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Wednesday, 24 October 1973
Page: 2662

Mr Lynch asked the Treasurer, upon notice:

Does the Government support the adoption by the International Monetary Fund of an automatic exchange rate adjustment process based on objective indicators.

Mr Crean - The answer to the honourable member's question is as follows:

This matter has been discussed extensively in the IMF Committee of Twenty on International Monetary Reform.

In its original form, as put forward by the United States, the proposal was for an automatic system whereby countries would be required to take policy measures, such as exchange rate changes, to adjust their balance of payments positions whenever their level of reserve assets rose above or fell below certain pre-determined 'trigger points'. In this form, the proposal was not acceptable to other members of the Committee.

It was doubted whether H would be possible to be objective in determining a 'normal' level of reserves and trigger points for individual countries. In economic terms, it is not realistic to determine a country's need for adjustment solely on the basis of one indicator of imbalance. The proposal would have left countries with little or no say as to the timing of measures to implement and achieve adjustment. Domestic, social and political conditions vary widely amongst countries but this could not be recognised in a fully automatic system. As a technical matter, the system' would also depend on an agreed definition of reserves among all countries, something which ls far from settled at present.

There were some other practical problems. For example, it is generally accepted that the system could not apply to the major oil producers. In fact, it appears that Australia would be one of a quite small number of middle-ranking countries which would be exposed to the full rigours of a purely automatic adjustment system determined by objective indicators. For these reasons, Australia has joined other members in questioning the original United States proposal within the Committee of Twenty.

Australia, along with most other members of the Committee of Twenty, believes that decisions concerning the balance of payments adjustment process must be determined by overall judgments or assessments rather than by some mechanistic formula. However, we also believe that, within this approach, objective indicators have an important role to play. Tentative agreement has been reached on this basis.

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