Exchange Control (Continuance) Bill, 1966: Second Stage.

Minister for Finance (Mr. J. Lynch)

I move: "That the Bill be now read a Second Time".

The purpose of the Bill is to continue the Exchange Control Act, 1954, in operation for a further period of four years. The Act is due to expire on 31 December, 1966.

The necessity for exchange control in Ireland arises from the restrictions on the convertibility of sterling into other currencies which have been in force to a varying degree since 1939. Previously sterling was freely convertible into any other currency and this country could at all times rely on using sterling to make payments or transfer money to any country. The imposition of restrictions on the convertibility of sterling made it necessary for us, in common with the other countries in the sterling area, to control our payments to and receipts from non-sterling area countries. This control was required to help safeguard the foreign exchange reserves of the sterling area to which we have access for our requirements of foreign currencies. Foreign exchange has for some years been freely available to Irish residents for all current payments and in February, 1961, we agreed with the International Monetary Fund that we would maintain this position. Control of capital transfers is however still necessary.

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 31 December, 1958, as it was hoped that the need for exchange control would have ceased by that date. The operation of the Act was however extended in 1958 and again in 1962.

In general, the 1954 Act contains provisions 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;

(d) dealings in sterling area securities on behalf of persons resident outside the area; and

(e) the export of currency notes.

The Act 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 prescribed manner. It empowers the Minister for Finance to specify foreign currencies which must be sold to a bank. It also includes the power to require the compulsory deposit of foreign currency securities and unregistered sterling securities, and to prohibit the importation of such securities, but it has not been found necessary to bring these provisions into operation.

The Act provides for the granting of exemptions by ministerial regulations from compliance with requirements of the Act and for the giving of general or limited permissions in respect of transactions. These provisions have been operated so that, as I said already, all current transactions are now free and such supervision as is applied to current transactions is directed towards ensuring that they are not used as a cover for unauthorised capital transfers. The day to day administration of the control has been delegated to the Central Bank.

As regards capital transfers applications by emigrants are approved up to a limit of £5,000 a family. Other applications are considered on their merits. Persons wishing to make direct or portfolio investments outside the sterling area are not permitted to transfer capital for this purpose at the official rate of exchange. Investment currency may, however, be purchased for the purpose but of course this currency stands at a substantial premium over the official exchange rates. Sales of foreign currency securities are permitted, subject to compliance with certain conditions.

There is no early 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 in order that transfers of capital to places outside the sterling area may still be controlled and to enable control of current transactions to be re-introduced should this become necessary. It is proposed to extend the Act for a further period of four years. I recommend the Bill for the approval of the House.

Mr. Dillon

I understand that the Fine Gael Party have no objection to the renewal of this Bill. There are still certain questions I should like to ask the Minister, particularly in the light of his recent return from Washington where he represented this country at a meeting of the International Bank or the International Monetary Fund.

Mr. J. Lynch

Both.

Mr. Dillon

Both institutions. Coming fresh as he does with the various informations from these esoteric centres, I should like him to tell us some of the things I think this Oireachtas ought to know. Heretofore matters relating to international currency fell within the ambit of the gnomes of Zurich, Washington, the City of London, and elsewhere. It appears to me that these matters are now moving out of that exclusive area. Matters of exchange and the control thereof are becoming instruments of politics. In that situation, this country, the Republic of Ireland, is nolens volens involved. I am sure the Minister and the Government to which he belongs have never had any desire to interfere in the international exchange activities of their neighbours, but a situation is rapidly developing in the world in which we are all beginning to feel the economic draught of gradual deterioration in liquidity, with consequential detrimental effects on international trade. The sinister and unpleasant characteristic of this development is that the average man takes little or no interest in it and does not become aware of it until the effects of its worst possibilities come to impinge on our particular economy.

I do not profess to be an expert in matters such as international banking, although I suspect there is a good deal of false mystery created around this subject very largely for the purpose of persuading those who hold elected office and therefore are really the delegates of the people that it is none of their concern. The directors of central banks would sometimes have us believe that we who represent the people and who govern the country, and govern their several countries, should not interest ourselves in such affairs at all, that they are too complicated for simple people and that only those who sit in financial circles are qualified to think—never mind to talk—on such matters.

One of the features that are threatening our daily lives is the diminution in the supply of the currency of international trade. That currency consists of three elements as I understand it, gold, dollars and sterling. Gold, for some mysterious reason best understood by the fairies, retains its mystic international standard of value. It is common knowledge that the only useful purpose for which gold can be used is to fill people's teeth. Apart from that, it has no known use at all. Galvanised iron is much better. Polythene or the plastics will discharge any function of which gold is capable with far greater efficiency, except for this mystical quality that it is regarded as the immutable international standard of value. Yet all history has taught us that there was no more grotesque illusion ever foisted upon successive generations of men. There never has been a time when it was truly important that the value of gold should remain stable that it did not become wildly unstable, carrying into ruin and confusion everybody who believed in it. Yet it remains the only stable element in the currency of international trade. In effect, I imagine that today it would be true to say that nearly nine-tenths of the currency of international trade are dollars and sterling.

What does that situation result in? We are entitled to speak on these things because we are involved. Ordinarily we abstain from comment on the activities of governments in friendly countries because every government has the right to run its own country in its own way. I accept that right, until the particular operations of other countries severely impinge upon us. For some reason best known to himself, the President of the French Republic, General de Gaulle, has now decided in order to maintain la gloire de France that it is necessary to kick the posterior of the President of the United States and twist the somewhat moth-eaten tail of the British lion and therefore he converts his considerable holdings of dollars into gold and prophesies—always by proxy—the imminent devaluation of sterling.

General de Gaulle often reminds me of the present Taoiseach and his predecessor. He rarely says rude things in public but he always has a Deputy Corry sitting up in the back benches to yell them on suitable occasions. Officially, the French Government never says these things but, under the rose, we all know what happens. I want to ask the Minister this question: when he was attending the meeting of the International Monetary Fund and Bank of International Settlement, did it occur to him to ask this question: how long are we going to let this farce carry on? We all know that the supply of gold does not anywhere approach the needs of international trade; we all know that we must have currency of international acceptability to supplement the gold supplies, to oil the wheels of international trading if there is not to be a critical world recession. To get the supplement to the available supply of dollars—given a restoration of equilibrium in the United States balance of payments—and the supply of sterling—given the preliminary essential of a restoration of equilibrium in the British balance of payments—we require some kind of new international monetary unit that will be available to supplement existing sources of supply but we cannot get it without the consent of what I think are called "the Ten"—is that not so?

Mr. J. Lynch

The consent is necessary of, in effect, a committee of the major finance-owning countries.

Mr. Dillon

Which includes France?

Mr. J. Lynch

Yes.

Mr. Dillon

And France says "No, because if we let go of this, we can no longer kick the posterior of the President of the United States, nor can we twist the moth-eaten tail of the British lion. Therefore, we will not agree."

What I do not understand is this— perhaps the Minister will advance an explanation—why does not the British Treasury—and in this matter we are practically part of the British Treasury because we are in the sterling area and the purpose of this Bill is to keep us there and constitute us an integral part of the sterling area—and the U.S. Federal Reserve announce tomorrow morning that £1 sterling is worth 2.80 dollars US currency and 2.80 dollars in US currency is worth 7s sterling and anyone that does not like that can lump it?

Mr. J. Lynch

The Deputy may be saying something he did not intend to say.

Mr. Dillon

What is that?

Mr. J. Lynch

That 2.80 dollars is worth 7s. I think he means a dollar is worth 7s sterling.

Mr. Dillon

Yes, that a dollar is worth 7s sterling. I am obliged to the Minister.

Why do they go on to say: "As far as the American Federal Reserve are concerned we will buy all the gold that is offered to us at 35 dollars per ounce, payable in green dollar bills but we will sell nobody gold. If you have not enough gold to fill your teeth with go and fill them with lead or compost or cement. For every ounce of gold you offer us, whether it be from the Bank of France or the mines of South Africa or Russia, we will pay you 35 dollars in green dollar bills and we will back that with a joint decaration by the Government of the United States and of Great Britain. You can change those green dollar bills for donkeys, ploughs—you name it we have it. There is only one thing we will not sell for a green dollar bill and that is gold".

Does that not resolve the whole problem of liquidity with which the world is at present distracted? How does it affect the stability of the international exchange resources? You may say: "Oh well, that would be to give the Governments of the United States and of Britain an unlimited licence for inflation and for activity beyond their means." In the name of Providence, if the Governments of the United States and of Britain choose to go mad, who can stop them? They could be locked up in a cell made of gold, but if a sovereign government are resolved on their own destruction, injunctions from Zurich or anywhere else will not restrain them. There is something involved here which is immensely important to public men and it is not today or yesterday I said it.

I shall not surrender the sovereign authority of this Parliament of which I am a Member to the Chairman of the International Bank, to the Bank of International Settlements or to any other international monetary institution in the world. If we needed Mr. Black, the first Chairman of the International Bank, we should have called him in long ago and asked him to run our country for us because we were not fit. If we were not fit to run our country let us face it that we ought to have called in either Stalin, that bloody rascal—I used the word "bloody" in its literal sense— on the one hand or Hitler, the equally bloody rascal, on the other. At least they were bloodstained. They had not got the sanitary and luxurious exterior of the International Bank.

We are running in circles, tying ourselves in tighter knots. The Minister will confirm this. He was warned in Washington that we were approaching a critical situation arising not from what any one of us was doing but from the growing lack of liquidity in the means of international exchange. We are in the astonishing situation that we are drifting back to precisely the same problems as brought the whole world crashing around our ears in 1929 when we had one man standing at one end of a road hungry for meat and another man standing 100 yards away in his bare feet with a surplus of cattle. The hungry man had thousands of pairs of boots and there were no means of bringing the man with the cattle and without a boot to his foot in contact with the man starving for meat with thousands of boots. There was no medium of exchange.

I am simplifying it because when illiquidity grows people start raising barriers to defend their own particular enclaves and the whole system grinds to a standstill. What appals me is that there is nothing mysterious about it. If it were purely a question of economics it could be resolved overnight by agreement between the ten executives to whom the Minister referred. However, it is a purely political situation which coerces the ten to say: "We cannot find a solution because one member vetoes the requisite proposal to provide the solution."

People may say we have no business in international affairs, that we are not big enough, powerful enough and do not dispose of big battalions. Maybe we do not but there are certain areas of international affairs to which we do dispose of what can be substantial power and that is the gift of which we are told in the immortal fable about the Chinese Emperor. He was told by his tailors that they would clothe him in a suit of raiment so exquisite that none but angels could perceive it and they sent him out into the streets naked. No one dare say "I see no clothes on the emperor" for fear they would be termed less than angels, until a small child perched on his mother's shoulder said: "Mammy, I see no clothes on the emperor" and the emperor fled in his nakedness from the streets.

We have the power to say: "At this moment we are beginning to feel the pinch. The European Economic Community are beginning to raise barriers in order to protect their domestic market and one of the barriers is a tax of £30 per head on cattle". That has thrown our whole livestock industry into wild confusion. It constitutes a threat to the stability of our whole society. Do not doubt that very similar problems are arising in a vast variety of other countries for the want of liquidity.

This is the classic case of hunger and abundance being perpetuated by a barrier of gold. Is it unreasonable that, if there is any Government in this world so reckless as to raise a wall of gold between the hungry and the means to feed them, a small country such as this is should say: "There is nothing very much we want except to cross this wall of gold, to build a ladder to enable those of us who are prepared to make the effort to climb and meet one another for no more desperate purpose than to exchange the labour of our hands with our neighbours for the labour of theirs." That is the kind of question this House ought to ask itself. That is the kind of question an Irish Minister for Finance might, with propriety, ask some of the pundits of international finance in Washington.

I am old enough to remember 1928 and 1929 when the Viennese Bank went burst, when the Credit Anstalt Verein of Vienna suspended payments. Very few people realised the significance of what had happened. It is perfectly true that it is foolish to be always thinking of the past but it is equally foolish to forget its lessons. I was standing on the steps of Amiens Street Station when I heard the news that the Archduke of Austria was assassinated in Sarajevo. Nobody knew what that signalled. I think I was in Killiney when the Viennese Bank went burst. Nobody dreamt of the disaster of which that was the signal. I do not know what the collapse of the bank in Beirut means, and I do not know where it is going to end, but it certainly means that some people in the Middle East have got it into their heads that if de Gaulle is buying gold, they also would do well to get their money out of banks and into gold. Unless we are all mad are we going to sit here and allow a great man who has stayed on too long in a position of great responsibility in the French Republic to combine with a group of illiterate sheiks of the Persian Gulf and involve us all in an uncontrollable catastrophe?

I remember the days of 1929, and I think the late Sir Montagu Norman was Governor of the Bank of England. He was preceded by an old gentleman by the name of Lord Cunliffe. Does the Minister for Finance know that in 1914 the then Chancellor of the Exchequer sent for Lord Cunliffe to ask him what were the gold reserves of the Bank of England and where were they, and that Lord Cunliffe replied he would not tell him what they were or where they were? Lord Cunliffe secretly shipped those gold reserves to Canada without the knowledge of the British Exchequer. The attitude in those days was that politicians had no business to inquire, that that was the business of the Bank of England. To his eternal credit, the late Neville Chamberlain or his uncle, one of the Chamberlains anyway, sacked him and established the authority of the Government.

I do not know if there are any Sir Montagu Normans strutting around today. This I know, that I lived to see Keynes declared a prophet and the so-called orthodox men who went before him treated as half imbeciles. We are going to see in our time, perhaps, not in mine but certainly in the Minister's, a great many of Professor Keynes' theories go up the spout. He believed in the grand illusion of controlled inflation, the theory that you can give people nice small doses of heroin and that if they only keep the dosage in control they will have pleasant dreams, the snag being, of course, they never do. Controlled inflation is much the same, a grand illusion.

I want to say to the Minister for Finance that, in so far as bankers are available to be used as trained servants of us who represent the people, in so far as economists are there to be used as trained servants of us who represent the people, they are very useful, but when they begin to labour under the illusion that they know more about governing the country than those of us who devote our lives to it for very much less reward than they are in the habit of accepting, it is time to put them in their place and to tell them that, in our judgment —and we are people who count— people are more important than things. That is the lesson we have learned, and very few of them have learned it. Let us keep the maxim constantly before our minds, that people are more important than things. Most of the bankers, national and international, and financiers, whether they be practical or theoretical, never knew that simple maxim and those who have heard of it have forgotten or misunderstood it. They need to be reminded that in a free democratic country it is we, the elected representatives of the people, who must take the final decisions, that they are technicians who are to carry out our orders and if they ever fail, for the want of the will or the capacity, they should be sacked and others found to do it.

I would be interested to hear from the Minister for Finance whether that was the line he took at the International Monetary Fund Meeting and, if it was, what answer did he get.

Mr. O'Leary

Since this is just a continuing Bill, we do not have much to add. It represents our effort in the Sterling Area to protect the interests of sterling and shows our attitude to foreign currencies.

Whatever about the difficulty in regard to foreign currencies, there is a big problem within sterling. In London, it appears to be impossible to get any recognition for the Irish £ note. I should like if a currency that is supposed to be such an integral part of sterling could be recognised in the sister island and embarrassing occasions avoided because at the moment our currency is one that appears to me to be recognised in Cork and Limerick but not to be recognised in Belfast or London. Perhaps the Minister might, at least, pass along a few copies of our sterling currency to the British Treasury to inform them as to what it looks like. It appears to be awkward for ordinary traders.

I should like to know if the travel exchange ceiling that the British Government have imposed lately for travellers outside the area will have any effect on people from our own area travelling outside the sterling area or whether the Minister contemplates any cutting of sterling allowance to our own travellers outside the Sterling Area as a consequence of the British Government's measures in respect of their citizens.

I have not been able to get the exact provision but I had the impression that in the 1954 Act portfolio investment outside the country was practically excluded whereas I get the impression now that this ban no longer obtains. I may have misread the original Act.

I take it that in respect of capital transfers outside the Sterling Area in respect of emigrants, the area we would be referring to in most cases would be the Dollar Area and there is reference to this limit of £5,000 a family and to representations for people who have got emigrant connections in the United States for transfer of capital from the United States to this country. I should like to know from the Minister to whom these representations can be made and whether the staff now operating under this Exchange Control Act has been increased. I understand that much of the business under this Act was now managed by banks and solicitors at first hand. What is their relationship, or do they work very closely with the Central Bank in this connection?

I should like to inquire also whether any penalties have ever been invoked under this Act in respect of any acts of companies in defiance of the provisions of the Bill.

Mr. J. Lynch

Would the Deputy repeat the last query? I did not catch it.

Mr. O'Leary

I was just inquiring about penalties. The original Act sets out in great detail what one may not do. I was just wondering has any case arisen where a penalty has been invoked against a company or companies who have refused to obey the provisions of the Act or is the Minister or any official in the Department aware of any company or persons going outside the provisions of the Act since its inception?

Mr. J. Lynch

As the House is aware, last year the Fund advanced to us a sum of from £5 million to £7 million to help us overcome our balance of payments problem. It is only for that purpose the Fund will agree to a country restricting travel allowances and movements of currency in this way. It is not the intention to seek that permission or consent because in present circumstances I do not think it would be given. In any event, in present circumstances, I do not think it necessary. Applications for increases in these allowances can be made to any bank or travel agent. In these matters they work in co-operation with the Central Bank, which, as I have said, operate such matters for the Government.

With regard to the question about portfolio investments outside the sterling area, this is, of course, permitted but investors must acquire what is known as investment currency. That is usually available only at a premium of about 20 per cent. Therefore, the Deputy will readily realise it would want to be a very attractive investment to encourage them to pay this premium. I am not aware whether any punitive or penal action has been taken as a result of breaches of these regulations. I think it was the case during the period when the Emergency Powers Act was the controlling legislation but since the enactment in 1954 of the permanent legislation, there has not been any necessity to take any specific action.

These are the questions Deputy O'Leary asked. Deputy Dillon's question, I think, was confined to one thing: what action had we taken in order to ensure that we, as the elected representatives of the people, are making our voices heard and ensuring that it is our voices are heard in these matters. The Deputy can be assured as far as I am concerned that I will not in any way undermine the authority of this Parlimaent in any dealings I have with people who are expert in financial affairs.

Question put agreed to.

Agreed to take remaining Stages to-day.

Dáil Éireann debate - Tuesday, 18 Oct 1966