asked the Minister for Finance, in view of the recent fall in the value of the punt in relation to the pound, if any consideration is being given to altering our conditions of membership in the EMS.
Ceisteanna—Questions. Oral Answers. - Irish-English Currency.
18.
The reply to the Deputy's question is in the negative.
19.
asked the Minister for Finance whether he will have devised, for official use in the interest of accuracy and convenience, a special symbol or abbreviated designation for the Irish pound.
The Central Bank have informed me that, where it is necessary to avoid ambiguity, they have decided to prefix the letters "IR" to the "£" symbol. I agree with this arrangement and hope it will be adopted generally.
20.
asked the Minister for Finance if it is intended to raise the matter of the bandwidth within which the punt operates in future meetings with other EEC Finance Ministers with a view to its revision.
The answer to the Deputy's question is in the negative. No change is proposed in the fluctuation margin applicable to the Irish pound.
Does the Minister agree that the band chosen appears to have had repercussions not anticipated at the time in view of the long-term strengthening of the British £ and that the band chosen by us invites the rather ominous prospect later this year that the Irish punt will lose even against other currencies within the present EMS system?
No, I would not agree with either of the Deputy's suggestions. The fact is that the band chosen has no relevance whatsoever to the movement of sterling. I should point out, in case it is necessary to do so, that the Irish punt has not weakened sterling has strengthened. In relation to the EMS currencies the Irish punt has maintained its position quite satisfactorily. Of course, that is the object of the exercise of the EMS within the bands of the EMS. The movement of sterling is due to other factors, but it is in relation to all the EMS currencies, not just the Irish pound. Perhaps I should point out further that the major argument advanced for adopting the wider margins was that it would enable us to maintain the link with sterling longer than the narrower margins which we chose. But in fact the link with sterling would have broken less than a fortnight after it was broken even if we had had the wider margins. I suggest that the arguments which were gone into in this House as to why we should adopt the narrower margins still apply and the arguments put forward against that have in practice disappeared.
It is true that we have not fallen against the other currencies in the EMS. It is true, as a result of the strengthening of the pound sterling, that we have lost value against the pound sterling. Would the Minister agree that this will lead to increased inflationary pressure here as the British pound increases and ours depreciates against theirs?
I think that is dealt with in the next question.
Increasing inflationary pressures here at home, leading to a possibility of a severe balance of payments situation later this year with the result that we will fall against other currencies in the EMS basket means that, at that point we will a very serious situation indeed on our hands?
It is also an argument based on a false premise, as I would hope to show in replying to the next question.
21.
asked the Minister for Finance if the drop in value of the punt against sterling will add to our inflation during 1979 and if any estimate has been made.
22.
asked the Minister for Finance the increase in the cost of living consequent on the break with sterling.
I propose, with the permission of the Ceann Comhairle, to take Questions Nos. 21 and 22 together.
It is not possible at present to say what effect, if any, variations in the exchange rate between the Irish pound and the pound sterling will have on our rate of inflation in 1979. The impact of such variations on prices will depend on their magnitude, their duration, and the extent to which the prices of British-produced goods and services can be passed on here in the face of competition from Irish and other sources.
The external contribution to prices here reflects movements of the Irish pound against the currencies of all currencies with which we trade, not just sterling. At present the effective trade-weighted exchange rate index of the Irish pound is at about the same level as at the start of this year. Overall, therefore, the impact of recent exchange rate movements on the price level is likely to have been negligible.
Would the Minister agree that a major component of our exports to Britain and other countries is of course imports and that the fall of our currency as against theirs means that the cost of these has gone up thereby compounding and adding to inflationary pressures here at home? It is not simply enough to say that competitively we have improved our position on the British market as a result of the break with parity. Unfortunately, there is two-way traffic here and the wide divergence growing between the punt and the pound is likely to add to our difficulties.
As I pointed out, the question of competitiveness arises not only in our export market to Britain but also in our home market. In so far as British goods coming in here are dearer, they are faced with competition in many areas from Irish and indeed other imported goods. But it is very important to bear in mind what I said: that if one wants to measure the effect of the movement in currencies one gets a far more accurate assessment of the effect here, on inflation or otherwise, by having regard to the effective trade-weighted exchange rate index. As I have indicated, that is at about the same level as it was at the beginning of the year. That being so, it is clear that the impact of the exchange rate movement recently on price levels here is likely to have been negligible.
If I am correct in having heard the Minister say that it was not possible to make any estimation at present of the influence of the break in the link with sterling on inflation, would he accept that after the operation of the break for some period it will be possible to make such an estimation?
Yes, although one cannot take sterling in isolation. That is the point I have been endeavouring to make clear. One must have regard to the effect in relation to the currencies with which we trade if one wants to get the effect on our economy and that is done by the effective trade-weighted exchange rate index.
23.
asked the Minister for Finance if he is satisfied with the performance of the punt as against other currencies, including sterling, and if he has received any representations from business with British interests reporting difficulties since the punt dropped in value from sterling.
The performance of the Irish pound is satisfactory and is consistent with our membership of the EMS. I am not clear as to precisely what business interests the Deputy has in mind in the second part of his question but I have not received any general representations about difficulties arising from the appreciation of sterling. My Department have received a few inquiries about specific exchange risk matters.
Is there any work being undertaken in the Minister's Department to consider the implications of the following scenario: the British pound increasing as against ours; balance of payments difficulties arising here later this year, meaning a general fall of the Irish punt against the other currencies in the EMS and necessitating urgent review with other Finance Ministers of our whole relationship with the EMS and whether we will be able to continue within the EMS? Does the Minister forsee that possibility at this time of the year?
I must confess I am somewhat mystified as to why Deputy O'Leary persists in painting this doom and gloom scenario for which there is no visible evidence at present, or even of a situation that would lead to that. As I have indicated, our currency is performing well and as expected within the EMS arrangement. I have no reason whatever to believe, or any evidence available at present, that the kind of scenario envisaged by Deputy O'Leary is likely to emerge at all.
The Minister has in fact received merely inquiries from Irish industry, that is all?
Yes. It is, I suppose, to be expected that, having broken the link with sterling which had lasted for 150 years, there would be certain teething troubles. But I am not aware from the representations to which I have referred of any basis for anything other than what one might describe as teething troubles. As I have said, the inquiries were about specific exchange risk matters. But there has been nothing of the kind the Deputy envisaged in his question.
And from what the Minister sees of inflationary pressures here at home—which are now generally recognised to be coming out at an annual rate of 12 per cent, way above the inflation rate of any other people in the EMS—he does not see us in any difficulties later this year leading to a serious balance of payments situation?
I am sorry to disappoint the Deputy but the fact is that the relatively——
How does the Minister equate our prospective inflation rate with complacency about the Irish pound in the EMS?
I was about to say that the position in relation to our inflation rate is that there has been an increase recently, due largely to budgetary measures which are one-off. The underlying trend in inflation is not upwards.
On an annual basis it is coming out at 12 per cent.
That is picking out a particular quarter to which I am referring. I am saying that the underlying trend is not upwards. Leaving aside for a moment the question of the impact of oil prices, the indications are that the trend, as we progress in the year, will be downwards. As far as oil prices are concerned, it is not possible to quantify the effects precisely, but one thing one can be reasonably sure of is that whatever effects are likely to occur are also likely to occur to our competitors. Therefore, in the context in which the Deputy is speaking, our relative position will not deteriorate.
Is the Minister aware of the claim of his colleague, the Minister for Industry, Commerce and Energy, in this House—with which I agree—that no other EEC member state has such unique dependence on energy; and that his colleague has already predicted a further increase in oil and petrol products with inflationary results for industry later this year and possibly a third increase later on? On what planet is the Minister presently residing if he does not believe that the possibility of a 12 per cent inflation rate is with us this year bringing with it a revision of our currency as against other EMS currencies?
Firstly, there is no contradiction whatever between what I said and what the Minister for Industry, Commerce and Energy said, and, secondly, I must say again that—I regret it—I must disappoint Deputy O'Leary. The doom and gloom scenario he is envisaging later this year of a balance of payments crisis and devaluation of the Irish currency does not appear to be on. There is no evidence for it at all. It may be disappointing for Deputy O'Leary but that is the fact.
24.
asked the Minister for Finance if his attention has been drawn to British Banks offering to purchase Irish pounds at rates of 8.75p below the market rate; if he will state the average handling and commission charges of cash exchanges of European currencies; and if steps will be taken in conjunction with the Central Bank and the EEC Council of Finance Ministers to bring the British rates into line with acceptable international practice.
The Central Bank, at my request, have looked into the Deputy's complaint and have informed me that they are not aware that British banks are in general quoting exchange rates for the Irish pound below market rates.
Detailed information is not available on the average handling and commission charges of cash exchanges of European currencies. I am advised by the Central Bank that exchange rates quoted by the London clearing banks include foreign exchange commissions but some banks may make a separate handling charge in respect of the work involved in the repatriation of foreign notes.
As the information available to me does not suggest that British banks are in general offering below market rates for the Irish pound, I do not propose to take action as suggested by the Deputy. I have, however, asked the Central Bank to investigate a small number of cases which have come to my notice where persons travelling abroad have experienced difficulties in exchanging notes and cashing cheques.
25.
asked the Minister for Finance the procedure which was adopted in the recall of British pound notes in the wake of the break with sterling.
There has been no change in the procedure for the recall of sterling notes. The longstanding arrangements, whereby such notes are withdrawn from circulation by the banks and repatriated by the Central Bank to the Bank of England, continue to operate.
Is there any current estimate of the amount of British notes still circulating within the country, compared with a year ago?
No, I cannot give the Deputy that kind of comparison. The only information in that regard I can give him is that in 1977, which is the latest published figure, the Central Bank arranged for the repatriation of some £80 million of sterling notes. There has in recent years been a decrease in the number of such notes being received by the banks. I cannot give the Deputy the comparative figure for this year with last year.
26.
asked the Minister for Finance if he is satisfied that no problems have been created in trade and other relations with Britain consequent on the break with sterling and if he will make a statement on the matter.
I am satisfied that no significant problems have been created in trade and other relations with Britain as a result of the fluctuation in the rate of exchange between the Irish pound and the pound sterling. The new exchange rate arrangements have, of course, involved a major change in the longstanding currency relationship that existed between the two countries and it was only to be expected that they would involve transitional adjustments for business and other sections of the community. However, in general, firms and individuals seem to be adjusting to the new situation.
27.
asked the Minister for Finance if he is aware that bank charges on Irish-English currency exchange transactions is 3 per cent and if he is satisfied that this rate is justified.
I am not so aware. I understand that since 2 April 1979 the Associated Banks, with the agreement of the Central Bank, have applied to Irish pound-sterling transactions the charges normally applicable to foreign exchange business. This arrangement will be reviewed after three months in the light of operating experience.