EMBARGO NOT FOR RELEAS E BE-POR-E. 7.15 PM
DECISION ON AUSTRALIAN CURRENCY
NATIONAL TELECAST AND BROADCAST BY THE 24NOI
PRIME MINISTER, MVR HAROLD HOLT. NOOV V
21ST NOVEMBER, 1967 / 8AR
yesterday, the Australian Government made its decision
to maintain the existing value of the Australian Dollar, following the
devaluation of the Pound Sterling. It was an historic decision for Australia
a difficult decision, also but In a sense It showed that we had come of
age as a nation. We are not a large country In terms of population, but
we loom large through our International trade. We rank amongst the
twelve leading trading nations of the world. At the time we took our
decision, we knew that of the other eleven, while Britain had devalued its
currency, the remaining ten had decided to maintain their currency values
undisturbed. After thoroughly reviewing our own situation, we decided
that we should, also. In the past, Australia's trade has been so closely linked
with that of Britain that, when Britain devalued her currency last In 1949,
we followed her, so that the relationship between our currency and hers
remained unchanged. The situation today Is vastly different.
I want to tell you why we made this significant bie ak with
the past. The rate of exchange between our Australian currency and the
Pound Sterling has been unchanged since 1931, but In that period there has
been a transformation of world economic and financial relationships. The
Australian Dollar today Is a currency in its own right. It has to stand on
its own feet and It has shown itself capable of doing so. We have an enviable
reputation abroad for political and economic stability. This has helped us
to attract much capital and much interest on the part of other countries.
But to pursue this Independence we have to be strong in our own right.
In other days, Britain was our best customer, and we still
remain one of her best markets. But times have changed. We have
diversified our trade and strengthened our economy on a broader base.
While primary produce still bulks largest In our overseas earnlings, and
Britain is a principal market, we are diversifying rapidly with our exports
of minerals and manufactured goods. In fact, Japan has now become our
largest market. These things had to be taken into account when we took
stock of what we should do. We are preserving the existing relationship
with other currencies like the United States Dollar, most Western
European currencies, as well as those of Japan, South Africa and a
number of Sterling area countries.
Because our trade with Britain is still important, some
may have thought that we should have followed Sterling down, if not all
the way, by devaluing our Dollar against other currencies. But trade and
commerce with the countries to which those currencies belong is far
greater In total now than our trade with Great Britain, and all the largest
of them had decided not to devalue. They took their decisions, no doubt,
on a judgment of their own Interests. But there was also, I believe, a
significant element of International co-operation about It In an attempt to
achieve a stronger world economy. They all saw that by devaluing / 2
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themselves, they might help to bring about a world-wide-run of competitive
exchange a justments which could have caused international monetary
chaos. In Australia's own case, while some of our exporters
would have gained a temporary increase in their Incomes had we devalued,
the long term outlook over the whole area of our economy and our
international trading relationships, would have been heavily to our
disadvantage We certainly would not have helped Britain had we followed
her down. There is a mutual Interest for us In seeing Sterling regain
its strength) and Britain has, In fect, looked to us to do precisely what
we have decided to do. In the long term, a growing British economy will
offer larger market opportunities for world traders.
In other ways, too, our decision to hold the dollar at its
present level avoids incurring long term liabilities. For Instance, our
Indebtedness to the United States is something like 000 million. If
we had devalued to the same degree as Britain we would have added, in
effect, $ 1U5140 million to this debt right away. It Is true In the same
sense -that we lose something like $ A90 million from our sterling balances,
but this is offset by a reduction in real terms of our Sterling indebtedness
in the United Kingdom. It Is, of course, one thing for us to take a decision and
another thing to live with that decision. But we are in a strong economic
position with a comfortable level of external reserves.* It was imperative
that we did nothing to undermine confidence in the Australian Dollar. We
believe that by acting as we have we are protecting the Dollar.
Let me say something of the effect that devaluation would
have had on the home front. One likely effect would have been a rise In
costs and prices. This would affect every housewife and every wage earner.
While we have experienced some price rises, we have been free of serious
inflation now for a number of years. There would also have been new
burdens on certain areas of our manufacturing In dustries which would
have disturbed the present stability we enjoy, and caused unnecessary
difficulties in programmes of development and expansion.
I have said that some of our exporters would gain a
temporary Increase in their Incomes, but the cost of our Imports from
those countries which have not devalued and all the other payments we
make to them would be increased. These additional costs would spread
with multiplying effects through the economy.
To arrest inflationary forces, we would have had to adopt
strong measures of restraint tighter money, perhaps more taxation and
so on. This Is what Britain has had to do.
Domestic inflation is no respecter of persons. It strikes
at exp orters as well as everybody else, and any gains from higher
overseas earnings would have been offset to some degree, and perhaps
more than offset, by higher costs at home.
I am sure the decision we have taken Is the right one, and
indeed the only one which measures up to our long term needs and the
standing of our currency in the world today. The fact that we have been
able to take up this independent position will, I hope, be a source of pride
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to all Australians because it demonstrates tbestrength--of -our currency
and the sound economic position of the nation.
I do not minimise the fact that there will be problems for
many associated with this decision. I do not believe them to be nearly
as great, or as numerous, as the problems which would have arisen
had we devalued along with Britain. We recognised that by not following
Sterling down, some Industries who still depend largely on selling theli
products In Britain could be adversely affected, perhaps critically so.
That goes for rural Industries producing for export. There are other
Industries, like wool, which sell on a world market, but whose prices
can be affected either by Sterling devaluation or by other measures the
British Government has taken. These industries have already been
labouring under difficulties due to falling prices, rising costs, drought,
or a combination of these factors.
It was apparent to us, however, that since the impact
would vary from in dustry to industry creating a different set of problems
for each, the right course would be to study their problem intensively,
Tanhde dGeocvideer nwmheantt mIse aascutirnegs smpiegehdti lbye onne tcheiss. s arIyn Icno enascuhlt aptiaornti cwuiltahr thcease.,
Economic Committee of Cabinet, it is arranging for an urgent examinAtion
of areas of industry likely to be adversely affected by the Government's
decision. We shall look to positive measures to ensure that a proper
balance is maintained over the whole range of our economy.
There will undoubtedly be difficulties in some sectors of the
economy in the short term. But I am confident they will not be permanent,
nor will they be damaging In the long term. I am sure that you, my
fellow Australians, will recognise the rightness of what we have done.
I am confident that as a people we can meet whatever problems arise
during the period of readjustment which lies ahead for some of our
industries. These are the responsibilities which fall on us now that
we have established a position of Independence in the world of International
finance and now that we have demonstrated over a considerable period
our capacity to maintain a stable and progressive economy at home.
We accept, those responsibilities gladly, cheerfully and confidently.