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Tuesday, 17 November 1964

Senator HENTY (TASMANIA) (Minister for Civil Aviation) - The Treasurer has supplied the following answers to the honorable senator's questions -

1.   The main ground is that, as gold continues to be the basic element in international liquidity, its supply needs to increase fast enough to meet the growing international reserve requirements of a world in which trade and payments between nations are expanding rapidly. As, however, the cost of producing gold has increased greatly since the present world price was fixed some 30 years ago, an adequate increase in the supply would seem to be unlikely while the official world price remains at its present level. In fact, except in South Africa, gold production has been declining or stationary in all of the major gold producing countries for which statistics are available; and it is expected that South African production also will taper off in the years immediately ahead.

3.   An increase in the official price of gold would increase the value, in terms of national currencies, of existing gold stocks and of current gold production. At the present time, Australia's gold holdings amount to nearly £100 million and the annual value of our current gold production is approximately £16 million. 2 and 4. Under the Articles of Agreement of the International Monetary Fund, an increase in the official price of gold would need the agreement not only of members holding a majority of the voting power but also of each member which has 10 per cent, or more of the total of quotas in the I.M.F.; on present quotas, the effect of this latter requirement is that the consent of both the United States and. the United Kingdom would be necessary. The United States has stated repeatedly that it is opposed to any increase in the price of gold. The recent report on international liquidity by the Group of Ten also implies an unwillingness by that Group to consider increasing the price of gold; the countries in that Group arc Belgium, Canada, France, West Germany, Italy, Japan, Netherlands, Sweden, United Kingdom and the United States.

Opponents of an increase in the price of gold usually argue that stability in the price of gold - which implies no general change in the present value of Fund members' currencies in terms of gold - is essential for the satisfactory working of the present international monetary system. Some are concerned also that an increase in the price of gold might lead to inflation. It is also argued that an increase in the price of gold would provide windfall gains which would benefit particularly those countries which happen to be large gold producers or which hold relatively large stocks of gold.

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