The purpose of this Bill is to continue the Exchange Control Act, 1954, for a further period of four years, that is, to 31st December, 1966.
Up to September, 1939, sterling could be used freely for the purpose of making payments in any part of the world and the surplus we earned on sterling enabled us to meet our liabilities to other currency areas. When, however, sterling ceased in September, 1939, to be freely convertible into other currencies, it became necessary for us to introduce a system of exchange control for the purpose of supervising payments to and receipts from non-sterling countries.
Control was first operated under emergency legislation which continued to function on a temporary basis up to 1954 when the Exchange Control Act, 1954, was enacted. This Act incorporated in permanent legislation the exchange restrictions which it was found necessary to retain. The life of the Act, which was originally expressed to expire on 31st December, 1958, was extended to 31st December, 1962 by the Exchange Control (Continuance) Act, 1958. It was hoped that by 31st December, 1962, the need for Exchange Control would have disappeared. This hope has not been realised and, accordingly, it is necessary to continue the Act for a further period of four years.
In general the Act provides for the control of—
(a) payments to and payments on behalf of persons resident outside the sterling area;
(b) dealings in gold and foreign exchange;
(c) dealings in and the export and import of foreign currency securities and unregistered securities;
(d) dealings in sterling area securities on behalf of persons resident outside the area; and
(e) the export and import of currency notes.
The Act provides that goods may not be exported to a country outside the sterling area unless they are already paid for or are to be paid for within six months and in a manner appropriate to the country of import. The Act also empowers the Minister to specify foreign currencies which must be offered for sale to a bank. Since securities could be used as cover for unauthorised payments and movements of capital, special provision exists for their supervision. The Act provides, inter alia, for the compulsory deposit of foreign currency securities and unregistered sterling securities. These powers have not been used since 1954, but it is nevertheless desirable that they should be retained lest the need for them should arise again in the general context of exchange control.
The Minister is empowered to give general exemptions and permissions by way of regulations. These powers have been widely availed of to relax the restrictive nature of the controls laid down in the Act and banks, stockbrokers, solicitors and authorised travel agents may deal with many classes of applications without reference to the Department of Finance. The present position is that foreign exchange facilities are available for all current, as distinct from capital, payments. To prevent the illegal export of capital, it is necessary to apply limits to the amount of foreign exchange a bank or travel agent may make available without reference to the Department of Finance for certain types of current transactions.
For example, the limit on the foreign exchange facilities that can be made available for holiday travel outside the sterling area is £250 per journey over and above the cost of travel tickets and of any reservation of hotel accommodation. If, in any case, this liberal allowance is considered to be inadequate, facilities in excess of that amount will be granted by the Department of Finance where there is no reason to suspect that an unauthorised transfer of capital is involved.
It is still necessary, in the interests of the sterling area as a whole, to restrict transfers of capital to countries outside that area. Even here, however, it has been possible to effect a considerable simplification of procedure by authorising banks, stockbrokers and solicitors to put through permitted transactions in securities without reference to the Department of Finance. In the field of investment, foreign exchange is made available only for direct, as distinct from portfolio, investment in approved projects which can be expected to assist materially our export trade or otherwise improve our foreign earnings, but certain capital proceeds accruing from outside the sterling area may be reinvested in non-sterling securities.
It is not possible to say how long it will be necessary to continue exchange control in operation in this country. The present Bill proposes a further period of four years, but I need hardly assure the House that, if during that period, sterling becomes fully convertible exchange control will be abolished without delay. Membership of the European Economic Community would entail modification of the restrictions now applied to capital transactions. Any modifications necessary could, however, be effected within the framework of the 1954 Act.