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Dáil Éireann debate -
Tuesday, 25 Mar 1969

Vol. 239 No. 6

Committee on Finance. - Bretton Woods Agreements (Amendment) Bill, 1968: Second Stage.

I move that the Bill be now read a second time.

The main purpose of the Bill is to approve the Government's acceptance of the amendment to the Articles of Agreement of the International Monetary Fund which is set out in the Schedule to the Bill, and also to authorise participation in due course in the special drawing rights scheme, the establishment of which is the major object of the amendment.

In recent years the international monetary system has been showing signs of severe strain to put it mildly.

Hear, hear.

There have been growing fears that the usual sources of international reserves will not be adequate for the requirements of expanding world trade and payments. No doubt, there will continue to be argument as to how far the monetary crises of the past year or two are due to shortage or maldistribution of international reserves, or to failure on the part of debtor and creditor countries to make the right domestic policy adjustments in time. There can, however, be no denying that existing means of increasing international liquidity are limited and haphazard. The main sources at present are gold, the reserve currencies—sterling and the United States dollar—and member countries' quotas in the International Monetary Fund, which are the equivalent of their subscriptions to the Fund. Gold holds a key position because of the intrinsic value it has acquired and its universal acceptability. Whatever its advantages, it cannot be depended upon as a source of new international liquidity.

In 1966 and 1967 none of the newly-mined gold went into international reserves, as demand for industrial use and for hoarding absorbed the supply in both years. In fact, in 1967 and in the first quarter of 1968 a substantial amount of gold was transferred from official reserves into private hands, thus actually reducing the amount available to finance world trade and payments. Action to prevent this leakage was taken in March last by the termination of the London Gold Pool. Since then the price of non-monetary gold has been allowed to fluctuate. As a result of these developments the amount of gold placed on world markets in the past year has been small and the arrangements for the marketing of South African gold are a matter of dispute between that country and the major financial powers. For the present, at least, the amount of gold available to finance trade can be regarded as more or less frozen.

For several years the main sources of supply of increased international liquidity have been the deficits in the balance of payments of Great Britain and the United States, chiefly the latter. As Deputies are aware, Britain has taken various measures to reduce the deficits in her balance of payments and it is clear that balance of payments deficits in that country are not likely to continue to provide increased international liquidity. In the case of the dollar the United States authorities also have taken action to reduce the deficit in the balance of payments, with it appears, some success on the non-trade side. Ironic as it may seem, the achievement of a sound balance of payments position by the United States and Britain could lead to a major crisis in international trade and finance because of its effect in reducing the volume of international reserves.

To avert such a development, the International Monetary Fund has for a number of years past being carrying out an intensive examination of the international monetary mechanism to see how it might be improved. The main purpose was to find a way of creating additional reserve units which would be acceptable internationally. At the annual meeting of the Fund in September, 1967, a draft scheme was laid before the Board of Governors under which existing reserves would be supplemented by artificially created reserve units, called special drawing rights, to be administered by the Fund. The draft scheme was approved by the Governors and the Directors were instructed to prepare a detailed scheme. This has now been done in the form of the proposed amendment to the Fund's Articles of Agreement.

Under the new scheme, each country wishing to participate will be allocated special drawing rights independently of its external payments position and in proportion to its present quota in the Fund. Participation in the scheme is optional and will not affect members' other rights in the Fund. These drawing rights will be handled in a special account in the Fund separate from the organisation's existing accounts.

The proposed drawing rights will be additional to the Fund's existing arrangements for assisting member countries. The underlying concept is, however, different. At present members in balance of payments difficulties may draw temporarily on the resources of the Fund. These consist of the total of members' subscriptions or quotas, 25 per cent of which have been paid in gold and the balance in members' own currencies. A drawing is made by purchasing foreign exchange from the Fund in exchange for the member's own currency. There is a limit on outstanding drawings of 125 per cent of the quota. The first 25 per cent can be drawn automatically since it represents the gold portion of the subscription but thereafter the Fund exercises closer supervision and must be satisfied that effective measures are being taken to correct the imbalance.

Special drawing rights will not replace any portion of these existing rights. They will be created without any prior deposit of gold or currency and they will be used not by drawing on the Fund but by direct transfer between member countries.

If a country gets into balance of payments difficulties and wishes to use these rights, it will exchange them for an equivalent amount of another country's currency. The Fund will designate the participating country which will provide the currency, but the transaction can also be arranged directly between two countries. The borrowing country will use the foreign currency obtained to finance part of its balance of payments deficit. The scheme, in effect, is based on the obligation of participants to accept drawing rights from other members in exchange for an equal amount of convertible currency. Special drawing rights, therefore, will have the character of reserve assets. The intention is that countries will accept the new rights as an integral part of their currency reserves.

The rights will have a fixed value in terms of gold, this value being the equivalent of the present gold value of the United States dollar. Countries participating in the scheme will accept them on this condition and on the condition that they are exchangeable for their own currency on this basis. Thus, they will have many of the characteristics of gold—a guaranteed value, right of transferability and general acceptability. In practice, they will represent an effective supplement to the world's gold stocks available for monetary purposes and so to international liquidity.

To ensure that countries are not encouraged by the provision of these additional reserves to run excessive balance of payments deficits and to prevent their using their drawing rights to the full in order to shield their other reserves, borrowers will be required to hold permanently at least 30 per cent on average of drawing rights allocated to them. As a deficit country goes back into surplus and begins to accumulate reserves, it will be expected to build up its drawing rights and thus be in a position to help other countries in deficit.

At this stage, we can only guess at the practical effects of the scheme when brought into operation. Unofficially, it has been suggested that, in the first five years, the total amount of special drawing rights to be created would not exceed $10,000 million, that is the equivalent of 50 per cent of the total of members' quotas in the International Monetary Fund. This would be an average of about $2,000 million a year. Contrasted with total world reserves of $73,000 million, this would be only a modest increase in liquidity. On this basis we would become entitled to receive drawing rights amounting to $40 million or £16.7 million in the first five years. Our liability to provide convertible currency in exchange for drawing rights of other countries would be limited in the first five years to $80 million or £33.4 million—that is twice the allocation of drawing rights to us.

It will not be clear until the scheme is in operation for some time to what extent we will be called upon to meet our liability to provide convertible currency in exchange for other countries' drawing rights. The Fund in designating countries to provide currency will take into account the strength of the balance of payments and reserve positions of those countries. The objective over time will be to achieve a balanced distribution of special drawing rights among participants. It is probable that eventually we will be required to accept drawing rights from other members in exchange for currency, provided our balance of payments and reserve positions are satisfactory. As Irish currency is not used in international trade, it would probably be necessary to provide sterling. It is not anticipated that we would experience difficulty in complying with any request made to us. We, of course, would have exactly the same entitlement to use our own special drawing rights should the need arise.

There is as yet no firm indication of the likely date of introduction of the scheme. There are several procedural hurdles to be surmounted. First of all, the amendment to the Articles of Agreement must be accepted by three-fifths of the members, having 80 per cent of the voting power in the Fund. Progress to date has been slow. By the beginning of February 34 members out of the required 67, with 50.5 per cent of the votes had accepted it. Even when the scheme has been accepted, it cannot be initiated until members with 75 per cent of the quotas have deposited their instruments of participation. So far only 15 have done so. Finally, an 85 per cent majority will be required to bring the scheme into operation and settle the amount of rights to be created.

As Governor of the Fund for Ireland, I have supported the special drawing rights scheme and voted in favour of the proposed amendment. Member countries agreeing to the scheme are expected to make any necessary legislative and other provision to enable them to fulfil their obligations under it. As a nation, we are dependent to an exceptional degree on external trade for our prosperity. We can only lose from a contraction in the rate of growth of world trade and we have viewed with misgiving the tendency of the international monetary system to drift into a situation of recurrent crisis. The international payments mechanism must be made to work in the interests of the whole world. I see the proposals of the International Monetary Fund as a welcome effort to bring order into the situation, to free the world from the dangers stemming from doubtful or haphazard growth in reserves and to provide in the future for the deliberate, planned creation of reserves as and when needed. It is a cautious approach to the problem. The scheme has been criticised on various counts. For instance, many of the developing countries feel that the allocation of drawing rights should not be based on members' quotas in the Fund on the ground that this simply adds to the strong overall reserve positions of the advanced countries. Nevertheless, the scheme is a beginning and a welcome one and I believe we should support it for that reason.

In addition to providing for the introduction of the special drawing rights scheme the amendment to the Articles of Agreement of the Fund as set out in the Schedule to the Bill proposes certain other changes in the Fund's rules and practices. The main changes are:—

(1) formal confirmation of the right of a member country to draw automatically from the Fund up to the limit of its gold subscription— normally 25 per cent of the total subscription—and of the right to obtain automatic repayment of any portion of the subscription converted into currencies other than the country's own;

(2) a change of the voting rules to provide for an 85 per cent majority for fundamental decisions. Under the new rules the EEC countries, voting together, and the United States will have a veto. At present the United States have an effective veto and Britain has a veto to a limited extent;

(3) under existing arrangements a repayment obligation can be reduced or wiped out in a particular year if the Fund's holdings of the particular currency to be used for the repayment are deemed to be excessive. It is proposed to abolish this right with the effect that drawings from the Fund will be repaid more rapidly;

(4) it is proposed that interest be paid by the Fund at the rate of 1½ per cent per annum on any portion of a country's subscription in excess of 25 per cent made available to other countries in currencies other than a member's own currency. The interest rate may be varied by the Fund, by a simple majority, within the range one to two per cent. Payment of interest will be made in gold or in a member's own currency as determined by the Fund;

(5) it is also proposed that the final decision on questions of interpretation of the rules will in future rest with a standing committee of the Board of Governors unless the entire Board decides otherwise; the existing rules confine final interpretation to the whole Board.

The Bill provides that special drawing rights allocated to Ireland will be held by the Central Bank of Ireland and that that bank will be responsible for all transactions and operations involving drawing rights. Since drawing rights will have the characteristics of reserve assets, it is appropriate that they should be held by the Central Bank, which holds the country's main external reserves.

It is also proposed in the Bill to take power to transfer to the Central Bank by order certain functions under the 1957 Bretton Woods Agreements Act at present exercised by the Minister for Finance. These functions relate to the making of payments to and the receipt of moneys from the International Monetary Fund. Such transactions arise in relation to the payment of our subscription, the purchase of other currencies from the Fund in exchange for Irish currency and repurchases. These operations, therefore, would be more appropriate to the Central Bank than to the Exchequer. This is the position in several other countries. The change will also yield some simplification of administration. Under the present arrangements all payments to the Funds must be made out of the Central Fund and all receipts must be credited to it. In practice the money for payments is provided by the Central Bank against certificates of indebtedness issued by the Minister for Finance, which are held by the bank as domestic securities in its legal tender note fund.

The Bill also provides for the vesting in the Central Bank of the asset represented by our gold subscription to the Fund and foreign currency made available to other countries under our obligations to the Fund. This asset will be credited by the bank against an equal amount of the Government's indebtedness to the bank in respect of advances made for payments to the Fund.

The effect of these arrangements will be that the Central Bank will have direct control over all the external reserves of the State, apart from the sterling holdings of the commercial banks. The House will be aware, in this connection, that as a result of the agreement with Great Britain on the application of the Basle arrangements to our sterling holdings, a substantial amount of the Associated Banks' sterling assets—£40 million—was deposited with the Central Bank in November last. The Central Bank's custody and control of the external reserves is, therefore, becoming much more complete than it has been in the past.

It is provided that the order transferring functions or vesting the assets in the Central Bank will come into operation on a day to be fixed with the agreement of the Central Bank. This is to ensure that the transfer will take place only at a mutually convenient and opportune time. I recommend the Bill for the approval of the House.

This Bill, in effect, represents the confirmation of the Government's vote in favour of a proposed amendment to the Bretton Woods Articles of Agreement and, of course, it will have our full support. The only comment I should like to make on the very full explanation given by the Minister is that I hope the introduction of this Bill and the decision by the Government which is incorporated in it will serve to indicate to everybody the very definite, real interest we have in the International Monetary Fund and in the achievement, if it were ever possible, of liquidity. We have that interest because we depend on our trade and our exports. We cannot in any way be independent nor can we insulate ourselves against the situation to which the Minister has referred. In recent years we have seen the effects of the devaluation of sterling. If, as a result of difficulties, any other currency were to be devalued, that would have its effect upon us, indirectly but certainly. Any move, therefore, by the Governors of the Fund towards easing a situation which may arise from temporary balance of payments difficulties affecting any of the member countries is certainly something that should have our support.

I gather from what the Minister said —it is referred to in the White Paper— that the degree of easing of strain aimed at by this amendment has a definite ceiling. It cannot be, and it is not intended that it should be, used except to ease a temporary and, perhaps, limited balance of payments difficulty in any particular country. It cannot be used, and it is not intended that it should be used, to enable one particular country to achieve, in fact, a standard of living for its own citizens at the expense of the citizens of other countries. The way in which this will be achieved, as I understand the Minister, is by limiting the liability of the participating countries to accept drawing rights with a particular ceiling which will be in effect twice their particular allocations to the Fund. The Fund cannot be obliged to accept drawing rights of any greater extent so that no matter what reduction in strain this may achieve and what degree of liquidity, it will certainly mean that participating countries must continue to live within their means and to trade in such fashion that they cannot use this to increase their balance of payments beyond a certain figure. In that regard it can, I suppose, be described as no more than a cushion against temporary difficulties.

I welcome the Bill. I am sorry to note from what the Minister has said that it may be a considerable time before this is eventually incorporated into the present Agreement. It has taken some 12 to 18 months to reach this particular stage.

It has taken even longer. This finally came to the surface in Rio, but the discussions had been going on before that.

Obviously considerably more time will be involved before eventually the whole matter is finalised. As the Minister said, this is a move in the right direction. We cordially support it.

We are a very small part of what is being set up in this sphere. The Minister says:

First of all, the amendment to the Articles of Agreement must be accepted by three-fifths of the members, having 80 per cent of the voting power in the Fund. Progress to date has been slow. By the beginning of February 34 members out of the required 67, with 50.5 per cent of the votes had accepted it. Even when the scheme has been accepted, it cannot be initiated until members with 75 per cent of the quotas have deposited their instruments of participation. So far only 15 have done so. Finally, an 85 per cent majority will be required to bring the scheme into operation and settle the amount of rights to be created.

It would appear from that that this is, as Deputy O'Higgins said, a long-term plan and possibly we will encounter a great many more difficulties by the time the necessity to use this will arise. The Minister remarked, in the course of his speech:

As Irish currency is not used in international trade, it would probably be necessary to provide sterling.

Is there any possibility of having Irish currency more widely recognised? It is somewhat annoying to be told, even in Britain, that Irish currency is no good. That was the situation, too, for a time in Northern Ireland. This has nothing to do with this particular measure, but the thought strikes me that it will give certain people the opportunity of saying: "We are tied to sterling, lock, stock and barrel and there is nothing we can do about it."

This whole scheme is very technical. It is right that we should have some safeguard prepared in case things get really bad. If this gives us, as Deputy O'Higgins said, a cushion—cushion is the right word here—then the House should give every assistance to the Government in ensuring that we do not hold things up. That is the main thing. I hope that with all the great development, sometime some of our people will come in here and find a goldmine. Then we will be able to do something.

Only one greater disaster could overtake this country than to find a goldmine and that would be to find an oilwell.

We could live with that disaster. I should not mind it at all.

We will never have to live with it. The stench of oil would bring every international rogue in the world straggling to us. God deliver us from oil. We will not find much gold or oil in our territory. However, that is entirely irrelevant to the Bill we are considering. The great difficulty about the topics covered by this Bill is that very few people understand them and, not understanding, care very little about them. This Bill is introduced as our small contribution to the Bretton Woods Agreement for the purpose of providing a larger pool of international currency to lubricate international trade.

That necessity has arisen from the fact that South Africa will not sell its newly-mined gold except to people who want to put it under the mattress and nobody will face the question as to why the problem has arisen. Why are the old sheiks of Araby reposing on their beds with mountains of gold concealed beneath them? Why is India of all countries in the world, with poverty, desolation and hunger, smuggling in greater and greater quantities of gold? Where is the gold of the world going? In the last two years, out of the total gold production of the world not a single ounce has passed into the central banks of the trading countries? Where has it gone? It has gone into the hands of the Asiatic people, very largely. Why? It is because they have grown terrified of inflation. The odd and interesting thing is that you find in the deserts of Arabia a more present knowledge and understanding of the devastating effects of inflation than you do in O'Connell Street, Piccadilly and Fifth Avenue. I often ask myself the question when people talk about providing the resources with which to lubricate the operations of international trade, but do many others ask themselves the question as to how the system would be made to work if every nation stipulates for a favourable balance of payments.

If you reflect for a moment you will find that if every nation insisted on a favourable balance of payments, all international trade would stop. All international trade in the past has proceeded on the basis that certain countries had such large favourable balances of payments that they could export capital, and it was the exporting of capital and the mining of sufficient quantities of gold that kept the wheels of international trade going.

Why is it today that the wheels of international trade are in danger of grinding to a halt? It is because the South Africans will not sell their gold and any other gold that is coming on the market is not going to the central banks of the trading countries but to the sheiks of Araby; and the two international currencies that have heretofore supplied the surplus resources to maintain international trade —sterling and the US dollar—are themselves suspect, with the result that you have vast surpluses of the resources of international funds in Federal Germany and in Switzerland, neither of which is prepared to release them for the purpose of international trade because they will not accept any other currency in exchange for their own.

Why? For precisely the same reason as the sheiks of Araby are storing gold under their beds. Nobody trust's anybody's currency any more. Why do they not trust other people's currencies? It is because they know that in this country, in Great Britain and in the United States itself we are all travelling the road that South America travelled during the first half of the 20th century. It used to be an object of derision in civilised and sophisticated countries in Europe to watch the progress of South American Republics whose currencies became so corrupt and devalued that perennially they were entirely withdrawn and complete new currencies issued. It was only the incidence of two world wars that produced that phenomenon in Europe.

Some people wonder why the dollar and sterling have fought so desperately to avoid devaluation. They did so because being accepted as international currencies brought them very substantial profits through their mercantile activities in the City of London and in Wall Street in New York. The franc was never accepted as an international currency and what people forget is the frequency with which the French Government have devalued the currency virtually without comment. What people should not forget is that the reason Germany is today the most prosperous country probably in the world is that she experienced once involuntary uncontrolled inflation.

Only once did Germany experience involuntary uncontrolled inflation. Do not imagine that Dr. Schacht's inflation was anything but a deliberately planned operation in order to defraud Germany's creditors at the time. She experienced involuntary uncontrolled inflation once and once only and that has left so indelible an imprint on the minds of the German people that they have accepted sacrifices since 1948 of very substantial dimensions in order to guarantee themselves against the possibility of a recurrence of such a catastrophe ever again. Unhappily, other countries have not learned that lesson, and until they learn it, such measures as we are now implementing here today and such agreements as we are meditating, although they may serve to plaster over the cracks momentarily, make no fundamental contribution to the solution of the real problem underlying the danger that overhangs international trade the world over.

I remember saying in this house four or five years ago to Deputy Lynch, the Taoiseach, who was then Minister for Finance: "Watch out. Unless you accumulate here a powerful reserve position for our people, you will find yourself caught between a storm to the east of you and a tornado to the west of you. If we ourselves are vulnerable when these two developments strike, our position will become utterly desperate, and our very survival as an independent State will be called in question." We are very close to that position now, and we are close to that position because the United States of America are determined, apparently, to control their own inflation no matter what the cost. It will test all the resources of the United States Government to achieve their purpose and the repercussions upon us will be formidable.

The Government of Great Britain, in order to survive, are seeking to bring inflation in Britain to a halt. I doubt if they will succeed. Remember, part of their effort is through the so-called wages and incomes policy which is being energetically contested. Let this House make no mistake about it, we have to reckon with the fact that in the course of that contest in Great Britain a strike took place in Fords factory at Dagenham, and that put 300 men out of work in Cork.

It is not at all impossible that there could be further incidents of that kind. We are here struggling with an inflation of our own. Remember, our conditions will be looked at with a cold detached statistical eye by those abroad who are not in the least interested in our national aspirations or in anything other than our capacity to pay our way.

The Minister for Finance now makes a television appearance to warn us that we are on the edge of a precipice. He has not thought it proper to add: "We have been brought there by an Administration of which I have been a Minister during the past 12 years." The fact is that we are on the edge of a precipice and we have been brought there by an Administration of which the Minister has been a member.

Now, it is right that if we have to face legislation of this kind and an effort of this character we should ask ourselves, why? The answer is: "Because of inflation." It is important to understand that inflation is just as deadly to great powerful countries like the United States of America as it is to relatively weak countries such as Ireland, Iceland, Portugal and Spain. The difference is that countries like the United States of America and Great Britain have great reserves to fall back on before disaster catches up on them, and we have little or none. We have little or none, because the Government at present in office created a situation in this country which stripped us of the reserves we now ought to have.

Our reserves are at the highest level ever.

In what terms?

Our external reserves.

Nonsense. We are at the moment, as the Minister rightly said on television, on the edge of a precipice. We cannot have it both ways. It is this kind of mad talk that has brought the country to the stage it is in. It is this kind of blatherskite that was used in the Cork and Kildare by-elections to justify a declaration that a universal 12 per cent wage increase was not only permissible but desirable owing to the strength of our economic situation and the pressure of a rising cost of living. It was that decision, taken in 1964, which started the spiral of prices and costs which has now reached its apotheosis in a demand from the workers in the building industry for an all-round flat increase of 25 per cent.

The request for that increase is not born of a capricious desire for more. It is born of two propositions: one that the cost of living is steadily mounting and everything that the ordinary person has to buy is costing more; and the other that not 12 months ago the Minister for Finance was telling us that everything in the garden was lovely, and that we could afford whatever we wanted. He is still prepared to say today, for the political effect he hopes it will have in the country, that our reserves were never higher, that our external reserves were never higher. He does not say in what terms he speaks of our reserves as being high. He does not apply any comparison. He does not say whether he is speaking of the net external assets of the joint stock banks or the combined assets of the joint stock banks, the Central Bank and the Government. He does not say whether he is speaking of a net figure of our total holdings as a nation.

I do not think he knows—I certainly do not know—what they are. We used to have them represented as being something in the order of £400 million sterling. No one ever knew what the total net external reserves of the citizens of this country were. One thing we were certain of: whatever they were, they were not accessible to the Government to finance balance of payments problems. Far from it. Balance of payments problems might reduce them very rapidly as their owners transferred their assets out of this country in apprehension.

They were out of the country anyway. The fact that they are external reserves means they are out of the country.

But suppose that instead of selling their reserves they transferred what they had here outside and followed them. Does the Minister never envisage that possibility?

We are talking on the one hand of the external reserves as owned by our private citizens. The Deputy said they might transfer them out of the country. The fact that they are external reserves means they are out of the country already.

On the contrary, I said they might transfer these reserves out of our jurisdiction and access to them by taking with them as much more as they had here, and themselves to boot. A small nation cannot afford that kind of operation. We know the boys who go to Jersey, and the boys who go to Bermuda, and the boys who go here, there and anywhere to avoid tax liabilities. Great Britain may have immense assets and may be able to disregard that activity but even Great Britain, and certainly France today, find they can disregard that no longer.

In strict terms of international reserves we are far wealthier than Great Britain. Great Britain has an international net liability of something like three to four thousand million pounds. We have a net external creditor position. We have about £280 million or £290 million official external reserves. That is augmented by a considerable amount of privately-held reserves.

The Minister, moving on these high planes of technical discussion, would relate these figures to the international trade which has already been mentioned?

Our official external reserves, officially held by the Central Bank, the Government Departments or the commercial banks, would cover our external trading position for about nine months, which is not bad. I agree with the Deputy that we cannot let them be eroded and the prospect of a balance of payments deficit of £50 million to £60 million this year is something which would certainly cause concern. It would be wrong to think we have not very considerable reserves to be able to stand up to balance of payments deficits providing they are not going to keep on occurring.

It is fortunate this debate has taken place to extract these words of wisdom from the Minister. He is now beginning to relate reality to reality. The Minister mentions £260 million external reserves under pressure of an annual balance of payments deficit of £50 million or £60 million. It would only too rapidly erode if the idea spread about that such deficits might recur. What was a relatively controllable stream becomes a raging torrent once the currency speculators smell the air. Do not forget the Republic of France and the gold reserves in the vaults of the Bank of France which looked utterly invulnerable and how in six short weeks half of the total disappeared across their borders. The present President is now having to control although he said he never would do so. Nobody can transfer funds out of France without specific Government permission for the simple reason that their unfavourable balance of payments suddenly became the subject of a gigantic international raid.

We are in the position that we are carrying an unfavourable balance of payments at the present time which the Minister thinks it is proper to describe as possibly amounting to £50 million or £60 million. That is the first time that figure has been mentioned in this House. It is the first time that the figure of £60 million has been mentioned as a remote possibility. I do not think it is a probability but it brings the figure of £50 million into the range of realistic possibility as the balance of payments deficit of this country. It is useful that that figure should be widely known as a measure of the gravity of the situation in which we now stand. I am trying to get the House to turn its mind to this: that no device designed to increase the resources of international currency will operate to restore the free passage of trade between nations so long as the spectre of inflation continues to stalk the world. Until stability of money is restored you can create all the resources that you please, you can mine as much gold as has been mined since the dawn of time but the moment inflation rears its ugly head in any community those resources will pour out in a deluge and as the flood out gathers force it will suck more and more with it until ultimately it leaves the cupboard bare. Every nation in the world is the same as a joint stock bank. If a bank has liabilities for deposits of £10 million and a rumour goes around a city like Dublin that they have not got the money, within one hour the depositors will start to form a queue. A decision must be taken forthwith, promptly and without delay, to put a notice in the window of the bank: "We owe £10 million and we have £11 million. We are providing camp chairs and hot coffee for the queue." Currency must be delivered to the bank in excess of the total claims on it. After two hours of that, the queue will melt away. But let the bank put a notice or declaration in the window: "We owe £10 million and we have £9,999,999 to pay it ", and the queue will extend to Drumcondra. It will take the Army to control it. The moment the word goes out that a country's external reserves are being placed in jeopardy by a current deficit in its balance of payments, not only will the deficit in the balance of payments erode those reserves but the currency speculators will proceed to finish the job. Our great danger is that some such raid should be staged against us. We have reciprocal arrangements with the Bank of England and they are possibly our greatest insurance against such a raid.

It would be a great catastrophe for this country if we were to experience such a crisis. There is no means of protecting ourselves against such a possibility except by restoring stability to our own currency and there is no means of doing that other than by putting an end to inflation in this country; there is no other means of doing that but by making up our minds to spend less than we earn and that applies not only to the individual, to the TD, to the Minister but to the Government itself.

Unless and until everyone in this House comes to realise and understand that, we are all participating in a course of conduct which few people understand; a course of conduct calculated not only to bring economic ruin on this country but very easily to create a situation in which our national independence would become impossible. That danger is clearly on the horizon at the present time.

I mentioned today during Question Time that one could legitimately say that almost everything in this country now belongs to foreign interests. The Minister for Industry and Commerce took great exception to that generalisation and it is a generalisation. We have drawn in considerable quantities of foreign capital in recent years and dazzled by that successful induction of foreign capital, we have turned our backs on the true state of our balance of trade and on our balance of payments. We have been living on borrowed money oblivious of the fact that borrowed money constitutes an annual charge upon our balance of payments for the interest that those who lent that money intended to draw on it. This also leaves a potential threat to our entire balance of payments position if those who hold assets in Ireland while resident abroad, proceed to liquidate those assets and to draw out while the going is good. There is no remedy for that situation except the realisation by our people and, indeed, by the people of the United States and Great Britain that you cannot perennially continue to stay independent and, at the same time, spend more than you earn.

The last thing I want to say is something which fascinates and amuses me. It is when I hear the Fourth Estate deriding Dáil Éireann for its failure to attend and listen attentively to the deliberations of the legislature on matters of fundamental importance. They just do not know what it is about.

It is of vital importance to every country, including ours, to restore stability to our respective countries. Having travelled as far along the road as we have travelled, it is vital to face the fact that it will not be easy to achieve that end but the interesting thing is that unless we achieve that end here and elsewhere, all the devices envisaged by this agreement will avail nothing; if we achieve it, then all these devices become relatively irrelevant. Dáil Éireann ought to get the full grasp of this fact. This agreement to which we are subscribing is done in the hope that the other countries will subscribe in sufficient numbers to make effective all that the agreement desires. This agreement is to give us a breathing space to restore confidence in the stability of currency so that the world as a whole will not go on facing a universal unfavourable balance of payments. However, that is not possible unless we are all to live in pampootees and skins. Our objective as civilised and sophisticated human creatures who can send men round the moon; who can blow the whole world up with one bomb is simply to restore the belief that when a pound note says it is exchangeable for a pound, it will be exchangeable for a pound which will buy all the things it could buy 12 months ago, ten years ago or that it will buy ten years hence. Unless and until that day is reached we will never achieve the position that the country with a vast advantageous and favourable balance of payments will be prepared to lend that out to the other countries that need it so that in their time they may acquire a favourable balance of payments which they themselves will lend out to lubricate development of trade elsewhere.

Remember that unless we reach that point again and quickly, the greatest human tragedy the world has seen since the dawn of time will be enacted under our eye because in so far as we have failed to attain that end the poor will grow poorer and the rich will grow richer until eventually there will be immense civil conflict in the world by those who have nothing to lose but their rags and those who are scrambling to preserve for themselves their illgotten money bags. Those are the issues which are at stake in the world and those are the problems which we as an independent nation are participating in. It is vital that we by way of example if not by way of pounds, shillings and pence, maintain stability in our currency as an example to the world of what other nations must do if the horrors I have attempted to outline are to be averted.

It troubles me that, in introducing a Bill of this kind, (1) the Minister simply brushes all these considerations under the carpet: he does not think it suitable to bother Dáil Éireann, never mind the Fourth Estate people and (2) he thinks it right to make a silly political interjection that our external reserves were never higher than they now are. But, above all, I think it would be truly tragic that a Bill of this character should pass through Dáil Éireann without the opportunity being taken by the Members of this House to say to our people, for our own sake, even if the rest of the world wants to stumble into the catastrophe that inflation ultimately leads to, for the dignity and the safety of our own people, for the purpose of preserving the freedom that we bought so hard, for the purpose of ensuring that, in every succeeding generation, the flag of this country will be seen to fly in freedom and not for the purpose of getting rich but for the purpose of staying free, that we must restore stability to our currency. The alternative is the breaking-down of law and the destruction of free institutions in our own country and in the world. Ultimately, the consequence will be a great conflict involving the countless multitudes who are not prepared to go on growing poor while the minority, by monetary manipulation, grow fat. I think it is the duty of an Irish Minister for Finance to make those aspects of our situation known to our people. They may not be politically popular but they are nonetheless true. If a man accepts responsibility as Minister for Finance, it appears to me that he has an obligation to discharge the unpopular as well as the popular obligations of his office.

I cannot help feeling that, after the long negotiations in relation to international finance, this is a somewhat disappointing measure because we in this country are not responsible for it but must fall into line with any international financial suggestions that may be made as a result of these gatherings that have taken place. As an ordinary onlooker and not being an expert in finance, I agree with Deputy Dillon that inflation is the major cause of all the trouble. Inflation, however, has been taking place among the stronger powers and all other countries—particularly smaller countries such as ours—immediately feel the impact.

When I was a member of the Council of Europe up to a couple of years ago, international monetary finance was a very live issue, as it probably still is: I am not in a position to judge that, as I am not there now. However, it was decided by most of the speakers from the various member countries that some form of international currency was desirable to replace the existing currencies such as sterling, the dollar and hard currency. The proof of that is self-evident in the fact that the United Kingdom, in a balance of payments difficulty and very short of reserves, are hardly able to maintain themselves as a major financial power at the head of sterling and the repercussions on us are continuous. As the Minister for Finance well knows and as everybody here knows, we suffered on two or three occasions as a result of repressive measures on the part of the British Government in an effort to contain their expenditure and to keep their obligations to sterling in order. The United States of America, the dollar currency of which is prominent in the world, faces exactly the same difficulty. France is one of the countries economically sound, having enormous reserves, having practically everything they want without importing. It is a self-sufficient country for practically everything and was entirely so when she had her colonies. To a large extent, France still has a very favourable position. Yet even France finds itself in difficulties. The impact reverberates on all the other countries. This poses the question, is this international agreement in relation to finance only a palliative? It is an attempt to get all the countries concerned to create a financial situation whereby they can help the various countries when they get into difficulties. But, incidentally, while they are helping countries, that may find themselves in difficulties, the small countries are very often in difficulties through no fault of their own.

The only reason I stand up now to speak is that I feel the only solution to the financial instability in the world today is an international world currency. That is more important today than it was, perhaps, 10 or 15 years ago because it is necessary for the great powers of the developed countries, apart from keeping their own house in order, to have a sufficient reserve so that they may contribute to the development of the underdeveloped countries. I should like the Minister to tell us if, in these discussions that took place at world conferences—I think he attended several of them, one being in Rio de Janeiro—the question of a world currency was discussed, whether there was any sort of general agreement for it and, if there was, if he thinks there are likely to be wider agreements that would go far beyond the legislation he is bringing before the House this evening which, I feel, is just a question of staving off the difficulties of these different currencies and enabling us to carry on as before but which will not give world stability in finance.

I am grateful to the House for the manner in which they have received this piece of legislation. Perhaps I should begin by dealing with the point made by Deputy Tully when he spoke about the acceptability abroad of Irish currency. There are only two currencies in the world which are universally accepted as a means of settling international payments—sterling and the dollar. A number of other currencies could fulfil this role, particularly the German Mark, of being an international reserve currency, being a currency used by other countries for settling their debts. A great number of these countries, however, carefully avoid taking on the obligation of a reserve currency because, once you do that, you take on a very onerous task.

It would be totally unsuitable and inappropriate for us with our economic base, and in our general standing in the international monetary field, to attempt to make Irish currency a medium of international exchange. I do not think that is what Deputy Tully had in mind but it is just as well that I should clear up that point first of all. Deputy Tully is concerned with a much more mechanical matter and that is that when one goes abroad there is difficulty in having Irish currency accepted. I do not think Deputy Tully need worry about that because there are very few currencies which have any sort of universal acceptability. It is a matter of convenience and if an English shopkeeper is not prepared to accept Irish currency because he has to go to the trouble of taking it to his bank rather than being able to use it in his day-to-day transactions, then that is very largely his business. Our £ is just as good as his £ and there is absolutely no monetary reason why he should not accept it. It is simply a matter of convenience for the individual trader or person asked to accept our currency or our coinage. Deputy Dillon availed of the discussion on this measure to deal with the very broad issue of inflation.

It is underlying the whole problem.

I want to deal with that. I do not deny that internationally there is a very great problem of inflation but even if there were no such problem this measure would still be helpful, and perhaps even necessary, because it is true that the volume of world trade is growing, the actual amount of goods passing from country to country in the form of world trade is physically increasing, whereas the amount of money available to finance that physical volume of trade is not increasing and perhaps, as Deputy Dillon pointed out, it is declining. Therefore, it makes good sense to try to increase the medium of exchange available to the different countries to help them finance the increasing volume of world trade. In any event, whether there was a problem of worldwide inflation or not, this creation of special drawing rights in the International Monetary Fund would be helpful and would be beneficial. I just want to make that point, that the situation is such that with the amount of gold not being increased, with the amount of the reserve currencies not being increased, some other method must be found of financing world trade.

Is gold not being hoarded because of threatening inflation? If the gold came out from under the beds and from the Swiss banks and circulated freely then the problem——

The problem would be less but it would still be with us. In any event, even if we had all the gold in the world, gold is perhaps not a perfect instrument for settling international debts.

It is costly.

It is a costly mechanism and even if we were not faced internationally with the problem of a decreasing supply of world gold it would still be desirable to create a new type of monetary mechanism which would be flexible and available to the different countries in the world to iron out the inevitable snags that arise in international finance. I agree that a fundamental, deep-seated disequilibrium in a country's balance of payments must be put right at the source. I also think a great deal of trouble and hardship can arise which could be avoided if there were a perfect ideal mechanism of international finance because then countries which got into temporary balance of payments difficulties would not have to go to any particularly difficult lengths to solve them, they would have available to them through some international institution or organisation a perfectly appropriate method of getting over temporary difficulties.

That is what this piece of legislation is all about. It is an attempt, mark you it is not a very great attempt and I think it is a minimal attempt, to try to improve the international mechanism for settling world payments between nations, that is available to us. It has been a long and arduous process to get even this far and I am afraid we are not very far along the road as we stand today. This is not terribly important from our point of view; these new drawing rights as far as we are concerned will be an addition to our external reserves all right but not a significant addition. In bringing this piece of legislation in and subscribing to this new mechanism we are really trying to help the international situation more than we are trying to help ourselves. We just want to add our voice to those voices of reason and commonsense raised in favour of improving the international monetary liquidity situation.

This is more a contribution by us to the solution of international problems, rather than any particular benefit to ourselves, because the amount, as we see it at the moment, which we would be able to add to our reserves by means of the special drawing rights will not be all that significant in our circumstances. That is not to denigrate the sum involved but just to put it in perspective.

I am sorry that Deputy Dillon thought that I was being political when I mentioned that our official external reserves are at the highest level ever. I did not mean to be. It is important that we should point out to the public exactly what is at stake at present, that we should underline the realities of the situation as clearly as possible and that, on the other hand, we should not exaggerate. I am happy that our external reserves are at a satisfactory level. It just so happens that in monetary terms they are at the highest level ever. At the present time they are at a satisfactory level. I certainly would not think that it should be an aim of our economic policy to build them up to a higher level. The level they are at enables us in our economic planning to go ahead from year to year prepared to contemplate reasonably modest balance of payments deficits. I think that is necessary in our situation where we are endeavouring to build up and expand our economy. We can only do that by importing the raw materials and the capital goods we need. If we want to develop and expand we have got to contemplate a tolerable balance of payments deficit year by year. Perhaps there will be an argument as to what is a tolerable balance of payments deficit.

Rightly or wrongly, at present our official thinking is that a balance of payments deficit of £20 million to £25 million need not be a cause of alarm on our part. Provided everything else is going well we can tolerate a balance of payments deficit of that order, perhaps a good deal less in some years, perhaps slightly more in other years. But we cannot, I think, and could not possibly contemplate balance of payments deficits of the order of £40 million, £50 million or £60 million, recurring. In an exceptional year—a year of abnormal international difficulties, a year where special factors obtain in our main markets—we should not perhaps be unduly alarmed if we did have a balance of payments deficit of £40 million or £50 million, but not, as I have already said, recurring. Fortunately, we are in a strong creditor position and we have the reserves which would enable us to stand up to such an exceptional deficit. I, and I think everybody, would certainly become alarmed if we found the situation developing where there was a prospect of continually increasing deficits in our balance of payments. That really was the reason why I interjected in the middle of Deputy Dillon's speech in the way I did. I want to put this matter of a balance of payments deficit in proper perspective. I hope I have done so.

I fully agree with Deputy Dillon about the dangers of inflation and the appalling dangers of uncontrolled inflation. I hope that we are not in such a situation at the moment. There is a danger that we could be and will be unless we take corrective action. There are all sorts of corrective actions available to us. The best possible way of putting the situation right is self-discipline. I do not want anybody to think that by that I mean lecturing workers not to seek more pay; I think we have all become too sophisticated for that approach. What I mean by self-discipline is self-discipline by the whole community in regard to the whole conduct of our economic affairs. That includes a great deal other than pay, salaries and wages. If self-discipline does not work the situation will right itself in a way which will be particularly painful and which will involve the sacrificing of an enormous amount that we have been able to achieve so far.

An inflationary situation can be corrected in a number of different ways. Deputy Dillon spoke about South America. When I was in South America and looked around the countries there I thought that uncontrolled inflation was the greatest evil that could befall any country and I said so when I came back. The extent of the inflation we are undergoing at present is a matter for debate, a matter about which contrary opinions can be held. There is no doubt that the way in which we are going could be very serious for us unless we take a very severe look at ourselves and what we are doing and correct the situation in time by means of moderation, restraint and discipline on the part of all of us.

And swear never to buy by-elections with public money.

Or try to buy referenda.

I think Deputy Dillon made a good speech. I disagree with some of it but, by and large, I would find the trend of his remarks unexceptional, perhaps a little bit orthodox for me. I am sorry that he should at this stage introduce this low political note into what was otherwise a high-level contribution.

Cork and Kildare began it.

Question put and agreed to.

I think I could ask for all Stages now.

That seems to be agreed.