Dáil Éireann debate -
Wednesday, 5 Dec 1962

Vol. 198 No. 5

Exchange Control (Continuance) Bill, 1962—Second Stage.

Minister for Finance (Dr. Ryan)

I move that the Bill be now read a Second Time. The purpose of this Bill is to continue the Exchange Control Act, 1954, for a further four years.

Before the war, when sterling was freely convertible into any other currency, this country could at all times rely on using sterling so as to make payments or transfer money to any country. The restrictions on sterling transferability which have been in operation in varying degree since 1939 suspended this facility and made it necessary for us to control our payments to and receipts from non-sterling countries.

Exchange control was first operated under emergency legislation which was replaced in 1954 by the Exchange Control Act. The Act was expressed to expire on 31st December, 1958, as it was hoped that the need for exchange control would have ceased by that date. This expectation was not, however, realised and in 1958 power was given to extend control for a further period of four years to the end of the present year. On that occasion I expressed the hope that it would, meanwhile, be possible to abolish all exchange control, but unfortunately this cannot yet be done.

In general, the 1954 Act provides for the control of (a) payments to and payments on behalf of persons resident outside the sterling area; (b) dealings in gold and foreign exchange; (c) dealings in and the export and import of foreign currency securities and unregistered securities; (d) dealings in sterling area securities on behalf of persons resident outside the area; and (e) the export and import of currency notes.

It provides that goods may not be exported to a country outside the Sterling Area unless they are already paid for or are to be paid for within six months and in a manner appropriate to the country of import. It empowers the Minister to specify foreign currencies which must be sold to a bank. It also provides for the compulsory deposit of foreign currency securities and unregistered sterling securities. It has not been found necessary to bring these latter powers into operation since 1954, but it is desirable that they should be retained lest the need for them should again arise in the general context of exchange control.

General exemptions and permissions are given by way of Ministerial Regulations under the Act. By 1958, control had already been considerably relaxed and authority delegated to banks, stockbrokers, solicitors and authorised travel agents to deal with many classes of applications. Since then the procedure has been further considerably modified and wider authority has been delegated to banks, etc. At present foreign exchange facilities are available in full for all current, as distinct from capital, payments. Such supervision as is applied to non-capital transactions is directed towards ensuring that they are not used as a cover for unauthorised capital transfers and for this purpose there is in some cases a limit on the amount of foreign exchange facilities a bank or travel agent may make available, without reference to the Department of Finance.

For instance, the limit on the foreign exchange facilities that can be made available for holiday travel outside the sterling area is £250 per journey over and above the cost of travel tickets and of any reservation of hotel accommodation. If in any case this liberal allowance is considered to be inadequate, facilities in excess of that amount will be granted where there is no reason to suspect that an unauthorised transfer of capital is involved.

In effect, the only restrictions still maintained are those on capital transfers outside the sterling area. In general foreign exchange for investment purposes is made available only for direct, as distinct from portfolio, investment in approved projects such as those which are calculated to assist materially our export trade or otherwise improve our foreign earnings. Subject to this over-riding restriction, dealings in securities are freely permitted subject to compliance with certain rules of procedure.

There is no immediate prospect that sterling will become convertible on capital account. It is, therefore, necessary that the Act should be retained in full for an additional period. The Bill proposes a further period of four years, but I can assure Deputies and, I hope, with a better prospect of realisation than on the last occasion, that if sterling should become fully convertible at any time earlier, steps will be taken to abolish exchange control without delay. Membership of the European Economic Community would entail modification of the restriction applied to capital transactions. Any modifications necessary could, however, be effected within the framework of the Act which it is now proposed to continue.

Mr. Sweetman

This is purely an extending Bill in point of time to carry on exchange control for four years more and, though all of us would like to see exchange control terminated, at the same time, in present circumstances, we do not oppose this Bill. I should like to have heard the Minister for the purpose of enabling Deputies to appreciate what we are discussing, give us a dissertation explaining succinctly the difference between hard and soft dollars on capital account, because it seems to me that therein lies the real kernel of the problem of exchange control in so far as it is really maintained at the moment.

Sterling is not, of course, as the Minister has said, freely convertible, and may not be for some time, but it is possible to convert sterling into dollars through the medium of the soft dollar, though why the soft dollar should be a better medium of exchange than the hard dollar is something that the Minister could, perhaps, explain to the House. It seems to me incomprehensible why, as long as one is permitted to convert to dollars through the medium of buying soft dollars—I stress that there is nothing wrong or shady in making such conversions—you will not retain exchange control as such? It is accepted anyone can get, and has been able to get for a considerable time, any foreign currencies he needs on current account. It is equally a fact that by means of certain changes and by means of transactions called "wash transactions" sterling can be changed equally into dollars, and then become freely exchangeable throughout the world. Perhaps the Minister would explain to us why these wash transactions are necessary and why it is necessary to have conversions from hard dollars into soft dollars in order that capital dealings can take place.

Mr. Dillon

Without moving into the more abstract aspects of this problem, I should like to ask the Minister a practical question in regard to everyday trading. There has been—I am not altogether sure that it still exists— a differential in the exchange rate for dollars remitted from the United States of America to this country, according to whether they were deemed to be a gift——

Mr. Sweetman

That is a soft dollar.

Mr. Dillon

——or a trading transaction.

Mr. Sweetman

That is a hard dollar.

Mr. Dillon

The net effect of that in rural Ireland is that, at Christmas time, a customer comes into your shop with a cheque from America; if the cheque is changed in the shop and deposited in the bank by the trading concern, the bank allows 6/11½ for the dollar. If the recipient, however, presents himself, or herself, at the bank and changes the cheque himself, or herself, at the counter, he or she gets 7/- for the dollar. If you are standing in a country shop at Christmas time, trying to explain to your customer the operations of exchange control, and he gives you a 20-dollar bill to change for him, he goes away muttering: "Well, we have been stuck for 10d, whoever stuck us" and the implication always is, of course, that you stuck him. The mortifying part of the transaction is that, when you present this 20 dollars in your lodgement the following day in the bank, all you get is 6/11½, so you have neither your share nor your credit.

Now these are considerations. They are not familiar to the residents of Dublin but they are familiar to the residents of Monaghan, Cavan, Donegal, west of the Shannon, west Cork, Kerry and Clare, and you would be surprised at how much misunderstanding they give rise to. I should be glad to know from the Minister whether anything can be done to eliminate this differential. I think it is a survival of a period when it was desired to limit, or restrict, trading transactions which involved the use of what used to be called "hard currency". Whereas the dollar is no longer hard currency, I cannot see what the reason is for the retention of this differential, at least in the internal banking practice of the Republic of Ireland. I suggest to the Minister that it would now be reasonable to suggest to the joint stock banks that the reason for maintaining this differential no longer exists and that there should be a current exchange rate for dollars, whether presented in the form of dollar bills or dollar cheques, and whether tendered for exchange by the recipient or by a third party.

There is the further complication in this domestic problem that some cheques come from America expressed in dollars: "Pay Mary Tommy 10 dollars," and you work that out at 6/11½d. a dollar. The next customer turns up with: "Pay Mary Regan £3 10s.". She gets her £3 10s. whereas the woman who got the 10 dollars gets only £3 9s. 7d. All that could be eliminated if the joint stock Banks paid all and sundry 7/- for a dollar, or whatever the appropriate rate of interest is for the day. I do not ask that business people should be exempted from the ordinary exchange fluctuations. That is one of the hazards of trade and it can happen that the dollar is worth 7/- today, and tomorrow it is worth 6/11½d. or 6/11d. All I am concerned to ensure is that the differential between the rate of exchange provided for the recipient of a remittance from America and that given to a third party who exchanges the cheque, should be eliminated.

In conclusion, I should say for the information of Deputies who are not familiar with rural Ireland that the banks close at 3 o'clock in the afternoons in rural Ireland and at 1 o'clock, as a rule, on Saturdays in most towns. Particularly around Christmas, the bulk of the business is transacted on Saturday afternoons and it is a substantial inconvenience for country people to have either to bring their cheques home or forego the 5d. or 10d. or 1/8d. which falls to be deducted, if they change their remittances in a shop rather than in a bank.

Dr. Ryan

This question of dollars is a rather difficult subject, for me, anyway. The proceeds of American securities sold in dollars are regarded as capital dollars, and I think they are also regarded as hard dollars, but I am not so sure of that point. They are regarded as capital dollars and are usually re-invested for capital gain. If they are not re-invested for capital gain, they may be sold. They are, if you like, rather scarce and they are sometimes sold at a slight premium. I do not think there is much difference between soft and hard dollars, apart from that. That is the only respect in which I can find any slight variation.

On Deputy Dillon's point, I wonder is he talking about some time back or about the present? I think for some short time back there has been one rate of interest.

Mr. Dillon

That might be. My last contact was three or four months ago. That has been eliminated?

Dr. Ryan

I think so. It should have been since then. I think that trouble is over.

Question put and agreed to.