On behalf of the Minister for Finance I should say that this Bill is needed to extend the operation of the Exchange Control Act, 1954, for a further four years from 1 January 1983. The last extension of the Act was in 1978, at which time provision was made also for the application of controls to transactions with the United Kingdom. The Act contains the legislative framework within which exchange controls are implemented. The general approach in the legislation is to prohibit a wide range of payments and other financial transactions, but to allow discretionary power so that permissions for such transactions can be given by statutory instrument or administrative decision. In practice, general permissions have been given covering a wide range of transactions.
The permissions given apply particularly to payments relating to trade, commercial and other current transactions, which are freely authorised. These transactions are merely supervised so as to ensure that unauthorised capital transfers do not take place in the guise of current payments. Delegated authority has been given to the banks to approve most of these current transactions for their customers. Every effort is made by the Central Bank, who carry out the day-to-day administration of exchange controls on behalf of the Minister for Finance, to ensure that form-filling and other formalities are kept to the minimum consistent with effective operation of the controls.
Accordingly, our present exchange controls restrict only transfers of capital abroad by Irish residents — inward or outward movements of funds by non-residents are, of course, unrestricted. Even for residents, transfers of capital for personal purposes to other EEC countries, or for setting up a business undertaking in those countries, are liberalised fully. Personal capital movements to non-EEC countries are also allowed, within certain limits. The main restrictions are on holding funds in bank accounts abroad and on net additional purchases of foreign currency securities.
As I have indicated, the discretionary powers given in the legislation enable changes to be made from time to time, according as circumstances permit, in the detailed operation of the controls. It has been, and will continue to be, the policy of the Central Bank and the Department of Finance to keep the operation of the controls under close review. As part of this policy two important relaxations have been made since 1978 in the restrictions on investment in foreign currency securities. First, insurance companies and pension funds, in recognition of their special investment problems and needs, have been permitted each year to undertake a certain amount of net additional investment in foreign currency securities. Second, the purchase of bonds issued by institutions of the European Communities has now been allowed for institutional and individual investors.
Senators may be aware that there have been representations from the stock exchange requesting that a greater measure of freedom to invest abroad be allowed to individual investors. There has not so far been scope for a significant further relaxation in this area, but the position will be kept under review.
This brings me to the reason we need these exchange controls. The controls are required to help to maintain our official external reserves at an adequate level, in order that we will be able to meet our foreign payments. In the face of the high balance of payments deficits of recent years foreign borrowing on a large scale has been needed to support our reserves. In these circumstances it would not be possible to dispense with our exchange controls, since to allow unlimited exports of capital would only add to the pressures on the reserves.
This country is by no means alone in feeling the need for exchange controls. Most countries in the world have them. Even within the EEC the majority of our partners have controls of one type or another — some of which are, indeed, more restrictive than the controls that we operate. While a number of these countries may appear to allow greater freedom for investment in foreign stocks and shares, they require such transactions to be financed in a manner that involves a different exchange rate from current transactions: this increases the cost to the investor and thus effectively discourages the transaction.
The EEC countries that have no formal system of exchange controls — the United Kingdom, Germany and the Netherlands — are in a much stronger balance of payments position and at a much more advanced stage of development.
As indicated in the explanatory memorandum that accompanied the Bill, the 1954 Act was expressed to expire after a period of four years in the hope that exchange control would be a temporary necessity only. This has not proved to be the case and the legislation has been renewed at four-yearly intervals since then. It is now necessary that the legislation be renewed for a further four years. I recommend the Bill for the approval of the House.
