Bretton Woods Agreements (Amendment) Bill, 1968: Second Stage.

Question proposed: "That the Bill be now read a Second Time".

The Bill approves the Government's acceptance of the amendment to the Articles of Agreement of the International Monetary Fund which is set out in the Schedule and authorises participation in due course in the special drawing rights scheme. It also transfers certain functions and assets relating to the International Monetary Fund from the Minister for Finance to the Central Bank of Ireland.

The special drawing rights scheme is designed to supplement international reserves. There have been growing fears that the usual sources of international reserves are not adequate to meet the requirements of expanding world trade and payments. Existing means of increasing international liquidity are limited and haphazard. Gold, which holds the key position because of its general acceptability, cannot be depended upon as a source of new liquidity. In 1966 and 1967 demand for industrial use and for hoarding absorbed all newly mined gold and none went into international reserves. World gold reserves increased slightly last year but, for the present at least, no substantial overall addition to the amount of gold available to finance trade can be expected.

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 Senators know, both these countries are taking determined measures to reduce their deficits. It is strange but true that the achievement of a sound balance of payments position by the United States and Britain could lead to a crisis in international trade and finance through its effect in reducing the volume of international reserves.

The International Monetary Fund has for a number of years past been carrying out an intensive examination of the international monetary mechanism to find an acceptable way of creating additional reserve units. The special drawing rights scheme is the result. The detailed scheme has been prepared in the form of an amendment to the Fund's Articles of Agreement, which is now open for acceptance by member countries.

Under the new scheme, each country wishing to participate will be allocated special drawing rights by the Fund in proportion to its present quota irrespective of its external payments position. These drawing rights will be additional to the Fund's existing arrangements for assisting member countries. The underlying concept is also 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. 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, which represents the portion of the subscription paid in gold, can be drawn automatically. The Fund, however, exercises closer supervision over all further drawings. It must be satisfied that the member country is taking effective measures to correct the balance of payments deficit.

Special drawing rights will not replace any portion of these existing rights. They will be created without any prior deposit of gold or currency by participating countries and will be used, not by making an actual drawing on the Fund, but by direct transfer between the participating 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 it will also be possible to arrange the transactions directly between two countries. The borrowing country will use the foreign currency obtained towards financing 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. They will have a fixed value in terms of gold and countries participating in the scheme will accept them on the understanding that they are exchangeable for their own currency on this basis. In practice, the rights will represent a supplement to the world's gold stocks available for monetary purposes.

It has been suggested unofficially 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 a relatively small increase in liquidity compared with total world reserves of around $73,000 million. On this basis we would become entitled to receive drawing rights amounting to rather less than £17 million, or under £3½ million a year, over the first five years. Our liability to provide convertible currency in the same period in exchange for drawing rights of other countries would be limited to $80 million or £33 million—that is twice the allocation of drawing rights to us.

It will not be clear until the scheme has been in operation for some time to what extent we might be asked to provide convertible currency in exchange for other countries' drawing rights, but it is not expected that we would have any difficulty in meeting any requests made to us. The Fund in designating countries to provide currency will take into account the strength of their balance of payments and reserve positions. The aim will be to achieve a balanced distribution of drawing rights among participants. We would have the same entitlement as other countries to use our own special drawing rights to obtain convertible currency in case of need.

In my capacity as Governor of the Fund for Ireland, I have given my support to the special drawing rights scheme. 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. We are dependent to an exceptionally large extent on external trade for our prosperity and can only lose from a contraction in the rate of growth of world trade. The tendency of the international monetary system to drift into a situation of recurrent crisis must, therefore, be a particular source of concern to us. It follows that the efforts of the International Monetary Fund to provide for the deliberate, planned creation of reserves are welcome. The Fund's approach has been cautious but, nevertheless, it is a beginning and is worthy of our support.

The proposed facilities will not relieve this or any other country from the necessity of containing inflation. On the basis which has been suggested for the scheme, participating countries would receive only a modest addition to their reserves. In our case, as I have already mentioned, we would become entitled to drawing rights amounting to less than £3½ million a year over the first five years. This would be quite small compared with our existing reserves of £283 million.

In addition to providing for the introduction of the special drawing rights scheme the amendment to the Fund's Articles of Agreement as set out in the Schedule to the Bill proposes certain other changes in the Fund's rules and practices. These are largely procedural, relating for example, to voting arrangements and the interpretation of the rules.

The Bill provides that special drawing rights allocated to Ireland will be held by the Central Bank of Ireland and that the bank will be responsible for all transactions and operations relating to drawing rights. Since drawing rights will have the characteristics of reserve assets, it is appropriate that they should be held by the Central Bank.

It is also proposed in the Bill to take power to transfer to the Central Bank certain functions under the 1957 Bretton Woods Agreements Act which are now 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. Transactions of this kind arise in connection with the payment of subscription moneys, the purchase of other currencies from the Fund in exchange for Irish currency and repurchases of Irish currency. It would be more appropriate for the Central Bank to carry out these transactions than the Exchequer. This is the position in various other countries. The change will also simplify administration to some extent. Under the present arrangements all payments to the International Monetary Fund 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.

The Bill further provides for the vesting in the Central Bank of the assets represented by our gold subscription to the Fund and foreign currency made available to other countries under our obligations to the Fund. These assets will be credited by the Bank against an equal amount of Exchequer indebtedness to the bank for advances made for payments to the Fund.

The effect of these arrangements will be that the Central Bank will hold more of the country's external reserves. In the context of the sterling holdings of the commercial banks, I may recall that as a result of the agreement with Britain on the application of the Basle arrangements to our sterling holdings a substantial amount of the Associated Banks' sterling assets—£40 million in all—was deposited with the Central Bank in November last. The Central Bank's custody of our external reserves is, therefore, becoming much more complete than it was in the past.

It is provided in the Bill 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 will ensure that the transfer will take place at a mutually convenient time.

I commend the Bill to the House.

This is a useful Bill and a useful contribution to the world of banking but though it is useful it is somewhat, and I know the Minister agrees with this, inadequate to the needs of the present situation. Every few months we find some kind of disturbance in the world exchange market. Indeed, today as a result of the French situation we have had both the franc and the pound under pressure again and this constant speculative pressure creates an atmosphere of lack of confidence in world currencies and clearly there is an underlying weakness here which needs to be tackled.

This Bill is part of an international attempt to tackle it. It is, as I say, a very inadequate attempt but it is useful as far as it goes. It will give a little more leeway. It will, perhaps, reduce marginally the speculative pressure at certain periods but it does not go really to the root of the problem. However, the Minister again shares my view on that so there is no need at present to press it further. I should only like to say that the Irish policy in this matter seems, in so far as we have been able to extract it from the limited amount of information given to us, to be sound and constructive but I think I said before to the Minister that the more publicity that can be given to our views the better because I do not think they are widely understood in this country today.

The former secretary of the Minister's Department, who is now Governor of the Central Bank, Dr. Whitaker, gave an excellent address in Trinity College some years ago at which I think many people were present. Those who had the opportunity of reading it found it enlightening as regards the Irish attitude and where Ireland stood as between conflicting schools of thought in this province. I think this is useful in informing public opinion and encouraging public debate. I hope the Minister will take the opportunity from time to time to raise and discuss those matters although I know he may be a little discouraged by the fact that when he did so not so very long ago at a function which one would have thought would be appropriate, a banking function, there was a good deal of criticism of him for talking gobbledegook. It may well be that the Minister could have tried to translate it.

What was said?

The Minister attempted to discuss in serious terms some of those problems some time ago at a banking function of some kind and there was some press criticism of him on the grounds that he was talking about something which people did not understand.

SomeIrish Times leader writer did not understand what the whole thing was about and blamed me because he did not.

I had a feeling that was what happened but it seemed to me that it was an unfortunate Press comment because while no doubt all of us can be criticised for not talking in clearer and plainer terms when we are talking of technical matters of this kind, I think the fact that the Minister did attempt to discuss those serious matters in what seemed to me an appropriate environment deserved better reception than it received on that occasion from the Press.

As far as I can understand the leader suggested I did not understand what I was talking about.

I shall not make any comment on that part of it though, certainly, the Minister is better equipped to know what he is talking about than other Ministers for Finance I could name. I should like to take this opportunity, however, to raise a couple of other matters which are related to this whole question, particularly in relation to the loan to the Central Bank which is being altered to some degree, usefully, by this Bill. Do I understand from the provisions of this Bill that the necessity for the carrying of contra items introduced into the Capital Budget for the year just ended will no longer exist because we have this peculiar situation of the whole Capital Budget being inflated by adding in something between £13 million and £16 million to both sides because of transactions fundamentally between the Central Bank and the International Monetary Fund which, because of the absence of this Bill, had to pass through the Government?

This does not make it any easier for the general public to understand the Capital Budget and if, as I believe the case to be, this Bill removes the necessity for those contra items, I think it is welcome from that point of view alone quite apart from the fact that it is a further recognition of the role of the Central Bank, a further normalisation of the role of the Central Bank and a further building-up of the role of the Central Bank, all of which are desirable. I, myself, have difficulty in understanding those contra items because unlike most contra items they were not the same on the two sides of the account. The explanation given in the text of the Capital Budget was incomplete.

Since the Senator's elevation to the Seanad he has no longer the facility of attending my Press conferences.

I have the facility and, indeed, would be entitled to do so, but I feel it would be indelicate and so I have cordially refrained. It is a great penance to me in view of the fact that in the Seanad we are precluded from asking questions of Ministers directly and I should have an opportunity of doing so at the Press conference. I thought it would be inappropriate for me to mix my two roles in that way. If the Minister is implying that the question was asked at the Press conference and it was recorded, then I must have missed it because I am still at a loss to understand why on the one side of the account there is £13 million—I speak from memory because I have not got the figures with me as I left them at home during the interval—and on the other side there is £16 million. As they are specified to be payments to the International Monetary Fund and the world bank on one side and borrowing from the Central Bank for this purpose on the other side, I am sure there is some simple explanation but it was not given.

Indeed, as I am referring to that, I should like to make a point which may, perhaps, be regarded as petty, which is hardly the word to use, but as one involving too much detail. The Government have for some years past published the Capital Budget document, which is extremely useful and a great advance on the little information given previously. It not only sets out more clearly than was done previously the Capital Budget and the capital programme for the year just ended and the projections for the year ahead but it also includes a fairly extensive text designed to explain those items. All of this is welcome but the text is really, in a sense a list of items—there is explanatory matter as well—an incomplete list. I do not suppose the Minister has ever had, because he has access to the files, to try to extract from this text the complete picture of what the Capital Budget is for.

I had to do this quite recently and I must say I had the greatest difficulty in trying to get the complete picture because naturally enough in this text the major items are highlighted and the smaller things are left on one side. Items mentioned one year may, perhaps, not be mentioned the next year because they are of lesser importance. If you are trying to get a complete picture, as in a table setting out details of the Capital Budget, it is hard to get it and I should like to ask the Minister if he could supplement this text with a breakdown of the items in the Capital Budget so that one will not have to build up such a table piecemeal from the text. A text not accompanied by a table relating to the items in it is not a satisfactory way of listing items, and, after all——

The items are clarified under different headings.

I know that in the tables there are different classifications but then, for example, in agriculture, you get so many millions every year in the text, and so much has been for bovine tuberculosis eradication and other items, and by examining the text you can build up a table, but it is a picture which is incomplete and unsatisfactory because items may not list——

The Senator will appreciate that this is not relevant on the Bill.

I have, perhaps, been carried away——

Of course, what was a relevant contribution originally in connection with payments to the IMF becomes irrelevant. I have made the point sufficiently clear and the Minister will, perhaps, consider it.

On the question of our reserves generally, to which, of course, our IMF quota provides a contribution, it is a good thing that the details are now published in the Central Bank Bulletin as they had not been done up to recently. It is a pity we had not this information sooner but I appreciate that the Minister was in a difficult position about our purchases of gold during the past year because this might have had some repercussions on sterling before the stand-by loan was negotiated. I wonder, however, whether the table is correctly titled "External Monetary Reserves". Previously, the items in this table, the details of which were published without including our IMF position or the gold item, were headed "External Assets" and this was accepted by most people as a more accurate description.

If you include, as reserves, the external assets of the banking system here, you are inaccurate because they are not reserves. They include, for instance, bank premises in Northern Ireland and they can hardly be described as liquid assets. Therefore, the heading of that item is a bit inappropriate. Is it possible for us to make any assessment of what are our reserves as happens in other countries? What are our free reserves?

The Minister recently remarked that our reserves were at a record level a short time ago. While this may be an exaggerated statement if one goes back a long time, there is truth in the statement made then that the figure of £290 million-odd was higher than for many years past, but this figure is not really our reserves. This becomes clear when we face our balance of payments situation. If we had reserves of £290 million, including our IMF contribution, I do not think we would be ever worried about a deficit even as high as £50 million in a particular year in view of the fact that our capital inflow would counteract it.

Though it may look well to make a figure appear as big as possible, the figure given did not include the items that really matter and it would have been much better to have given an accurate figure of what are our reserves. We know they represent a substantial proportion of the £290 million but that sum includes bank premises in Northern Ireland and external assets of the Northern Ireland banking system, which we can hardly claim as ours. In so far as what is left is concerned, we really have not a clear picture of what our reserves are and I should like some more information about it from the Minister.

On another aspect of the whole problem, the Minister some time ago, shortly after the devaluation announcement, I think, announced legislation which would remove the requirement to introduce legislation in order to change the parity of our pound with sterling. What has happened to that promised legislation? Has the Minister decided to wait until the new Central Bank Bill, announced three years ago, is produced or will it be allowed to drag on year after year?

It will be in the Central Bank Bill.

In view of the fact that this requirement must be some inhibition to a Government faced with the situation we had 18 months ago, I wonder why this was not introduced long ago, say, at the time the Minister said it. Since the provision will be covered in the Central Bank Bill, I am satisfied. I hope it will not be left too many years in gestation.

I am glad to hear it. It may be done, as usual, before the election—a typical Fianna Fáil trick.

You cannot have it both ways.

I welcome the announcement of that legislation and I hope it will go a long way to remove many of the anomalies in our banking system. I do not wish to go into it in this debate. I think I have said enough on this Bill at this stage. On Committee Stage there may be one or two points I should like to deal with.

Senator FitzGerald is right in his assumption that from now on these transactions should disappear from the Capital Budget. What happens now is that the Minister for Finance deals with the IMF. He borrows the money from the Central Bank to pay into the Fund, if he has to make payments, and gives the Central Bank a certificate of indebtedness in return. From now on that will be changed and the Central Bank, as the custodian of our official reserves, to an increasing extent will deal directly with the IMF in this matter.

I am sorry I have not got the full details of the item in the Capital Budget but I have some of them. During the year we acquired a creditor position with the Fund as part of our policy of diversifying our reserves. We made available Irish currency to the Fund and we acquired a creditor position, above our gold tranche, of £13¾ million. We paid Irish pounds to the Fund in a transaction with Ceylon in April, 1968. The Senator will recall the Fund had a major operation with France in June, 1968 in which we participated. In October, 1968, we assisted with Ceylon again and in January, 1969, we made available Irish currency to Bolivia—£2.08 million. That would total £13¾ million. That is around the figure of £14 million in the Capital Budget. I have not full details of the transaction but I can forward them to Senator FitzGerald.

The Minister will appreciate my puzzlement on the fact that the other side of the account was different.

Our position was not static during the year.

It appeared from the figures we were borrowing from the Central Bank £16 million and returning only £13 million. I am not saying the Minister pocketed the £3 million but there was a disparity.

I will let the Senator have full details. I do not think I have anything further to add except to say that this is a step in the right direction. It is a big and useful step. We are anxious to support the Fund in what it is trying to do. We are giving all the support we can as a member and this Bill, as it were, is to back up our support for these new drawing rights. The principal reason for this Bill is to enable us to participate in this new scheme of drawing rights which we hope will come to a successful conclusion soon. It has been a long-drawn-out process. It is like a mountain being in labour and producing, if not a mouse, certainly not an elephant. That is all I have to say.

Question put and agreed to.
Agreed to take remaining stages today.