Seanad Éireann debate -
Friday, 19 Dec 1986

Vol. 115 No. 11

Exchange Control (Continuance) Bill, 1986: Second and Subsequent Stages.

Question proposed: "That the Bill be now read a Second Time."

Minister of State at the Department of Finance (Mr. J. O'Keeffe)

This Bill proposes to extend the operation of the Exchange Control Act, 1954, for a further four years from 1 January 1987. The 1954 Act contains the legislative framework within which exchange controls are implemented. It was originally given a life of four years in the hope that exchange controls could eventually be dispensed with. This has not so far been found possible and the legislation has, therefore, been renewed at four-yearly intervals. I am asking the House to renew it for a further period, since to fail to do so would in effect mean the complete dismantling of our exchange control system at the end of this year. For reasons which I will indicate, this cannot be contemplated at present.

The general approach in the legislation is to prohibit a wide range of payments and other financial transactions, but to allow discretionary power to the Minister for Finance so that permissions for such transactions can be given by statutory instrument or administrative decision. In practice, general permissions have been given covering a wide range of transactions. Payments relating to trade, commercial and other current transactions are merely supervised so as to ensure that unauthorised capital transfers do not take place in the guise of current payments. Delegated authority has been given to the banks to approve most of these current transactions for their customers. General permissions have also been given for a wide range of capital transactions. For example, inflows of capital from abroad for direct investment or portfolio investment are fully permitted. Outward direct investment and investments in real estate by Irish residents within the European Community are also fully permitted.

The main restrictions remaining are on the holding of foreign currency in bank accounts or short term financial instruments and on net additional purchases of foreign currency securities. Even here, however, life assurance companies and pension funds are allowed to make substantial transfers abroad for additional purchases of foreign currency securities.

It has been, and will continue to be, the policy of the Central Bank and of my Department to keep the operation of the exchange controls under close review. There can be conflicting views on what approach we should take, that is whether we should seek to strengthen the controls of reduce capital outflows or relax them to create a more liberal investment climate. There has been a general move in the industrial countries in recent years away from the use of controls and towards the use of market-related instruments, such as interest rates, to influence monetary developments. A recent example of this is the changes introduced by France, which have brought them from being far more restrictive in many areas than Ireland to being somewhat more libreal. The general trend within the European Community is towards greater liberalisation of capital movements. The European Commission, in line with this trend, has proposed moving in stages towards complete freedom of capital movements within the Community by 1992.

In the light of these developments, I have been undertaking a comprehensive review of our exchange controls to see to what extent further relaxations may be desirable and feasible at this stage. This review of the system is currently nearing completion and I hope to present its findings to the Government shortly. I should emphasise that, since the Act provides only an overall framework, its renewal will not inhibit us from making changes. The discretionary powers given in the legislation enable changes to be made in the detailed operation of the controls as circumstances permit.

This brings me to the question of why it is necessary to renew the Act, why we cannot simply abolish exchange controls completely. The controls are intended to help maintain our official external reserves at an adequate level and increase the capital available within the State. Exchange controls are particularly important at times of exchange rate uncertainty such as we have been experiencing of late. While no one would claim that exchange controls can prevent all outflows, they do make a significant contribution to reducing disruptive currency flows. Exchange controls provide no long term substitute for appropriate domestic policies, but they can help make the pace of adjustment manageable. Such breathing space must be used effectively. To allow unlimited exports of capital, particularly short term capital, would only add to the level and volatility of pressure on the reserves. Also, while we still have a balance of payments deficit and a deficit on the public finances, there is a need to keep as much capital as possible at home to help finance these deficits and minimise domestic interest rates.

Ireland is by no means alone in feeling the need for exchange controls. Most countries in the world have them. Even within the EC, where the aim is to fully liberalise capital movements by 1992, the majority of our partners still implement controls of one type or another — some of which are more restrictive than those that we operate.

The Community recognises that the lifting of all restrictions on capital movements will require parallel action on other fronts, such as greater convergence of the Community economies and harmonisation of rules for the supervision of financial systems and the protection of users. It will be a gradual process and a difficult one for many member states. Nobody expects us to dismantle all our existing controls in one fell swoop.

The level of outflows of funds over the past year, as reflected in the balance of payments residual, has, of course, been a cause of serious concern. It is likely that most of these outflows can be attributed to temporary leading and lagging of foreign trade payments which have a very significant effect on the level of external reserves in as open an economy as Ireland's. While the underlying reason for the outflows — the weakness of sterling and the US dollar — has been outside our control, the Government have taken decisive action to remove the grounds for further speculation and to ensure that these funds return to the economy as soon as possible.

The Government have made it clear that there will be no further downward adjustment of the IR£ within the EMS. This assurance should indicate to speculators that they cannot hope to make gains by keeping funds abroad in anticipation of an adjustment of the Irish currency. The Government have also indicated their intention to take firm action to improve the public finances and have set firm targets for the year ahead.

The clarification of the Government's position in these key areas should serve to improve the prospects for economic growth and remove any uncertainty that may have existed, thereby bringing about an improvement in market sentiment and accelerating the reflow of funds from abroad. There are signs of a turn-around in the flows at this stage.

The outflows that have occurred reflect the inherent limitations of exchange controls in the case of a small open economy such as in Ireland, which is heavily dependent on foreign trade. The scope for leading and lagging which the level of this foreign trade gives is substantial and exchange controls could not stop leading and lagging without imposing unacceptable restrictions on normal commercial transactions. The exchange controls do, however, ensure that the situation is not aggravated by outflows of short term capital on a speculative basis.

As I indicated earlier, the original hope that exchange control would be only a temporary necessity has not yet been fulfilled. It is, therefore, now necessary to renew the legislation for a further period and I recommend the Bill for the approval of the House.

Mr. Ross

I do not welcome the Bill but I understand why it has been introduced. I should like to declare an interest in this in that in my daily life I am one of those people who is meant to police the exchange controls in this country and to see that they are enforced. Life would be a lot easier for me if they were not in existence. It should be noted that the four-year term is quite a long one. The very strict exchange controls under which we now operate were introduced when we entered the European Monetary System, as a temporary measure. We are coming now close to these having been in force for ten years. While I acknowledge that these controls are absolutely essential, I think one should look at why they are in existence. They are in existence, unfortunately, because they are a confession of a weak currency and a weak economy.

I accept the Minister's statement that there will be no further devaluation of the IR£ within the EMS: I would not expect the Minister to say anything else. I believe that this particular instrument for strengthening the IR£ and the Irish currency is no substitute for a strong, domestic financial policy. What has happened since we entered the EMS and broke with sterling is that the imposition of exchange controls, which are contrary to the spirit of the European Community, has led to a large build-up of money in this country. As a result, a sort of dam of money is building up, which if controls were lifted undoubtedly would flow out of the country because it is an artificial build-up. This is not just a reflection on the confidence of those investors with large sums, millions and millions of pounds, which they have kept in the country. This build-up of money is so artificial and because it cannot go anywhere else it will naturally, if the controls are lifted, disappear from the country because many investment funds have become extremely lopsided in that their money is invested in this country and nowhere else because it cannot go anywhere else.

One of the consequences of the existence of these exchange controls is that a huge amount of money finds its way into Government funds. In some ways it is very convenient for this Government, the next Government or for any Government to have locked hundreds of millions of pounds into this country which can only go into one source which is to lend money to the Government. It would be inconceivable for the Government to lift exchange controls to allow this money to leave the country because this money would go out and the Government would not have access to it or would not be able to borrow it. There is a certain amount of self interest in it. I would have liked to have heard from the Minister what the consequences of lifting exchange controls will be and what plans the Government have for the complete lifting of exchange controls by 1992 and how the Government intend to operate them. It appears to me that these restrictions, while they are necessary, are also permanent in that there does not seem to be any planning at all for lifting them gradually or suddenly. A sudden lifting of them would certainly be impossible because it would cause an awful jolt to the whole structure of the economy.

I have not heard in the Minister's speech how these exchange controls are policed. While I think they are probably fairly rigidly and nationally enforced without difficulty, I do not recall any prosecutions taking place under these exchange control rules in the past ten years. It would seem to me, and this is important, that these rules, while they are on the whole enforced, are being broken, that the large black hole in the economy is certainly in some respect as a result of the breach of exchange controls. There may be one case, but I am not sure whether it comes under this Bill or not, of a very particular nature which does not involve capital transactions moving backwards and forwards. Why have there not been any prosecutions? Are the Government saying that these rules are not being broken, or are the Government saying they do not need policing, or that they are not going to be policed? It is important if a Bill of this nature is introduced, it should be made to stick. I am afraid it is not being made to stick. It is being introduced and then being ignored.

I would like to hear from the Minister how he intends to cope and how the Government intend to cope with this enormous build up of money which is artificially in this country, which is in Government stocks, when exchange controls are gradually lifted. Does he plan to allow individuals to invest £5,000 per annum, £10,000 per annum, or £500 per annum abroad so that the exchange controls can be lifted very slowly? Do the Government have a staggered plan for pension funds investing abroad or do the Government have no plans whatsoever for the future of the exchange control and just hope to stagger from four years to four and then be confronted suddenly by a free market in capital in 1992?

I support this Bill in the short term because I feel it is absolutely necessary. I am afraid it shows a lack of confidence by the Government in the economy of the country and in the currency when they feel we need this sort of protection.

Mr. M. Higgins

I will be very brief. I want to say a few words about this Bill. It is coming on the last day before we take a break for Christmas. I think in many ways there is a certain old fashioned charm to the Minister's speech. I do not think I have seen "market sentiment" mentioned for decades in the kind of newspapers that I read. Perhaps it is more a comment on the newspapers I read than on my familiarity with modern economics. The idea of a four year renewal of an instrument that was passed in 1954 is in itself very indicative. It tells you — although it is not elaborated and I do not think it was necessary in the Minister's speech — something of the circumstances in which the Bill was initially introduced in 1954. It tells you even more about what has happened in the 32 years since. Essentially exchange controls have their most effective usage in an economy that is neither planned nor fully free market. That was reflected in the original debates in 1954.

Listening to Senator Ross speak, as he did very seriously, I was struck by the independence that is at the centre of his speech of the flows of funds from any concept of investment or of the social implications of investment. Senator Ross, of course, would argue that these are considerations which might not necessarily arise as being valid, that it is rather the flow of the funds themselves that are central in an instrument of this kind. I do not accept the morality of that. For example, I note the reference to France in the Minister's speech. The Minister made a curious speech which I suppose people like me need to have explained to us. I find it very interesting to note that France had a more restrictive view than we had in many respects but now has moved to a more liberal attitude in some respects. If I were commenting on the relationship of exchange controls to the recent history of French Administrations and French politics I would have something much more dramatic to say. The centrality of exchange controls to the debate in French financial institutions has a great deal to do with the character of the political Administration which was replaced by the socialist Administration and in return by the decline in the popularity of the socialist Administration itself. Exchange controls assumed a centrality in that discussion which very clearly reflected the political circumstances.

There is another rather pathetic giveaway in some respects in speeches, not attributable to this Minister, in describing instruments like this that refer to the open economy. I welcome a discussion of the open economy in some respects because it helps draw attention to those factors over which one has control and those factors over which one has less control, but it certainly does not absolve one from joining in international debate on, for example, assaulting the essential immorality of the United States attitude towards interest rates. As I said, it is a cultural feature in this country that financial matters which are matters of debate in international institutions are quickly reduced to the weather. We have an obsession about weather in social sciences. People speak about the moral climate of crime and people speak about the climate of investment and it has a certain charm of its own. However it is far less than explicit. Perhaps this is not the appropriate place to have it, but I would welcome an opening up and an elaboration of the precise implications of openness.

Just to make the central point I mentioned, exchange controls are necessary in an economy that is neither planned nor has the full conditions of the market place. When I listen to speeches and when I hear people who represent a certain kind of view such as the previous speaker speaking what they are speaking about really is the discipline of the market place and to what extent the discipline of the market place should be interfered with. I would begin at the other end of the spectrum. I confess my disappointment that since I came to this House in 1973 I have not heard an adequate or thorough debate on the different roles and purposes of the Central Bank. Some of the basic instruments which govern the thinking of the Central Bank are almost as old as this temporary instrument. It reminds me of people putting a bush in a gap. We have a Bill that has been renewed every four years since 1954. Did somebody think that the people who want to make money, not from investment or from any productive usage, but from sheer speculation, were to have a moral conversion between 1954 and 1986? I suspect that those of us who are a little more hard-headed——

Mr. J. O'Keeffe

Human nature does not change.

Mr. M. Higgins

There we have it again. I suppose human nature is a deeper concept than the weather when it comes to economies. Those of us who are hardheaded in politics realise quite clearly that people who want to make fast money in a totally unproductive and in what many regard, as I do — you will notice I have used the term a great deal this morning — in an almost immoral way rather like immoral earnings, these people are not going to change.

At the other end of the spectrum there are those who accept that we live with such people and have to oppose them politically, enter into dialogue with them and so forth. They want a planned economy and see a perfectly legitimate role for the credit and financial institutions within the concept of planning to different degrees. Indeed, there is a very instructive example here in the French example. One could argue about whether they have moved from being more rigid in some respects to being more liberal in some other respects, as mentioned in the Minister's speech. In relation to the manner in which different administrations, not only the socialist administration in France have looked at their currency and its exchange as an instrument of achieving certain domestic policies, we could learn a great deal from that.

We have tended to suffer from a great deal of orthodoxy both in our view of the international world financially and on our Central Bank. I do not want to wander off this particular point, but Irish financial policy is one of the most atrociously conservative in the western world. Even if you go to the speculative criteria which people speak about, it has none of the advantages but it has inherited all of the mustiness, tardiness and conservatism of the British model upon which it is, of course, primarily based.

I listened to the idea of the movement of exchange control and the argument about how do you know when a person is going off to invest in a bungalow in Spain or is the money in the suitcase for some other purposes. These are the kind of realities we deal with. What does it tell you about the people who move money in this country? This is a nation suffused with piousity and religiosity but it has hardly any commitment at all to the idea of there being an obligation to use money, to invest and to plan. We should realise this. The fact that the Government have had to renew this legislation every four years since 1954 has meant that you have a continual stream of people who want to move funds out of the country or to speculate. This became highly respectable in the seventies, to such an extent that some of the most senior people in the economic world as opposed to the investment world expressed great concern at what was happening in Ireland, that not only had the ethos of speculation replaced an ethos of investment and a national commitment but that the people involved were enjoying the status of heroes. There was an idea that if they could make such money in the short term from activities from one could see either the employment or productive reasons or basis for them, that somehow or other in time it might be good for the country itself. One could envisage an image of people standing in front of a slot machine with the entire nation piled up behind them. This panoply of exchange controls in a marketplace that has no social commitment and has no moral discipline, other than, as I said, the free play of market of market forces, is very akin to the rules of the gambling casino. They have rules rather like these in the movement of chips from one gambling casino in Las Vegas to another. That is where the comparison is, rather than anything within any serious political economy.

I find it a matter of some amusement to note the deep commitment and nationalism of the banking institutions and the credit institutions in achieving controls. There was an old phrase about whether when you were poaching it was the fear of being caught and having your head blown off or whether it was that you wanted to respect the game themselves that you should desist from stealing game. When I think about the credit institutions, the banks and so on, I wonder whether it is not their conservatism that has prevented them from moving on to the more sophisticated rackets which many credit institutions now practice. Frankly, in regard to client commitment as it might be called — another grand phrase which is an old-fashioned one in banking — when it is put to them as to whether they should lose a customer or facilitate the movement of funds, I wonder if in 100 per cent of cases they just say: "I am sorry but the Government have very strict regulations in this regard and, of course, the attitude of this bank is to facilitate the Government in every way possible". You will excuse me if I have just a slight reservation as to whether it applies in just 100 per cent of the cases.

With regard to what is happening in relation to the Community — a point well made by Senator Ross — I wonder have we any idea of what is happening in this regard. We are doing something very interesting in many ways. We had a very vigorous debate here on the Single European Act, a very tiny proportion of which was on the instrument of the single market and an even more minuscule amount was spent on the implications for the services sector. Individual Senators spoke but it certainly did not occupy a central place in the Minister's presentation. Here we are on the one hand talking about the implications of a single market by 1992 and its impact on the services sector and spending very little time on it. Then, as we finish the week we are back to the fact that we are amending the 1954 Act every four years to put up exchange controls which are themselves a reflection of what is necessary in an economy. I take the point implicit in the Minister's speech that you cannot move from one state or condition to another one without making temporary adjustments and introducing temporary protections.

If you reflect on the two discussions taken together, or rather the absence of discussion in some respects, we have spent very little time in understanding what will happen when all exchange controls are gone and when the conditions of the market place are implemented. I am not one of those who think there are automatic advantages for any other reasons — weather, culture, human nature or whatever, that we might like to adduce in the Irish case to change the classical laws of commercial investment and of financial investment and that there would not be an outflow of funds and a loss of services with, in turn, the knock-on social effects that I mention. Therefore, we may be witnessing a period prior to the harshest climate of all. We have abandoned the other strong option of the planned economy, the subjugation of financial and credit criteria and investment to the achievements and attainments of the plan, some kind of directive planning within which you would have a financial and fiscal strategy, but I wonder if people are anticipating what the consequences are either in human or social terms.

Mr. Lanigan

I will not delay very long on this Bill. I am not too sure what relevance it has because it would appear that over the past number of months there has been an outflow of funds, much of which has been illegal. If we are going to have restrictions they should be adhered to and if we are not going to have restrictions there is not much point in bringing in a Bill of this nature. It would appear that this black hole which has been emerging in the economy has not been curbed. There is an inherent immorality in the Bill, as Senator Michael Higgins said, because it is permissible to bring funds in but it is not permissable to send funds out. The immorality is that it is all right for other people to send money to us. Whether that money comes from legal or illegal means does not seem to matter to us but if somebody wants to send it out it becomes illegal. Therefore, there is an inherent immorality in the objectives of this Exchange Control Bill. If we are going to have any controls they should be rigorously adhered to. If there is not going to be the guarding of the outflow of funds we might as well forget about the Bill. Would the Minister, in his reply, give, in plain English, a translation of the second last paragraph of his statement? It may make sense to somebody who is an economist, it may make sense to somebody who is in exchange control, but for anyone who is not an economist it reads as gobbledegook. Perhaps he would translate into plain English what this "leading and lagging" means in terms of the economy.

Mr. Ferris

Senator Michael D. Higgins has summed up the concept of one or two ways in which you develop your economy, either you develop it in a planned way in which investors will look at it and invest their money here in projects or you allow a control system to operate, which, as Senator Lanigan said, has almost been ineffective. One of the problems about the Exchange Control Act is that it is known generally to banking people, professional people and monied people, but the private individual is almost unaware of it. I am talking about people who have relatives abroad. There are times when they send money in the post as gifts. We had an instance late last year or early this year when people were sending money as gifts, without having got permission to do so. Unfortunately, most of the money was lost or stolen in the post and because they did not have permission under the Exchange Control Act, as far as the Post Office was concerned it was not responsible.

I want to congratulate the Minister's Department for having initiated a system where retrospective exchange control permission was given, which meant that the people who legitimately sent small amounts as presents out of the country were covered under the Post Office Act, which insures sums of money being transmitted through the post. The ordinary individual in the street is unaware of these controls, and thinks it is possible to send sums of money out of the country without permission. The people who are aware of these controls obviously know how to send money out of the country illegally. There are large movements of money out of this country for one reason or another. The Minister has mentioned it and we have mentioned it here in many debates such as the debate on whether the DIRT tax was responsible for the movement of capital.

I do not believe for one moment that it is responsible because, above all things, capital earns further capital and it is appropriate that people should pay a fair share of income tax on unearned income. No country in the world allows you to have money invested, earning money, tax free. One example of our application of this is in the area of the bloodstock breeding industry, where the revenue earned by stallions is tax free. The Labour Party have suggested that this should continue because you can easily move horse flesh from one country to another, but by giving an incentive to keep them here the amount of employment that is generated is extremely high and the earning capacity for the country is improved by having that incentive. In the area of capital it is different because it is easy enough to move capital.

I am quite sure that the banking institutions in this country facilitate the movement of capital and are also known to certify English addresses very easily, so that capital can be moved in and out of the country to other addresses, and indeed for income tax purposes as well. I am concerned that there appears to have been an outflow of money from our economy. This goes back to people with capital playing the capitalist game. They move money where it will make more money. They are not interested in creating jobs. They are only interested in making further capital, which is almost immoral, there is no commitment whatever to the country in which they earn the money and they are prepared to move it around the world to make quick profits. They have no regard for the national economy as such.

The black hole has been mentioned. The black hole, as I understand it, refers to profits being moved out of the country by multinationals who have companies here but who have parent companies abroad. It is obvious that if some multinational from any other country sets up a factory here the shareholders of that, who are based in the home country, would feel they were entitled to their profits, irrespective of where they were earned. We are unable to control profits moved in that way and they are probably not subject to the Exchange Control Act at all. There has been much debate about it. It is obvious that it you stop them moving their profits out of the country they will refuse to invest in the country.

We are in a catch-22 situation. We know that the Government have initiated a stimulus for these people and have provided that there would be a further incentive for them if, instead of repatriating their profits out of the country, they reinvested them here in more productive employment. If we could add that in and reassure people that we are not a locked-in economy — whether we like it or not we are an open economy — it would be a stimulant to people to invest more money in this country. I would hope that the concept we are now talking about, worker participation and the possibility of workers taking shares in their own companies, will take place. There is the whole philosophy of equity capital. Instead of people just investing money in bonds and gilt edged investments to make secure money, if we showed a little bit of the entrepreneurial spirit and invested money in companies and businesses we probably could create many more jobs, rather than playing the stock market or the money market.

Mr. Lanigan

If the Government did not take the profit away.

Mr. Ferris

It is appropriate that if people make profits they should pay a fair share of tax on it, like the PAYE worker. Nobody should be tax free in this country. That is the problem. Too many people want to be tax free and the chosen few are left to carry the whole burden of running the State and the essential services everybody seems to demand, whether they are paying into them or not. There is a lot of sense in the argument of Senator Michael D. Higgins, in talking about planning the economy to a greater extent than we have in the past. If we have failed to plan this would be an indictment of all of us because we would like to continue to have a free, open economy. We would like some commitment from the people who invest here and who have factories here, and from people who make profits here — to keep as much money as possible within the country. That would have a spin-off effect for all of us and would create much more jobs. I agree that we cannot change this overnight.

it is important to realise that other countries within the Community also have a control system. It would be very foolish of us if other countries operated a control system and we were to drop our barriers. We would then have an outflow of all this money which, as Senator Ross says, is artifically held here. It would suddenly disappear overnight and the social implications of that would be quite severe and would have tremendous implications for the Government. Generally speaking, we would hope that when Britain enters the EMS this problem regarding the strength of sterling vis-á-vis the Irish punt will be solved. It has tended to keep interest rates higher. Mrs. Thatcher has been intransigent in this area of financial arrangements in her own country. In spite of all the expert advice available to her, from her Treasury Department and otherwise, it is obvious that she will not enter the EMS until after the next British general election and that puts the solution of our problems a little further down the road. It is debatable whether we should have ever entered the EMS without Britain because of the changes that have taken place in the two currencies. I support the concept of what we are doing today.

Minister of State at the Department of Finance (Mr. J. O'Keeffe)

This has been an interesting debate. As I said in my opening remarks, the Government expect to have a complete review of the whole exchange control situation to hand very shortly. It may be appropriate once that review is to hand that there should be a fuller and more extensive debate in this House. Perhaps I will pick up some of the points raised in the course of the debate. Senator Ferris referred to the liberal attitude of the Department of Finance in helping those who had lost money sent abroad through the post. I approve of a Department being helpful to people who were caught in that situation. It is proper to put on record that, it is very foolish indeed to send bank notes through the post, either within Ireland or abroad. For those who want to send a present to a nephew in the UK there is no problem whatever about getting the necessary permission, in fact it is available automatically by securing the draft at the bank or post office. That is the route which I would encourage.

Following on from Senator Ferris's remarks, it is also important to reiterate Government policy in regard to repatriation of profits. I know that from time to time people have raised their eyebrows at substantial sums being made in Ireland by foreign-owned firms and at the profits being repatriated. Let us be absolutely clear about this in case any streak of envy or jealousy might cloud our thinking. It is part of our policy to encourage industrialists to invest in Ireland. As part of that policy we have to be quite clear and specific that if they make profits here they are entitled to repatriate them. It is correct that we have provided some avenues to encourage reinvestment here and that is a proper thing to do. Let us be very clear that that is as far as it goes and there is no restriction on those who invest in manufacturing enterprises in Ireland in repatriating their profits if that is their wish. Otherwise our industrial policy in encouraging external investment would have no proper basis.

Regarding a number of points raised by Senators, it is proper that exchange controls alone, while they can protect reserves and hence the exchange rate of the IR£, it is not claimed in any way that they can do that themselves. What happens is that the controls provide a measure of support for those reserves but they must be backed by appropriate economic and monetary policies. Most countries operate exchange controls of one form or another. In many ways that indicates a general acceptance of the view that controls, within their limitations, have a useful role in helping to maintain stability of exchange rates. There is, however, a tendency now to move towards greater reliance on general monetary and economic policies and less reliance on exchange controls. I support that movement and I hope in the years ahead we will be able to move as part of that tide within the EC and possibly outside it also.

At the same time I am a realist. We cannot, even if we aspire towards a dismantling of exchange controls, ignore the realities. There is no point whatever in following that route particularly in an abrupt and disruptive manner unless we are prepared to accompany such movement with the appropriate monetary and economic policies. I believe that in the years ahead we will see liberalisation within the EC. The Treaty of Rome requires member states to abolish progressively over a transitional period restrictions on the movement of capital belonging to residents of member states to the extent necessary to ensure the proper functioning of the Community. There are already four directives within the EC on exchange control and implementation of the Treaty obligations. As has been mentioned in our debate further effort has been made with our target date of 1992. I hope we will be able to make further progress in that period.

A number of references were made to outflows of moneys. It is proper to say that the unexplained outflows of recent times do not necessarily reflect the ineffectiveness of exchange control. A most informed advice and opinion suggests that the main channel through which the outflows took place is likely to be in the leading and lagging of trade payments. I am not an economist but I will do the best I can to give an explanation as requested by Senator Lanigan. My understanding is that leading and lagging very simply means that you pay early for your imports and that on the other hand there is a delay in the repatriation of payment for exports. That happens with monetary speculation. Senator Lanigan, as a businessman, will understand what the effect could be if there is an alteration in trade credit patterns.

There is scope for this within the existing exchange controls. We have to bear in mind that our total merchandise trade is running at some £350 million per week, that is if you combine exports and imports. Very stiff controls could be introduced but it would not be possible to prevent leading and lagging by stricter exchange controls without placing very serious restrictions on legitimate trade. That has to be borne in mind. There was also reference to the possibility of breaches of exchange control and the possibility of some breaches of exchange control cannot be ruled out. The Central Bank, who have primary responsibility for administring the controls, have advised that none of the evidence available to them positively suggests a long term capital outflow in the sense of a flow into long term external assets. Of course the bank have been and are continuing to monitor the situation very closely indeed.

As I mentioned earlier, it would be useful, given the time, to have a full debate in this House on this whole area, because, as Senator Higgins said, in one sense it has very serious and wide ranging implications. As of now, we are faced with merely renewing for a further period of four years the legislative framework that exists. The fact that we are so doing does not prevent the Minister or the Government of the day, during that period, from introducing or going along with any other liberalisation measures. I thank the Senators for their contributions to this Bill and I look forward to being in a position to join in a broader debate on another day.

Question put and agreed to.

Agreed to take Remaining Stages today.

Bill put through Committee, reported without amendment, received for final consideration and passed.