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Seanad Éireann debate -
Friday, 18 Dec 1970

Vol. 69 No. 4

Exchange Control (Continuance) Bill, 1970: Second Stage.

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

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.

On behalf of the Fine Gael Party I welcome this Continuance Bill. It is gratifying to me to be given an opportunity of saying in public what I have often said in private, that really the Central Bank, which administers this code, is the most efficient and satisfactory body that I personally have had to deal with over the years. They show extraordinary comprehension of the problems that people are faced with in this field and the rapidity with which they reach their decisions, the way they communicate them to you and the way they really go to great trouble to get them to you in a form which is suitable for your purpose is remarkable for a public department generally and I am very happy to be able to pay that tribute.

Having said that, I have one or two points to make. The Minister says the extension of the control as exercised has varied over the years and at present it is confined to trying largely to capture the transfers. I thought the decision was that by virtue of international agreements it is entirely confined to capital transfers and that we would, in fact, be in breach of our international obligations if we tried to prevent current transfers; to control current transfers to ensure that they are not capital transfers is a different matter. But there was, in fact, an obligation on the State to make currency freely available to anyone who wanted it for current purposes and the thought of controls on what one may claim—whatever it is, £250, normal holiday allowance, £400 for business purposes—is really a form which is used so that they know what sort of moneys are going out to particular persons or for particular persons but that, in fact, if you pressed your claims, the Central Bank would not be entitled without being in breach of agreement on international obligations, to prevent your getting thousands a year if you wanted to get them.

With regard to exchange control, I do not know whether there are figures published anywhere—certainly I do not know where I would find them—which would tell us what our input and output to the sterling area is. I got the impression—it is only an impression and not in any way an informed view— that our contributions to the sterling area, particularly from tourist receipts, had developed over the years to the point where we were quite strong vis-á-vis the Bank of England, that we were not dependent on the sterling area, taking one year with another, and that we were able to look after our own requirements in foreign currency. I do not know whether there is anything contrary to the public interest in requesting an answer to that. I am very interested in it because I am informed, and I believe that the information is correct, that certain parts of the sterling area earn so many dollars, foreign currency, that the controllers in these areas—I am thinking in particular of the Bahamas—exercise an increasing degree of freedom of the Bank of England. This is an attractive feature when one is considering whether he will establish a company there rather than somewhere else. In fact, one will be given more liberty with regard to one's foreign currency operations if one goes to the Bahamas than one would normally get if one came to Dublin.

We have a good tradition of behaving ourselves, of keeping our word and honouring our obligations, and I think that that is right, but I should like to know what degree of freedom we have here in relation to the Bank of England, whether we could say to them: "I would not do anything dishonourable," or we could say to them: "We propose to do this or that," or whether the position is that we are simply in the club and the rules bind all the members of the club irrespective of their riches.

The other question in regard to which I should like to have information, without pushing the matter too far because, for obvious reasons, it should not be pushed too far, is whether the actual code, as it exists and will be continued, would enable us to effect control over transfers within the sterling area; in other words, whether our controls are strictly limited to controls of capital transfers outside the sterling area or whether the controls could be used to defend the position of the Irish £, if required.

I, like all Members of the House, approve of the provisions in relation to exchange control measures. It is absolutely essential. I put the same question as Senator Alexis FitzGerald: I should like to know where can one get information as to exactly what is happening in relation to the movement of currency. I am also curious to know how we are affected by this rather mysterious currency that is floating around Europe, the reported $100 million of free US currency. Is there any information available as to how this sort of money is affecting us?

First of all, I should like on behalf of the Central Bank and its staff, to express a sincere thank you to Senator Alexis FitzGerald for the very kind and, I believe, well-deserved remarks, he made. I will see that they are brought to the notice of the people about whom he spoke. I have had a little experience in that area in my professional capacity and, in that small experience I have had, I formed the same impression as Senator Alexis FitzGerald has formed, and he has a good deal more experience of the operation than I have. It is heartening, I think, to find a public organisation in the position in which these kinds of commendations can be given fully and sincerely.

With regard to the next point which Senator Alexis FitzGerald raised, he was correct in saying that the control is exercised to ensure that capital transactions are not slipping through in the guise of current transactions. I would draw attention to what I said in my opening statement:

These provisions have been applied for a number of years to enable all bona fide current payments by Irish residents to be made freely.

So supervision was exercised to ensure that current transactions are not used as a cover for unauthorised capital transactions. That is the correct position as stated by Senator Alexis FitzGerald.

Our drawing rights from the London sterling pool have varied from time to time. Sometimes we have contributed to the pool. At present we have a deficit but we have a capital inflow which counter-balances that largely from the sterling area but not entirely. Excluding public borrowing the total of that in 1969 was about £45 million. I am afraid I cannot speak off hand of this $100 million referred to by Senator Brugha. It is not affecting us directly. This is a currency which is available to anybody who is prepared to pay for it. Putting it in very nontechnical language, I think this would be reasonably accurate, but I am not sure if I understand Senator Brugha's query: is he asking if the existence of this affects our balance of payments?

What is really in my mind is whether this could suddenly be shot in to take over different things in regard to our economy. It is independent of the EEC. It is a kind of floating currency.

In effect, it is just another currency. I get Senator Brugha's point that it is really outside control but, nevertheless, it is an available currency for which people have to pay. I could not see any specific danger arising from it on the basis that the Senator has in mind. In effect, the position is that any movement of currency or capital in such a way as to threaten seriously either the currency or the overall domestic economic situation of any country can be resisted by any country and any country is entitled to take, within reason, almost any measure to combat it. We have seen this happen in other countries which were party to agreements to which we are parties. We have seen them take this action in order to protect either their currencies or to protect their own domestic economy. Such steps as were open to them are open to us but there is no reason, that I am aware of, to anticipate any such danger from Eurodollars. Neither do I think Senator Brugha was suggesting this. He was merely inquiring——

I was merely inquiring if there had been any changes.

The Eurodollar, as I said, is really just another form of currency. Like the Deutschemark and the Swiss franc, et cetera. It is not a particularly hot money. In fact, it does not affect us at all except that we have ourselves been able to borrow in the form of Euro dollars and therefore we have availed of it to some extent but it has certainly not affected us in any other way.

Is there not complete protection there anyhow, no matter what the source of the fund if it comes from outside the sterling area? The Central Bank has to consent to the transfer of shares to anyone resident outside the sterling area. Is not that protection there all the time whether Eurodollars or any other kind of foreign currency is used?

This is a case where there are takeovers.

Yes. That was the situation the Minister had in mind in particular, was it not?

It might not be shares.

Certainly, in the case of shares, Senator Alexis FitzGerald is correct that it would need the approval of the Central Bank.

Would it be better to conduct this conversation on the Committee Stage? We are now on Second Stage.

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