Dáil Éireann debate -
Wednesday, 15 Nov 1978

I move: "That the Bill be now read a Second Time."

As the explanatory memorandum circulated with the Bill outlines the purposes of the Bill and details its provisions, I will confine myself to a résumé in this statement of the principal points of interest to the House.

I move "That the Bill be now read a Second Time."

As the explanatory memorandum circulated with the Bill outlines the purposes of the Bill and details its provisions, I will confine myself to a résumé in this statement of the principal points of interest to the House.

The Bill has two purposes. First, it is designed to continue the existing exchange control legislation in operation for a further four years. This matter is covered by section 2 of the Bill. The present legislation, which is contained in the Exchange Control Act, 1954, the Principal Act, as continued in operation by the Exchange Control Act, 1974, is due to expire at the end of the year.

Secondly, the Bill will amend the Principal Act so as to enable the Minister to extend the provisions of the Act to transactions with the United Kingdom should the need ever arise. Sections 3 to 6 of the Bill deal with this aspect.

As regards the continuation of the present legislation, I might recall that our exchange control system had its origin in the emergency legislation introduced during the Second World War. The object then was to restrict outflows, both capital and current, to non-sterling area countries in order to ensure that we would have access to the sterling area pool for hard currency required to finance essential imports. Since the war control has been relaxed progressively in line with the movement towards greater convertibility of currencies, the freeing of international trade and the assumption of commitments with the International Monetary Fund and the OECD and under the Treaty of Rome. These commitments in general, require us to avoid restrictions on current international payments and transfers and, in addition, under the Treaty of Rome, we are obliged to liberalise certain capital transfers to other Community countries.

Accordingly, our present exchange controls restrict capital transfers only, though personal capital transfers to and direct investments in other EEC countries are liberalised, as also, to a certain extent, are personal capital transfers to other countries. Current transactions are not restricted but they are supervised to ensure they are not being used to evade capital controls.

Our exchange control was designed to take account of our membership of the sterling area, which is termed the "scheduled territories" for the purposes of exchange control legislation. Transfers within the scheduled territories are not restricted except where there is a non-scheduled-territory interest in the transaction. At one time, the scheduled territories included, in addition to the State and the United Kingdom, almost all the countries in the present British Commonwealth and some other countries which had close financial ties with the United Kingdom. Today they include only the State, the United Kingdom and Gibraltar.

When the Exchange Control Act, 1954, was being drafted, it was hoped that in the then foreseeable future it might be found possible to return to full convertibility of sterling and, accordingly, the Bill was expressed to expire after a period of four years. Since then it has been found necessary to pass continuance Acts every four years. Today, while the second amendment of the Articles of Agreement of the IMF and the emerging European Monetary System can be seen as steps in the direction of greater international monetary stability, there seems little prospect of our being able to dispense with exchange control powers for some time to come.

Section 2 of the Bill, therefore, provides for the continuation of the Principal Act in operation for a further four years.

The amendments proposed in the remaining sections of the Bill are contingency provisions, foreshadowed by the Minister for Finance in his statement in this House on 17 October in the debate on the proposed European Monetary System. The extension of exchange control to the United Kingdom might become necessary in the event of a change in the fixed parity relationship between the Irish pound and the pound sterling, for instance, if we were in the European Monetary System and the United Kingdom remained outside. It might be necessary in that situation to control the movement of funds into and out of the State from and to the United Kingdom to the extent necessary to restrict undesirable speculative movements.

The first amendment, which is in section 3 of the Bill, would enable the Minister, by regulations, to exclude the United Kingdom from the definition of the scheduled territories. The "scheduled territories" are at present defined in section 3 of the Act as including (a) the State, (b) Northern Ireland, Great Britain the Channel Islands and the Isle of Man and (c) such other territories as may be prescribed by the Minister for Finance by regulations. While the provision gives the Minister wide powers in regard to the definition of the "scheduled territories", he has no power to exclude the United Kingdom, the Channel Islands and the Isle of Man. The amendment would allow the Minister to alter the definition by regulations, to exclude these territories either in whole or in part. It would thus give the basic power to apply exchange control to transactions with the United Kingdom, the Channel Islands and the Isle of Man, if the need should arise. If this power were availed of, it would follow that a further regulation would be made under the Minister's existing powers to exclude Gibraltar, which, apart from the State, is the only other territory included in the "scheduled territories" at present. It would, of course, be possible for the Minister to make regulations bringing the United Kingdom or other areas back within the scope of the "scheduled territories" at a later date if that were desired.

The existing powers in the Act in relation to the importation of currency notes—section 15 (2)—and the exportation of currency notes and other financial instruments—section 16 (2)—do not apply to transactions with the United Kingdom. The amendment in section 4 would remove the existing limited prohibition in section 15 (2)—in respect of which an exemption has in fact been given by regulations—on the importation of United Kingdom currency notes from outside Northern Ireland, Great Britain, the Channel Islands and the Isle of Man. Instead, it would allow the Minister for Finance to prohibit the importation, except with his permission, of such scheduled territory or foreign currency notes as might be prescribed by him by regulation.

It is the intention that any regulations made under this provision might also specify the areas from which such currencies might not be imported. Under the new section, therefore, the Minister would have power to make regulations prohibiting the importation of Irish currency notes which had been illegally exported, which are not covered by the present provision, or of currency notes of other countries including the United Kingdom, should inflows of such notes threaten to have a destabilising effect. The proposed amendment would, of course, have no effect until such time as regulations were made under it. Such regulations would provide that normal inflows of notes—for example, for business or tourist visits—would not be affected. Similarly, in relation to section 16 (2) of the Act, the amendment in section 5 would allow the Minister, should the need arise, to control the export of currency notes, postal orders and assurance policies to the United Kingdom. The subsection at present allows the Minister to prohibit the export of currency notes and other financial instruments to any place other than the United Kingdom. The enabling provision would not come into effect immediately but would depend on the making of a commencement order by the Minister.

Section 6 is a consequential technical amendment to sections 18 and 19 of the Act to ensure that any import prohibitions introduced under the proposed amendment to section 15 (2) are covered by the Customs Acts in the same way as existing import and export prohibitions.

I should stress again that all these amendments are contingency provisions. They will not come into effect when the Bill is passed, but will be brought into operation when and if the need arises by ministerial regulations in the case of sections 3 and 4 and by ministerial order in the case of section 5. Any regulations made must be laid before each House of the Oireachtas and may be annulled by resolution of either House within the next 21 days thereafter.

In summary, then, I am asking the House to agree to two matters—the extension of the basic exchange control legislation for a further four years and the necessary amendments to enable the Minister for Finance to extend these powers to cover transactions with the United Kingdom should the need emerge at any point. I trust the Bill will be acceptable to the House on this basis.

We are accepting this Bill even though we regret the necessity for continuing exchange control again for the fifth or sixth time since the original Act was brought in in 1954. Going back over the Dáil debates since then it is interesting to note the irony that on every occasion a Minister for Finance has stood up in this House and said that the Act had been brought in initially with the intention and in the hope that exchange control would not be necessary after the expiry date of the Act, that is four years, and each Opposition spokesman on finance regretted the necessity for having exchange control. The words used on every occasion and again by the Minister of State this morning were virtually the same each time an extension or amendment of the original Act was brought in. It is regrettable that after almost 25 years exchange control is still necessary in the chaotic monetary world that exists at present and has existed for 40 or 50 years.

There is something different in this morning's amendment in that it includes the UK, as it is termed. It amounts to a provision whereby if the Minister at any time feels it is desirable or necessary he may extend exchange control to the UK or "the scheduled territories" as they are defined in the Act. The necessary but unfortunate timing of this amending legislation is going to cause some concern to the unknowing in the business community who will possibly but erroneously connect it with the present negotiations for entering into the EMS. The Minister should take the opportunity to underline and reiterate as strongly as possible that this is enabling legislation and will not be brought in even in the event of our going into the EMS and the UK not going in. I hope the Minister will confirm this when he is replying. The fewer controls on capital there are the better. With the possibility of those controls existing between what is our main trading partner and ourselves, the people engaged in that trade should be given every assurance that that position will not change on 1 January next if we go into the EMS and the United Kingdom does not.

Very recently the Central Bank have not been allowing the forward buying of £s sterling after 1 January. This is causing concern in the business community and could have the effect of credit that would normally be available in England being take up here from the ordinary commercial banks. It is a valuable source of credit for the business community and for the country in general that somebody can buy goods now and agree to pay for them in six months time so that the goods being disposed of gain a premium before the cheque has to be written. At the moment it is not possible to do that in the UK because of the Central Bank order.

This is causing even more concern because it is possible today to buy forward, say, German marks; in other words, if somebody engaged in business wants to buy his goods from Germany on a credit basis, paying for them in three, six or 12 months time, he can so determine today in consultation with his ordinary commercial bank. He can buy German marks today and he knows the risk he is taking forward. But this is at the moment. It is a problem which would be very easily and quickly solved because of the large number of imports taking place, particularly at this time of the year. There is concern in the business community that it is not possible to do this with £s sterling; that it is not possible to obtain credit from a company in England and guarantee to pay them in six months time in £s sterling on any date after 1 January next. The Central Bank's argument is that it is not necessary to buy forward sterling because there will be no change in the rates applicable between the Irish punt and the £ sterling at that time and that they will still be on a one for one basis. Everybody would hope that that would be the case.

At the same time the Minister will understand and bring to the attention of the Central Bank that what it is hoped may happen—and will almost certainly happen—is not sufficient when a contract is being drawn up. It must be on a firmer basis than that. The Minister should assure the House and the community generally that only as a very last resort will the provisions under the section of the Act that allowed the scheduled territories to be brought within the exchange control area be used. The Minister will understand that the Border between the State and Northern Ireland is one very good reason why there should not be control. We do not want any further erosion of the free flow of people and money across the Border. We do not want the very practical problem that in what is called the high season, that is the summer months, somewhere about 50,000 cheques every week are cashed in this country and in English banks. Apart from the money involved, that is an enormous volume of paper alone that needs handling. This will mean more work for the banks if it has to be put through an exchange control system.

As a last point on this, because of the uncertainty of the present situation, if we go into the EMS on 4 December and Britain do not, what happens on 1 January to the English notes at present in circulation?

I am not discussing the EMS. I am discussing the effect this Bill would have if we join the EMS. The section amending the definition of the scheduled territories is included because of the possibility of our joining the EMS and England not joining it. I want to find out from the Minister whether he can see a danger to our economy if during December people felt English £ notes would be discounted on 1 January and if they started to refuse them in shops. This would create a real problem as it is more than likely that there would not be sufficient Irish £ notes to make up the difference.

While previous debates on Bills of this kind may have been of academic interest only, on this occasion the position is dramatically different. For the first time there is a possibility that the powers sought in this Bill will be invoked. In the event of Britain staying out of the new monetary arrangements in Europe, this Bill will have a very material effect on economic relations between the two countries. The likelihood of Britain staying out has increased rather than diminished since the meeting at Bremen.

The Minister talked about the possibility of a change in parity between the Irish £ and the British £. In that event, this Bill will take effect and there will be a threat to Irish jobs because half our export trade is with Britain. If the British devalue against our currency, our goods will be at competitive disadvantage on the British market as against British goods, and Irish jobs could be lost. That makes more acute the necessity to get an adequate capital resource transfer in the new monetary arrangements. The prospect of gaining such a capital resource transfer is far from certain. Discussions are continuing and it does not come within the ambit of this Bill to consider the likelihood of those discussions being successful.

With the powers sought in this Bill likely to come into effect for the first time, it becomes all the more necessary to get that capital resource transfer to avert a deflationary impact. There will be a much closer relationship between the real state of the Irish economy and the value of our currency. Up to now, we have been able to mask our failures in the home economy by deficit budgeting, by the protective umbrella afforded by sterling's international role. That possibility will not be there in the future should the events foreshadowed in the discussions on the EMS become a reality. There will be a very much closer relationship between our performance at home and our failures and what happens to our currency.

From statements made by the British Prime Minister it does not appear that they will be entering the new arrangements because of their fears about their impact on their inflation rate and their employment rate. We will have to be more stringent about our national accounts and how we run our economy. The old lackadaisical deficit budgeting will not be possible to the same extent as it was previously. The decision of the trade unions yesterday shows the kind of difficulties we will be up against next year. The unions had to make that decision because of their fears——

There is every prospect that this Bill will become effective and we must consider how it will operate in the economic situation after next January. It will take effect in the context of what is happening in the real economy. The possibilities for next year are not quite as inviting as they were for this year, with growth down and the prospect of double digit inflation returning.

The cost of living will be affected by the abolition of children's allowances and the phasing out of food subsidies. However, I do not wish to elaborate on that. We will have other opportunities to do so. It is doubtful that the Government have fully assessed all the implications for the Irish economy of a break with sterling. After over 100 years, it is difficult to make a full and comprehensive assessment of how closely the economies of the two islands have become intertwined. Many people considering our monetary future and the kind of arrangements we may make in future probably dismiss too lightly the practical difficulties likely to arise in the event of a break with sterling. I do not know whether any authoritative study has been made by the Department of Finance. Certainly one is overdue.

In addition to the political division of this island we are now to have for the first time a very sharp difference in the economic regimes of both north and South. This will lead to a good deal of dislocation in cross-Border trade apart from the difficulties that will result for Irish industry and business in terms of our close connection in this regard with the British economy. One sympathises with the view that it would be better in the long term to yoke the Irish economy to the healthier economies of the Continent but the dislocation that may result during the period of re-adjustment may prove fatal for many of our industries. Our economy is so small compared with those larger economies that difficulties of adjustment even for a short period could prove fatal for many sensitive sectors of industry and business. I trust that the Minister will address himself to some of these points.

Yes, but any Minister should be entitled to a certain amount of scope in relation to options. As I have said, this is nothing more than an enabling Bill. Deputy Barry raised the question of forward cover for sterling transactions. There is a one-for-one relationship with sterling. The Central Bank have indicated that it is premature to raise the matter at this stage.

I am prepared to agree to Second Reading having regard to the necessity for enacting the Bill but I must protest that the Minister has not attempted to answer the questions put to him regarding the practical problems that may arise between now and 1 January. We recall the story of Daniel O'Connell trying to break the Provincial Bank in Waterford a hundred years ago.

The question of what happens to currency in the event of our joining the EMS does not arise under this Bill and the Chair must rule accordingly. I permitted the Deputies to touch on that matter since it is relevant to the one change in the Bill but not to enter into a discussion in detail. The question which the Deputy is insisting on would not be relevant to the Bill.

No, we are on Second Stage and you are proposing that the Committee Stage be taken now. We are quite willing and anxious that the Minister of State should have this legislation which we can see is necessary, but there are practical problems arising in section 5 if this enabling legislation is brought into effect. The House is entitled to find out how the Government are going to deal with these practical problems if section 5 is brought into effect when this legislation is passed.

Never before has the immediate prospect of a break in parity been discussed. Previously when permission was sought to continue the enabling provisions of this legislation that has not been the prospect. It is our opinion that the conditions under which this Bill is being discussed are dramatically different from any other period and the least we can ask from the Minister is to give some indication of Government thinking. In view of the close connection between the two economies, what happens the holders of respective bank notes of either country in the event of a break with parity?

Section 5 reads:

(1) Section 16 of the Principal Act is hereby amended by the substitution of the following subsection for subsection (2):

"(2) The exportation of—

(a) any notes issued by any bank in, or which are or have been legal tender in, any part of the scheduled territories,

That must mean the Irish pound note and sterling. It can mean nothing else. If we cannot get an answer now we can postpone the Committee Stage and then have a discussion on that section. If the Chair rules at that stage that we cannot discuss it, you will be wrong.