asked the Minister for Finance the measures, if any, the Government intends to take to curb or prevent currency speculation.
Ceisteanna — Questions. Oral Answers. - Currency Speculation.
6.
In addition to the existing exchange controls, certain measures were announced by the Central Bank on 4 February last with a view to easing the speculative pressure on the Irish pound by increasing the cost of foreign exchange speculation and reducing the scope for the forward sale of Irish pounds. These measures were firstly, the suspension of the arrangements, introduced in May 1985, governing associated bank interest rates, and the subsequent rise of 3 percentage points in the associated bank rates applicable to short term borrowing (overdrafts and term loans of up to one year) for AA and AAA borrowers and to deposits in excess of £25,000 and, secondly, the introduction of rules which further limit the scope for banks to provide forward import cover.
These measures appear to have achieved the desired effect and there has been a considerable reduction in the demand for foreign currency since they were introduced.
The ongoing situation is kept under close scrutiny and if further measures are deemed necessary at some future stage they will be announced.
Will the Minister say that he considers this kind of currency speculation unacceptable and of no benefit either to the man in the street or the business community? Does the Minister consider that there are any legal steps he can take to prevent this?
It is certainly undesirable that that sort of thing should go on. The measures I have just mentioned have had quite a significant effect in reducing this type of activity in recent weeks. The situation is being kept under close scrutiny and if further measures are deemed necessary they will be announced.
The recent spate of speculation is not the only one we have had in recent years. It is clear that there are members of the community with access to large amounts of money who are quite happy to disrupt the economy totally by forcing increases in interest rates as a result of their speculation. Does the Minister not consider that it is time to take legislative steps to prevent this type of activity?
One can only speculate if one has money. One of the measures announced is the introduction of rules which further limit the scope of banks to provide forward import cover. That was one of the means used for speculation. That has been significantly tightened up by measures introduced by the Central Bank to narrow the base on which banks can provide this cover. While a certain amount of forward input cover is necessary for normal trade, the measures taken have been effective. The most important limitation is the existence of exchange control. People just cannot take money out of this country and put it somewhere else, or vice versa. In fact, most of what is described as speculation refers to people who are paying for goods moving the date of payment either forward or backward depending on which direction they are paying and their view of movement in the currencies. The speculation that exists is essentially a secondary activity to the primary activity of trade. It is not as if there are people whose occupation is speculation. The measures taken to deal with speculation are having a significant improvement. The situation is being kept under close scrutiny and if further measures are deemed necessary they will be introduced.
Would the Minister not acknowledge that one of the reasons for a certain amount of currency speculation is that people in enterprise found it necessary to protect themselves against the huge hike in interest rates here which is a direct consequence of public policies in soaking up all the available market funds on the domestic market last year? Does the Minister not accept that the fact that we have a real interest rate now of 13 per cent, 4 per cent inflation, and a 17½ per cent AA rate is a direct consequence of direct Government actions over the last 12 months? Can the Minister assure us that we will not see——
That seems to be a separate question.
No, it is not. It is related to the whole currency speculation situation.
It is a very distant relative.
Can the Minister assure us that we will not see the same Government intervention on the market this year to force interest rates here away out of line with those elsewhere thereby giving rise to the problem to which this question addresses itself?
I have to agree with the Ceann Comhairle that that is an entirely separate question. As the Ceann Comhairle has ruled on a number of occasions, interest rate policy is a matter for the Central Bank and is not something for which the Minister for Finance is answerable.
Ceist 7. We must make some progress.
I think the Taoiseach is on record in this House in the Adjournment Debate in December as saying — I shall give the reference in a few moments —"We kept interest rates down". I am only going on what the Taoiseach said and it is on record.
I am going on the precedent.