This Bill is designed to continue the existing exchange control legislation in operation for a further period of four years. The present legislation, which is contained in the Exchange Control Act, 1954, is due to expire on 31st December, 1970.
Exchange control dates from 1939, when the imposition of restrictions on the convertibility of sterling made it necessary for us, in common with the other sterling area countries, to control our payments to and receipts from non-sterling countries. The purpose of the control is to help to maintain the foreign exchange reserves of the sterling area to which we have access for our requirements of foreign currencies. The extent of the control as exercised has varied over the years—at present it is confined largely to capital transfers.
Exchange control was first operated under emergency legislation which was replaced by the 1954 Exchange Control Act. The Act was expressed to expire on 31st December, 1958. It was hoped that the need for control would have ceased by that time, but this hope was not realised. The operation of the Act was, therefore, extended in 1958 and again in 1962 and 1966.
The 1954 Act gives power to control: payments to and on behalf of persons resident outside the sterling area; dealings in gold and foreign exchange; dealings in foreign currency securities and unregistered sterling securities; dealings in sterling area securities on behalf of persons resident outside the area; the manner of payment for goods exported outside the sterling area.
The Act also empowers the Minister for Finance to specify foreign currencies which must be sold to a bank so that they may come into the common pool and be available for authorised payments.
The Act provides for the grant of exemptions by regulations from compliance with requirements of the Act and for the giving of general or limited permissions to carry out transactions. These provisions have been applied for a number of years to enable all bona fide current payments by Irish residents to be made freely. Supervision is exercised to ensure that current transactions are not used as a cover for unauthorised capital transactions.
The most important control on capital movements is that foreign currency is not normally provided at the ordinary rates of exchange for direct or portfolio investment outside the sterling area. Generally, persons wishing to make such investments may do so only by purchasing investment currency which usually stands at a substantial premium over the official exchange rates. Thus the external reserves of the sterling area are, to an extent, insulated from the effects of capital payments, which can be quite sharp on occasion. At the same time the individual is left free to invest abroad if he feels he can do so with advantage. Sales of foreign currency securities are permitted subject to compliance with certain conditions.
With effect from 1965 the day-to-day administration of exchange control has been in the hands of the Central Bank to which it has been delegated.
The only other point which may call for comment is the position of exchange control in relation to the EEC. There is nothing in the legislation to prevent our meeting the obligations of membership of the EEC. The Treaty of Rome requires member States to abolish progressively restrictions on movements of capital between themselves to the extent necessary to ensure the smooth functioning of the Common Market. Progress in this direction to date has not gone far beyond what is permitted under our current exchange control practice. The EEC have, however, liberalised certain transactions which are still subject to close control under our practice. The principal transactions which they have liberalised are direct investment in business undertakings and the purchase of publicly quoted securities.
Under our exchange control legislation as it is proposed to continue it in the Bill we will be able to give effect to the EEC liberalisation measures. As far as can be foreseen at present, the legislation should be adequate for the purpose. It may, however, emerge that changes will be necessary or desirable in the light of the terms settled for entry into the community or of developments in the community itself.
Whatever transpires, there is no immediate prospect of our being able to dispense with exchange control. We need to retain the 1954 Exchange Control Act and I am asking the House to agree to its retention for a further period of four years. I trust that the Bill will be acceptable to the House on this basis.