started creating credit to stimulate the economy.

What would it solve?

A lower NZ currency would mean exporters would be paid more for goods or services.

Any problem with this?

Imports including petrol would be more expensive. It could add to inflation, reducing the value of savings. There would also be no guarantee it would achieve its goal because behaviour of the financial markets is based on perceptions of many factors, not one.