Vol. 434 No. 4
23 Mr. Yates asked the Minister for Finance if he will give the Government's exchange rate policy arising out of the widening of the ERM bands; whether the Government intends to track any other particular currency or basket of currencies; and if he will make a statement on the matter.
31 Proinsias De Rossa asked the Minister for Finance the Government's policy in regard to the Maastricht proposal to move to a single EC currency by 1999, in view of the decisions of EC Finance Ministers in August 1993, to effectively abandon the exchange rate mechanism and allow most currencies to float; and if he will make a statement on the matter.
47 Mr. Broughan asked the Minister for Finance if he will give the factors, other than price stability, that are taken into account in determining Government policy on the exchange rate; the extent to which the unemployment rate is a significant influence on exchange rate determination; and if he will make a statement on the matter.
68 Mr. Cox asked the Minister for Finance if, in view of the dramatic changes in the operation of the European Monetary System announced in August 1993, he will give the implications for the conduct of Irish exchanges rate policy; and present Government policy in this matter.
I propose to take Questions Nos. 23, 31, 47 and 68 together.
On 2 August, EC Finance Ministers decided to widen to 15 per cent both the 2.25 per cent narrow band and the 6 per cent wide band of the Exchange Rate Mechanism of the European Monetary System. They did not abandon the ERM, which remains in place.
Ireland's exchange rate policy is based on membership of the ERM and that will continue to be the position. Within that framework, the aim of our exchange rate policy continues to be price stability, that is the maintenance of low inflation in the economy. This has been the objective of our exchange rate policy over many years and has been greatly helped by our membership of the ERM.
Policy is not designed to target a specific rate against any particular currency or basket of currencies. However, in pursuing price stability, our aim is that the Irish pound will trade against the Deutsche Mark and Dutch Guilder at least as well as the rest of the former ERM narrow band currencies. I would add that the other former ERM narrow band countries have also indicated that they will continue to work for exchange rate stability within the ERM.
The best way to underpin the value of our exchange rate is of course to ensure that our economy is well managed. Sound fiscal and economic policies have been the hallmark of our management of the Irish economy over recent years and they will continue to be so. In this context the Government will of course be anxious to do its best to increase employment and to contain unemployment and reduce it as far as possible.
The Government remains committed to the ideal of Economic and Monetary Union, including a single currency. Ireland's objective is to be part of European Monetary Union as soon as it begins and our policies are, and will continue to be, geared to the achievement of that objective.
Now that the Minister and the Central Bank for the first time ever have responsibility for the management of a floating currency, will the Minister say whether we are tracking the Deutsche Mark, Sterling or some basket of currencies? Will he clarify the uncertainty that exists at present in relation to exchange rate policy by telling us exactly what future policy will be prior to our becoming part of the European Monetary Union?
There is no confusion here or elsewhere in respect of this matter. As I stated in my reply, we will trade against the Deutsche Mark and the Dutch Guilder at the same level as other narrow band countries. Since the beginning of August we have continued to watch and move in conjunction with the former narrow band countries and we will continue to do so. For a number of years our policy has been based on price stability and the maintenance of low inflation and we will continue to underpin that by adopting sound fiscal policies. That policy is understood clearly by the markets and it is the policy which has been followed by the former ERM narrow band countries.
I take it the Minister is saying that, in effect, we are tracking the Deutsche Mark and the Dutch Guilder. What would happen if there was a divergence between those currencies and Sterling, for example, if Sterling was to depreciate substantially, as was the case in 1986 and last year when the Minister vainly tried to hold the line? Are we waiting for a further crisis to occur?
I am sure the Deputy is not suggesting that we should link our currency to Sterling. I acknowledged publicly on many occasions that Sterling movements are important to us and will influence our position at any time in the new system, as was the case in the old system. However, I do not envisage any fluctuations that will create major problems. At present the Irish pound is worth 95p against Sterling. It has ranged from 92p to £1.04 during the past year and I do not believe there will be any major change in that position.
We know what happened when it reached £1.04.
It would be unhelpful of the Deputy to suggest we are linked to Sterling, but I do not believe he is suggesting that.
I want to know what policy is being adopted.
The policy we are adopting is clear. We will pursue price stability and low inflation. We note the position of both the Deutsche Mark and the Dutch Guilder and have done so since I August. We have had remarkable stability with no increases in interest rates such as those in other ERM narrow band countries. We continue to have record levels of reserves and have held a position of just under 7 per cent for the past ten weeks.
Mr. Broughan rose.
I am sorry I cannot facilitate Deputy Broughan. Only Members who have tabled questions may ask supplementaries.
