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Thursday, 21 May 1970

Mr IRWIN (Mitchell) - I always enjoy hearing my friend the honourable member for Melbourne Ports (Mr Crean) speak on such matters as the one now before the House, the International Monetary Agreements Bill 1970. Though we have slight differences in the main we are in agreement. I join with him in the remarks that he made regarding the fictitious value of gold which has now been replaced - we hope successfully - by another fictitious form of currency which the honourable member called 'paper gold'. I think we should be proud that the former Treasurer, now the Minister for External Affairs (Mr McMahon). did take a very active interest in the creation of this fictitious substitute for gold, ft is in the experimental stages, of course, but it has got off to a reasonably good start. On the basis of papers which 1 have read only in the last 2 hours I trust that I will be able to make a reasonable contribution. I am more or less in the same position as the honourable member for Melbourne Ports. I was caught unawares in regard to this matter. So far as Australia is concerned we have come out of the matter reasonably well. The Treasurer (Mr Bury) said in his second reading speech:

A Bill was put before the House on this subject in December 1968 and parliamentary approval was obtained then to Australian participation in the scheme. Australia has since received a first allocation of SA75m for the calendar year 1970 and should receive additional allocation'; of about $A60m in each of the succeeding years, 1971 and 1972.

The purpose of the Bill is to increase our allocations. From an international point of view we have got off to a good start for 1970. The balance of payments position and financial difficulties of the various countries received a fillip, and we set off on 1st January 1970 as the first date on which the allocations were made. The franc appeared much better after the fight in regard to the gold standard earlier in 1969 and before that in 1968 when the franc was in a desperate position from time to time and with the Russians holding large reserves of gold it did appear that something had to bc done to protect the international monetary system and trade between nations.

In England the position improved and it now appears that although there will certainly bc many difficulties, there is a reasonable chance of the scheme succeeding. For the first time in history the world will start to use an international currency which is independent of any national government, which is nol backed by gold or any other precious metal, although it does have a nominal gold value guarantee, and it can be increased simply by international negotiation. This may be right but tradition dies hard and we will find that gold will not fall. This may not always be the position but for the next 50 to 100 years gold will still attract and will have that traditional value, although fictitious, which appears to bring about a sense of security, which no other form of currency has been able to do since time immemorial. The immediate effect of the special drawing rights scheme has lo a small if imponderable extent been undermined by the agreement on South African gold sales. That country, like my friend from Coolgardie, wants to keep up the value of gold, which is understandable, for it is the bread and butter of the people in Kalgoorlie as it is of the people of South Africa.

Since it was also believed that the United States would be obliged to end its balance of payment deficit, the only source of new international liquidity would be through the increase in the International Monetary Fund's loanable funds by means of bigger equity subscriptions or steadily expanding distributions of special drawing rates. That is why we are dealing with this Bill tonight. In the event, the American deficit has got even bigger and the agreement with South Africa has reopened the door to increases in official monetary and gold holdings. So the desire lo continue with the gold standard will persist.

If the gold mining groups were correct in believing that industrial demand has already overtaken production - while it may not be true today, it will probably be true in a few years time - then South Africa will have little long term need to sell outside the free market. Moreover, any sales which are made to the Fund will put gold at the service of the international community at large, in contrast with the past 10 years when it was frequently used as a weapon in the diplomatic war between France and the United States. The initial distribution of the special drawing rights which took place on 1st January this year will amount to $US3,500m. This will be followed by a further allocation of $US3,000m on 1st January 1971 and $US3,500m, I think in 1972. At the moment the special drawing rights may well become the only source of new liquidity and they may also replace the dollar as the standard of value for other currencies.

The one thing that seems vitally certain is that gold will play a diminishing role in the international monetary system, whatever the South Africans may claim. I think that the honourable member for Melbourne Ports and I can take heart from the possibility and the feasibility that the scheme commenced last year by the International Monetary Fund will succeed. After all, I suppose we could use a different word for the currency that we are creating. I think the honourable member for Melbourne Ports will agree with me that we could substitute the word 'confidence' because that is the beginning and the end of international finance. If the International Monetary Fund, through this paper gold, can create confidence then it may ease the balance of payments position of several countries which, in many cases, is only for a transitory period. It requires only the confidence of the other members of the Fund, and I think this is being created. I commend the Bill to the House and I congratulate the honourable member for Melbourne Ports upon his usual worthwhile contribution to such debates.

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