Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Friday, 1 May 1936

Senator HARDY (New South Wales) . - I would like some further explanation from the Minister on this matter. I tried to get it from him last night, when I asked whether the duty in the general column applied to the countries forming the " gold bloc ". If honorable senators consult the Exchange Adjustment Act they will find that the adjustment was extended to give a certain preference to British imports, but it was not clear whether the act was extended to cover countries which are included in the general column, particularly those countries with currencies depreciated to sterling. If my interpretation of the schedule is correct, 1 believe that the Government has already taken this action under the Exchange Adjustment Act; if so, I would like to know the date of such action, and whether it applies to countries Japan. But I submit that that does not get over the difficulties of those countries with currencies based on gold. Prominent leaders of our nation, including Mr. Abbott, the president of* the Graziers' Association of New South Wales, have pointed out the difficulties of trading with, countries in the gold bloc. Mr. Abbott also stated that, where the currencies were appreciated in relation to sterling, the only action that the Government could take to encourage trade would be to revise duties in regard to them, because the Exchange Adjustment Act obviously could not operate except with countries outside the gold bloc. I was particularly interested in the remarks of Senator Pearce on the subject of exchange. Every honorable senator will agree that stability of the exchange rate is essential to the welfare of the commercial community. But has the Commonwealth Bank the power to control exchange? It is often stated in this chamber that the Commonwealth Bank fixes the rate, and it is assumed that this power lies with the bank, but upon analysis I find that that assertion is not quite correct. In his evidence before the Royal Commission on Banking, the chairman of the Commonwealth Bank Board, Sir Claude Reading, frankly admitted that the Commonwealth Bank was not able, in certain circumstances, to control the exchange rate and the mobilization of London funds, which, of course, affects the rate. If that is so, there is a weakness in the financial structure of Australia and the Commonwealth Bank, acting as a central bank, which Parliament should remedy at the earliest opportunity; because it is obvious that the proposed amendment of Senator Duncan-Hughes has been inspired by the possible instability of the exchange rate. In other words, he envisages this instability rendering the present formula inadequate in the future.

Senator Duncan-Hughes - The Tariff Board seems to have assumed that the exchange will never rise above £25.

Senator HARDY - An implication that could reasonably and logically he read into that is that it is expected that the exchange rate will gradually revert to par with sterling. Such a trend under existing conditions I would strongly oppose. The exchange rate is a subject of supreme national importance; for the information of honorable senators, I shall quote briefly from the evidence given by Sir Claude Reading before the Royal Commission on Monetary and Banking Systems. It may assist honorable senators when they discuss thematter of London funds.

Senator Arkins - Why does not the honorable senator discuss the point at issue ?

Senator HARDY - The stability of the rate of exchange and the possibility of the London funds affecting that tate are the point at issue ; otherwise where is the necessity for the adjustment formula which has been so clearly prepared by the Tariff Board? The report reads -

By theChairman. - I do not know whether you could, perhaps, describe to us a little more fully the voluntary arrangements for pooling the London funds ? - It is what is known as the " mobilization scheme ". It is very simple. There is a certain amount of oversea credit necessary to meet government commitments, interest, and other invisible imports, amounting in all to about £28,000,000; I think that is roughly the total of the figures; and to arrive at that amount an arbitrary amount is fixed which shall be collected each month, viz. £2,400,000 each month, and the trading banks as well as the Commonwealth Bank (they bear their proportion) hand over to the Commonwealth Bank that amount in the proportion to which they acquire London funds. That gives the necessary fund upon which the Commonwealth Bank can work and meet the external commitments of the country.

Then it comes to this, that the various banks according to the funds in their hands in London, share in this collection ? - Tes, it is the monthly contribution towards the fund. /};/ Professor Mills. - It is done by arrangement? - Yes.

By Mr. Chifley.- Is that arrangement purely voluntary? - Yes.

The arrangement between the Commonwealth Bank and the trading banks is purely voluntary ? - Yes.

It was entered into at a time when there was a crisis in affairs abroad? - Yes.

And it continues as the result of their goodwill in co-operating with the Commonwealth Bank? The Commonwealth Bank is not in a position to absolutely compel or demand that money from the trading banks, nor is the Government? - No. We have no power to do that.

Has the Commonwealth Bank come to regard itself as having absolute power in control of the exchange rate? - No.

It has not?- No.

The whole position is uncertain, if somebody chooses to break away? - Yes.

As 171 fact they did at one period, break away, in spite of the protests of the Commonwealth Bank* - Yes, they did. What we call a " black " market developed, that is an outside market, and the banks had to follow them,

At present the control of the exchange rate by the Commonwealth Bank is only the result of mutual arrangements between themselves and the private banks, and it has not complete power in any sense? - Yes; you may express it in that way.

These are admissions of weakness in our financial structure which sooner or later this Senate must endeavour to amend. One of the greatest values of the formula which is incorporated in this tariff is the assurance of exchange stability to the commercial community.

Senator Arkins - I rise to a point of order. Are Senator Hardy's remarks relevant to the request now being considered bv the committee?

The " CHAIRMAN.- As Senator Hardy's remarks have a bearing on exchange, they are quite in order.

Senator HARDY - I appreciate, as do Senators Leckie and DuncanHughes, the protective incidence of exchange. Therefore, I submit that any information that can be presented on this subject, particularly as external and internal price levels are involved, is of vital interest to honorable senators. I suggest that the Minister should explain more clearly the disadvantages of those countries which form the gold bio-.'. The vital question is: Are we going to extend any preferential treatment to them in view of the disabilities with which they are faced?

SenatorBROWN (Queensland) 1 11. 55]. - According to Senator Millen, the Tariff Board has fallen very much from its high estate and reputation as a most intelligent body, which delves deeply into economic subjects, and presents logical conclusions. He has pointed out that the rate of additional duty is 2.4d. in each of the three columns, and he referred to the position of a foreign country whose currency has so appreciated that in relation to it the Australian fi is worth only 10s.

Senator Millen - It takes £180 Australian to equal £100 German.

Suggest corrections