CHECK AGAINST DELIVERY CHECK AGAINST DELEIMVEBRAYR GOED UNTIL 7.00 P. M.
PRIME MINMSTER
SPEECH BY THE PRIME ' MINISTER
AUSTRALIAN MERCHANT BANKERS' ASSOCIATION
28 OCTOBER 1983
IT IS PARTICULARLY TIMELY THAT I SHOULD ADDRESS THIS
ASSOCIATION TONIGHT.
AT THE BROADEST LEVEL, IT IS TIMELY BECAUSE THE ECONOMIC
ENVIRONMENT MAKES IT APPROPRIATE TO GIVE EVEN HIGHER
PRIORITY TO LONG-TERM ISSUES RELATED TO THE EFFICIENCY,
GROWTH AND RELATIVE STANDING OF THE AUSTRALIAN ECONOMY
IN A COMPETITIVE WORLD.
IT IS TIMELY AS WELL BECAUSE THE GOVERNMENT WILL SOON BE
RECEIVING THE MARTIN COMMITTEE'S-RECOMMENDATIONS ON
FINANCIAL REFORM.
IN ADDITION, ON ANOTHER MATTER OF CONSIDERABLE INTEREST
TO YOUR MEMBERSHIP, MY GOVERNMENT WILL SOON BE COMPLETING
ITS REVIEW OF THE FOREIGN INVESTMENT GUIDELINES.
AND IT IS MOST TIMELY BECAUSE, FORTUITOUSLY, THIS EVENING
1 AM ABLE TO DESCRIBE TO YOU SOME CHANGES IN THE SYSTEMWITHIN
,'; HICH THE FOREIGN EXCHANGE VALUE OF THE AUSTRALIAN
DOLLAR IS DETERMINED,
THE CONTRIBUTION OF MERCHANT BANKS TO THE ECONOMY SINCE THE
EARLY 197Us HAS BEEN SIGNIFICANT, AS DEMONSTRATED BY THE
25.5 PER CENT AVERAGE ANNUAL RATE OF GROWTH OF TOTAL ASSETS
OF MONEY MARKET CORPORATIONS BETWEEN 1971 AND 1983.
COMMANDING TOTAL A-SSETS OF $ 13,8 BILLION, AND, AT JUNE
1983, PROVIDING MORE THAN 10 PER CENT OF TOTAL LOANS
OUTSTANDING FROM BANK AND NON-BANK SOURCES, THE MERCHANT
BANKS HAVE BECOME AN IMPORTANT PART OF THE AUSTRALIAN ECONOMY.
MERCHANT BANKS NOW PLAY A VIRTUALLY INDISPENSABLE ROLE IN
THE EFFICIENT PROVISION OF FINANCIAL SERVICES TO THE. COMMUNITY,
THIS HAS HAPPENED NOT ONLY BECAUSE THEY HAVE BEEN ABLE TO
EXPLOIT AREAS IN BUSINESS CLOSED TO tMORE REGULATED FINANCIAL
INTERMEDIARIES, BUT ALSO BECAUSE THE DYNAMISM AND COMPETITIVE
SPIRIT OF MERCHANT BANKS HAS LED TO THE DEVELOPMENT OF NEW
MARKETS EVEN WITHIN THE AREAS OPEN TO THE REGULATED SECTOR,
THERE IS NOW A LONG LIST OF INNOVATIONS THAT MERCHANT BANKS
HAVE INTRODUCED OR -TO WHICH THEY HAVE ADDED IMPETUS.
WITHOUT THE INNOVATIONS MERCHANT BANKS HAVE INTRODUCED IN
PROMISSORY NOTES AND A SECONDARY MARKET IN BILLS OF
LXCHANGE OR THE VARIOUS FORMS OF LEASING AND PROJECT
FINANCING, DEBT FUNDS WOULD BE OLD-FASHION. IED AND UNNECESSARILY
EXPENSIVE.
MERCHANT BANKS HAVE PLAYED A MAJOR ROLE IN FINANCIAL
INNOVATIONSj IN INTRODUCING NEW TECHNOLOGY, IN DEVELOPING
SEMI-GOVERNMENT UNDERWRITING SYNDICATES, IN DEVELOPMENT OF
THE UNOFFICIAL FOREIGN EXCHANGE HEDGE MARKET, AND IN THE
LAUNCHING OF INTEREST RATE EUTURES AS A MAJOR AREA OF
BUSINESS. 1 UNDERSTAND THAT A FUTURES MARKET IN COMMONWEALTH BONDS
IS SOON TO BE ESTABLISHED.
THESE DEVELOPMENTS ALLOW TRADERS TO OBTAIN INSURANCE AND MAY
SERVE TO STABILISE INTEREST RATES BY BROADENING THE FINANCIAL
MARKET, IN ADDITION TO PROVIDING AN OUTLET FOR RISK TAKERS,
THE EXTRA COMPETITION HAS SERVED TO REDUCE TRANSACTION COSTS
AND LOWER THE OVERALL COSTS OF FUNDS, IN ADDITION TO
BROADENING THE RANGE OF BORROWING AND LENDING INSTRUMENTS
SO THAT CUSTOMERS ARE BETTER SERVED.
ALL THESE DEVELOPMENTS ARE DEPENDENT IN PART 01N THE DYNAMISM
OF MERCHANT BANKS WHO HAVE TAKEN COMPETITION TO THE OTHER
INSTITUTIONS, AND HAVE OFTEN BEATEN FSTABI ISHED FINANCIAL
INTERMEDIARIES ON THE LATTER'S OWN GROUND.
THE FINANCIAL SYSTEM CANNOT STAND STILL.
WE NEED FLEXIBILITY, ADAPTABILITY AND CONTINUED INVIGORATING
COMPETITION. THE FINANCIAL SYSTEM HAS TO EVOLVE AND KEEP PACE WITH THE
WORLD IF AUSTRALIA IS TO BE-COMPETITIVE.
WE LOOK FORWARD TO THE ORGANISATIONS REPRESENTED HERE TONIGHT
HELPING TO KEEP AUSTRALIA UP WITH THE FIELD.
WE SEE THIS AS BEING NECESSARY TO THE IMPROVEMENT OF
AUSTRALIA'S LONG-TERM GROWTH PERFORMANCE.
OVER THE PAST SIX MONTHS THE LABOR GOVERNMENT'S GREATEST
EFFORTS HAVE BEEN DIRECTED AT THE MACRO-ECONOMIC CRISIS
WHICH WE INHERITED: REVERSING THE HEADLONG DECLINE IN
PRODUCTION AND ESPECIALLY EMPLOYMENT THAT HAD CHARACTERISED
THE EIGHTEEN MONTHS BEFORE WE TOOK OFFICE; PUTTING INFLATION
ON A DOWNWARD PATH; AND ESTABLISHING THE BASIS FOR STRONG
RECOVERY WITHOUT REKINDLING INFLATION OVER THE IMMEDIATE FUTURE.
WHILE IT WILL BE MANY YEARS BEFORE WE HAVE MADE ACCEPTABLY
LARGE INROADS INTO THE POVERTY AND UNEMPLOYMENT THAT HAVE
ACCUMULATED IN AUSTRALIA OVER THE PAST NINE YEARS, THERE ARE
NOW CLEAR SIGNS THAT WE ARE MOVING IN THE RIGHT DIRECTION',
T1HE AUSTRALIAN ECONOM-Y IS RESPONDING TO OUR EXPANSIONARY
FISCAL POLICIES, OUR MONETARY POLICIES DESIGINED TO ACCOMIMO1DATL
STRONG GROWTH WITHOUT INF LATION, AND THE PRICES AND INCOMES
ACCORD., AS WELL AS TO MORE FAVOURABLE SEASONAL AN-D INTERNATION" AL
CONDITIONS. ON TOP OF CLEARLY IMPROVED PERFORMAN~ CE ON PRODUCTION AIND EMPLOYMENFt
YESTERDAY WE HAD CONFIRMATION OF THE DOWNWARD TREND IN
CONSUMER PRICES.
IAM CONFIDENT THAT WE HAVE ESTABLISHED A BASIS FOP, SUBSTANTFIAL
GROWTH IN PROD) UCTION AND EMPLOYMENT OVER THE YEAR OR TW', O AHEAD.,
TOGETHER WITH THE ACHIEVEMENT OF RATES OF INFLATION THAT
ARE CLOSER TO THE EXPERIENCE OF THE 1Y50S AND 1960S THAN TO
THAT OF THE LAST DECADES
THE CONTINUATION OF STRONG NON-INFLATIONARY GROWTH WILL
REQUIRE CONTINUED CARE IN MACRO-ECONOMIC MAINAGEMENT IN
FISCAL AND MONETrARY POLICY, AND Itl THE RANGE OF POLICIES
EMBOD) IED IN THE PRICES AN4D INCOMES ACCORD.
BUT AS OUR POLICIES TO ADDRESS THE IMMEDIATE CRISIS TAKE
HOLD, INCRE-ASINGLY OUR MAIN ATTENTION WILL BE FOCUSSED ON
IMPROVING THE EFFECTIVENESS WITH, wHiCH AUSTRALIAN RESOURCES
ARE USED,
IN THIS CONTEXT, WE ARE CURRENTLY REVIEWING POLICY IN TWO " REA$
OF SPECIAL INTEREST TO YOUR MEMB~ ERS THE MARTIN COMMITTEE
RLPORT AND THE GOVERNMlENT ' S REVIEW OF THE FOREIGN I NVESi lEN F
GUIDELINES.
ON FOREIGN INVESTMENT, YOU WOULD ALL BE AWARE THAT BOTH
THE TREASURER AND I HAVE SIGNALLED THAT WE DO NOT HAVE IN
,, MIND MAJOR CHANGES IN POLICY A POLICY THAT HAS ENJOYED
BIPARTISAN SUPPORT SINCE THE BASIC LINES WERE SET IN THE
LAST YEAR OF THE WHITLAM LABOR GOVERNMENT,
THE GOVERNMENT IS LOOKING FORWARD TO THE MARTIN COMMITTEE'S
REPORT TO GUIDE THE REFORM OF THE FINANCIAL SYSTEM,
AGAINST THIS BACKGROUND THERE ARE TWO VITAL TOPICS I SHOULD
NOW WANT TO ADDRESS: NAMELY EFFICIENCY IN THE FINANCIAL
SYSTEM AND THE BASES OF OUR MONETARY AND EXCHANGE RATE
POLICIES IN THIS FIRST YEAR OF ECONOMIC RECOVERY.
OBVIOUSLY THE FINANCIAL SYSTEM HAS TO WORK WITHIN A REGULATORY
FRAMEWORK PROVIDED BY GOVERNMENTS. HAVING REGARD TO THEIR
WIDER SOCIAL RESPONSIBILITIES,
No WHERE; DOES THE FINANCIAL SYSTEM PLAY A MORE IMPORTANT
ROLE THAN IN AUSTRALIA, WITH OUR HIGH RATES OF SAVINGS ( AND
PARTICULARLY HOUSEHOLD SAVINGS) AND INVESTMENT.
AS A YOUNG WELL-ENDOWED COUNTRY WE HAVE A DISPROPORTIONATE
SHARE OF WORLD INVESTMENT OPPORTUNITIES.
IN THE LAST FIVE YEARS, GROSS FIXED INVESTIlENT AS A PERCENTAGE
OF NATIONAL INCOME HAS AVERAGE 23.7 PER CENT IN AUSTRALIA,
WELL ABOVE MOST OTHER DEVELOPED COUNTRIES,
DOMESTICALLY GENERATED SAVINGS HAVE ALSO BEEN HIGH, AT
ABOUT 2U PER CENT OF NATIONAL INCOME IN THE LAST FIVE YEARS,
BUT THEY HAVE BEEN INSUFFICIENT TO FINANCE ALL THE
INVESTMENT UNDERTAKEN.
IN THE LAST FIVE YEARS, NET BORROWING FROM OVERSEAS HAS
AVERAGED 3.3 PER CENT OF NATIONAL INCOME, AND IT IS IN
FACILITATING THESE BORROWINGS THAT THE MERCHANT BANKS
AND OTHER FINANCIAL INTERMEDIARIES HAVE MADE ONE OF THEIR
MAIN CONTRIBUTIONS TO DEVELOPMENT.
BUT, WHILE IMPORTED CAPITAL HAS CERTAINLY ALLOWED US TO
IMPROVE OUR PRODUCTIVE POTENTIAL, WE CANNOT SIMPLY BORROW
FROM OVERSEAS WITHOUT REGARD FOR OUR EXPORT EARNINGS.
WE NEED TO INVEST WISELY, AND, AS IMPORTANTLY, FUNDS MUST
BE GATHERED AS EFFICIENTLY AS POSSIBLE, AND AT LEAST COST
TO SAVERS, TO MEET INVESTMENT NEEDS,
THAT IN ITSELF CAN INDUCE HIGHER DOMESTIC SAVINGS AND MAKE
THEM GO FURTHER,
WE NEED EFFICIENT FINANCIAL INTERMEDIARIES TO BRING TOGETHER THE
GREAT RANGE OF LENDERS AND BORROWERS, BIG AND SMALL, DOMESTIC
AND FOREIGN, SHORT-TERM AND LONG-TERM.
SAVINGS HAVE TO BE MARSHALLED., TRANSFORMED IN MATURITY.,
PACKAGED AND ALLOCATED TO THEIR MOST PRODUCTIVE USES.
THE FINANCIAL SYSTEM ALSO HAS TO PROVIDE AN OUTLET FOR
SECURE SAVINGS FOR RETIREMENT THROUGH SUPERANNUATION,
LIFE INSURANCE AND OTHER FORMS OF SAVINGS,
IMPORTANTLY THE FINANCIAL SECTOR ALSO. PLAYS A KEY ROLE AS
A MAJOR AND " OST IMMEDIATE LINK BETWEEN AUSTRALIA AND THE
WORLD ECONOMY,
WITH THESE CONSIDERATONS IN MIND, I HAVE BEEN PLEASED RECENTLY
TO RECEIVE TWO DETAILED REPRESENTATIONS FROM THIS
ASSOCIATION ON THE DEREGULATION OF THE AUSTRALIAN FINANCIAL
SYSTEM.
ONE OF THESE WAS THE ASSOCIATION'S SUBMISSION TO THE MARTIN
COMMITTEE ON THE REGULATION AND CONTROL OF FINANCIAL
CORPORATIONS REGISTERED UNDER THE FINANCIAL CORPORATIONS ACT,
THE MAIN THRUST OF THIS IS APROPOSAL THAT THE GOVERNMENT
SHOULD NOT IMPLEMENT PART IV OF THE ACT, BUT RATHER SHOULD
CONTINUE TO USE MORAL SUASION TO ACHIEVE ITS OBJECTIVES IN
FINANCIAL MARKETS,
THE SECOND SUBMISSION ARGUES FOR REFORM OF THE EXISTING
FOREIGN EXCHANGE ARRANGEMENTS.
IT OUTLINES RECENT DEVELOPMENTS IN OTHER COUNTRIES WITH MANAGED
EXCHANGE RATES AND RECOMMENDS THE LICENSING OF ADDITIONAL
FOREIGN EXCHANGE DEALERS.
OBVIOUSLY 1 AM IN NO POSITION TO COMMENT IN DETAIL ON THE
FIRST OF THESE SUBMISSIONS, PENDING OUR RECEIPT AND
CONSIDERATION OF THE MARTIN COMMITIEE REPORT.
BUT YOU CAN FIND GUIDANCE TO OUR.. APPROACH IN iY REPEATED
STATEMENTS THAT 1. SEE NO VIRTUE IN REGULATION OF ECONOMIC
ACTIVITY FOR ITS OWN SAKE.
THE LABOR GOVERNMENT BELIEVES THAT WHERE MARKETS ARE
WORKING EFFICIENTLY THEY SHOULD BE LEFT TO DO THEIR JOB
UNLESS THERE ARE CLEAR EQUITY REASONS FOR GOVERNMENT INTERVENTION1!
YOUR SECOND SUBMISSION TAKES US INTO THE GENERAL AREA OF
MONETARY POLICY AND EXCHANGE RATE MANAGEMENT.
I AM SURE THAT THIS GATHERING IS PARTICULARLY INTERESTED IN
AND WELL INFORMED ON MONETARY POLICY,
THE GOVERNMENT SEES ITS MONETARY POLICY AS A CRUCIAL ELEMENT
IN ITS OVERALL POLICY MIX TO SET THE ECONOMY ON THE PATH TO
RECOVERY, AND THEN TO FACILITATE STRONG NON-INFLATIONARY
GROWTH OVER A LONG PERIOD.
MONETARY POLICY HAS TO BE VIEWED AGAINST THE BACKGROUND
PARTICULARLY OF THE EXPANSIONARY FISCAL POLICY WE HAVE
ADOPTED AND THE PRICES AND INCOMES ACCORD,
WE MADE IT CLEAR AT THE TIME OF THE SUMMIIT, AND THE
TREASURER EMPHASISED IN THE BUDGET, THAT WE WOULD BE
SETTING A MONETARY PROJECTION CONSISIENT WITH STRONG GROWTH,
BUT NOT SUCH AS WOULD FUEL INFLATION.
IN THE BUDGET, WE MADE ALLOWANCE FOR THE FACT THAT THE
VELOCITY OF CIRCULATION OF MONEY COULD BE EXPECTED TO REBOUND
IN 1983-84 AS THE ECONOMY PICKED UP AND NON-BANKS PLAYED
A GREATER ROLE IN FINANCING ACTIVITY,
ON THIS BASIS WE ADOPTED A MONETARY PROJECTION FOR THE
12 MONTHS TO THE JUNE QUARTER BASED ON 13 GROdTlH IN THE
RANGE 9 TO 11 PER CENT.
BUT LET ME REPEAT THE QUALIFICATIONS THE TREASURER MADE IN
HIS BUDGET SPEECH:
" FOR THE . REASONS I HAVE MENTIONED, HOWEVER, POLICY CANNOT
FOCUS-SOLELY ON 113 AND IN THE YEAR AHEAD WE SHALL BE
MONITORING THE PROGRESS OF A RAtNGE OF FINANCIAL
AGGREGATES WITH COVERAGE BOTH NARROWER AND BROADER THAN
" THE PROJECTION IS A CONDITIONAL ONE,
" THERE WILL BE A REVIEW OF THE PROJECTION DURING THE YEAR
IN THE LIGHT OF TRENDS IN ACTIVITY AND OTHER RELEVANT
DEVELOPMENTS,
" POLICY WILL AIM AT GRADUALLY MOVING THE EXCESSIVE PRESENT
GROWTH IN M5 TO WITHIN THE RECO/ MMENDED RANGE."
11,
WE ARE WATCHING CAREFULLY DEVELOPMENTS IN THIS AREA OF
POLICY, WE ARE AWARE OF THE DISPARITIES BETWEEN M3 AND OTHER
MONETARY AGGREGATES.
IN THIS REGARD 1 NOTE THAT SAVINGS BANK DEPOSITS HAVE BEEN
RISING STRONGLY AND HAVE CONTRIBUTED MATERIALLY TO THE PICK
UP IN HOUSING ACTIVITY,
WE WELCOME THIS.
WE NOTE, HOWEVER, THAT THIS IS CONTRIBUTING TO THE DISPARITIES
IN MOVEMENTS IN THE MONETARY AGGREGATES.
WE ARE ALSO CONSCIOUS OF THE EFFECTS OF CHANGING SEASONALITY,
THIS IS ALWAYS A PROBLEM IN THE AUSTRALIAN MONETARY
ENVIRONMENT, I CAN ASSURE YOU THAT WE ARE VERY CONSICOUS OF WHAT IS
HAPPENING; THAT WE WILL BE CARRYING OUT THE REVIEW PROMISED
BY THE TREASURER; AND THAT WE WILL BE TAKING PARTICULAR
CARE AS SEASONAL TIGHTENING OCCURS IN 1964 TO ENSURE THAT
THERE IS ADEQUATE FINANCE AVAILABLE FOR THE RECOVERY TO
PROCEED.
-12-
WE ARE ALL VERY CONSCIOUS OF THE TREND IN INTEREST RATES,
WHICH HAPPILY HAS BEEN GENERALLY DOWNWARDS THIS YEAR.
LOWER INFLATION AND LOWER INTEREST RATES WOULD MATERIALLY
HELP THE RECOVERY IN THE AUSTRALIAN ECONOMY.
WE LOOK TO THE PRICES AND INCOMES ACCORD AND SUPPORTIVE
POLICIES TO PRODUCE A SUSTAINED REDUCTION IN INFLATION AND
INTEREST RATES.
THIS WOULD GREATLY HELP OUR COMPETITIVENESS AND ENCOURAGE
INVESTMENT IN AUSTRALIA,
IT IS IMPORTANT THAT THE GAINS IN THIS AREA SHOULD BE
SUSTAINABLE IN THE FUTURE,
THAT IS THE OBJECTIVE OF OUR POLICIES ECONOMIC RECOVERY
I
ACCOMPANIED BY FALLING INFLATION
WE ARE PLEASED AT THE STRENGTH OF THE A. C, TU.' S AND MAJOR
UNIONS' ACCEPTANCE OF THE OBLIGATIONS OF THE PRICES AND
INCOMES ACCORD AND THE WAGE-SETTING PRINCIPLES RECENTLY
DEFINED BY THE ARBITRATION COMMISSION.
I COME NOW TO THE MANAGEMENT OF THE EXCHANGE RATE.
-13-
FOR OBVIOUS REASONS, THIS IS NOT A SUBJECT ON t', HICH PRimE
IINISTERS USUALLY HAVE A LOT TO SAY,
BUT TONIGHT I AM ABLE TO MAKE A F'EW REMARKS,
THERE HAS BEEN RECENT SPECULATION THAT THE GOVERN1, ENT,
HELL-BENT ON REDUCING GROWTH IN M3 AT ANY COST., WAS
ALLOWING THE EXCHANGE RATE TO BE DELIBERATELY OVER-VALUED
AS AN INSTRUMENT OF ANTI-INFLATIONARY POLICY,
I HAVE RESPONDED BY POINTING OUT THAT, FIRST, WHEN REGARD
IS PAID TO THE TECHNICAL FACTORS SET OUT ABOVE, IT IS 1NOT
CLEAR THAT WE NEED IARKEDLY TO TIGHTEN MONETARY POLICY;
AND SECONDLY, THAT OUR OBJECTIVE OF FIGHTING INFLATION AND
UNEMPLOYMENT AT THE SAME TIME REQUIRES US TO AVOID PUSHING
THE AUSTRALIAN DOLLAR TO AN ARTIFICIALLY HIGH LEVEL.
NONE OF THIS IS TO DENY THAT DEVELOPMENTS WHICH AFFECT
PERCEPTIONS OF THE UNDERLYING VALUE OF THE DOLLAR WILL
INFLUENCE THE RATE.
RATHER, WE ARE COMMITTED TO AVOIDING DELIBERATELY HOLDING THE
DOLLAR AT A LEVEL ABOVE WHAT MIGHT BE CONSIDERED A MARKET
VALUATI ON,
IN RECENT t, 1ONTHS., THERE HAVE BEEN SIGNS OF SPECULATION
AGAINST THE EXCHANGE RATE MANAGEMENT SYSTEM ITSELF,
INDEPENDENTLY OF JUDGEMENTS ABOUIT THE UNDERLYING VALUE OF
THE AUSTRALIAN DOLLAR,
-14-
ACCORDINGLY, I AM ABLE NOW TO ANNOUNCE, SIMULTANEOUSLY
WITH A STATEMENT BY THE TREASURER, THAT THE GOVERNMIENT
HAS AUTHORISED THE RESERVE BANK TO IMPLEMENT CHANGES IN
THE MANNER IN WHICH THE EXCHANGE RATE IS DETERMINED.
THE GENERAL DRIFT OF THE CHANGES IS TO ALLOW THE PRIVATE
. SECTOR MORE SCOPE,, AND MORE RESPONSIBILITY., IN THE FOREICGN
EXCHANGE AREA, IN RESPECT OF BOTH SPOT AND FORWARD
TRANSACTIONS. ON THE SPOT TRANSACTIONS SIDE, THE RESERVE BANK IN FUTURE
WILL NOT FIX UNTIL THE END OF THE DAY THE $ A/$ US MID-RATE
ON THE BASIS OF WHICH IT WILL SETTLE NET FOREIGN EXCHANGE
POSITIONS INCURRED BY THE BANKS DURING THE COURSE OF
THEIR DEALINGS THROUGHOUT THE DAY,
THE CHJEF PURPOSE OF THIS CHANGE IS TO DISCOURAGE
SPECULATIVE CAPITAL FLOWS DURI-NG THE COURSE OF THE DAY.
ON THE FORWARD TRANSACTIONS SIDE, THE RESERVE BANK WILL
WITHDRAW FROM THE UNDERWRITING OF THE FORWARD FOREIGN
EXCHANGE MARKETS.
As A CONSEQUENCE., THE BANKS WILL BE PERMITTED GREATER
FREEDOM TO HOLD BALANCES ABROAD AND TO BORROW FOR THE
PURPOSE OF MATCHING FORWARD TRANSACTIONS.
ALL THIS WILL ASSIST THE DEVELOPM-ENT OF A MORE EFFICIENT
AND SELF-SUSTAINING FORWARD FOREIGN EXCHANGE tMARKET,
THESE CHANGES, THOUGH LARGELY TECHNICAL SHOULD ASSISrll IN
MODERATiNG THE VOLATILITY OF DAY-TO-~ DAY FL. OWS OF FU14DS
ACROSS THE FOREIGN EXCHANGES,
THIS VOLATAlLITY. HAS, OF CQURS" E, CONIPLICATE1) THE TASK OF
MANAGING THE GR~ OWTH OF THE MONETARY AGGREGATES IN
AUSTRALIA IN LINE WITH TlHEL OBjECTIVES ANNOUNCED IN THE
TREASURE. R'S BUDGET SPEECH,
WE BELI EVE THESE CHANGES IN THE MANAGMENT OF THE FOREIGN
EXCHANGE MARKETS WI LL MAKE A HELPFUL CONTRIB~ UTION TO
MONETARY MANAGEMENT.
HOWEVER, SUCH MODIFICATIONS AND ADAPTATIONSj HELPFUL AS THEY
ARE, SHOULD NOT BLIND US TO THE FACT THAT, IN -rHE END,,
THE VALUE OF THE AUSTRALI AN DOLLAR, AND THE FLOWdS OF FUNDS
ACROSS,. THE EXCHANGES, WI4LL NOT BE DETERMINED BY THE
PARTICULAR SYSTEMS BEING PURSUED,
SYSTEMS WILtL HELP, BUT THEY WILL INOT DETERMINE THE OUTCOME,
RATHER, AS ALWAYS, THE FINAL DETERMINING FACTOR WILL BE
THE RELATIVE PERFORMANCE* OF THE AUSTRALIAN ECONOMjY.
SO FAR AS THE GOVERNMENT IS CON1CERNED, THIS BRINGS US BACK
TO THE FUNDAMENTALS OF FISCAL POLICY, MONETARY POLI CY, V.: AGCS
POLICY AND P0O. ICI ES AFFEECTI NG THE LONG-TERM GROWTH I N
PRODUCTIVITY.
-16-
THE CHANGES I HAVE ANNOUINCED TONIGHT, I BELIEVE, ARE
SBROADLY IN THE DIRECTION FAVOURED BY YOUR ASSOCIATION,
THERE MAY BE SOME CONCERN THAT THE DECISION TO DEFER
SETTING THE $ A/$ US MID-RATE UNTIL THE CLOSE OF TRADING
WILL CREATE UNCERTAINTY.
I DO NOT BELIEVE THAT ANY CONCERN IS WARRANTED,
THE " INDICATIVE" $ A/$ US tMID-RATE THAT WILL BE RELEASED WITH
THE TWl AT 9,30 A, M, EACH ; ORNING AND RATES ESTABLISHED IN
SUBSEQUENT TRADING WILL PROVIDE A GUIDE TO THE SETTING OF
THE SA/$ US MID-RATE AT THE END OF THE DAY,
THUS, MARKET PARTICIPANTS WILL HAVE A GOOD DEAL OF
INFORMATION AVAILABLE TO THEM.
SMALL TRADERS WILL STILL BE ABLE TO GET DIRECT PRICES FROM
THEIR BANKS FOR TRAVEL AND THE LIKE,
TO THE EXTENT THAT THE END-DAY SETTING REDUCES THE
OPPORTUNITIES FOR SPECULATION
ON MOVEMENTS IN THE $ US IN ASIAN MARKETS OVER THE COURSE
OF THE DAY AND SO MAKE PROFITS AT THE EXPENSE OF THE
RESERVE BANK WELL AND GOOD,
THE VOLATILE CAPITAL MOVEMENTS THAT SUCH SPECULATION
HAS LED TO ARE THE SORTS OF UNPRODUCTIVE AND UNHELPFUL
MOVEMENTS THAT WE WISH TO DISCOURAGE.
THIS AUDIEN. CE MIGHT BE ESPECIALLY CONCERNED THAT THE
DECISION OF THE RESERVE BANiK TO WITHDRAW FROM THE OFFICIAL
FORARDMARKET WILL ADVANTAGE THE TRADING BANKS AT THE
EXPENSE OF HEDGE MARKET ACTIVITIES IN WHICH THE MFRCHANT
BANKS ARE ACTIVE.
YOU SHOULD NOTE, HOWEVER, THAT THE BANKS' FORWARD MARKET
AS DIST11NCT FROM THE BANKS'I HEDGE MARKET ACTIVITIES WILL
STILL BE LIMITED TO'TRADE TRANSACTIONS,
CAPITAL TRANSACTIONS WILL REMAIN THE PROVINCE OF THlE HEDGE
MARKET.
THUS, A GOOD DEAL OF THE BUSINESS OF THE UNOFFICIAL HEDGE
MARKET WILL BE UNAFFECTED.
CONSISTENTL. Y WITH YOUR SUBMISSION TO ME, YOU WILL HOLD THE
VIEW THAT MERCHANT BANKS SHOULD BE AFFORDED LICEN4CES TO
DEAL IN FOREIGN EXCHANGE,
WE HAVE NOT FORGOTTEN THAT MERCHANT BANJKS FEEL. STRONGLY
ABOUT THIS,
I NOTE, HO'WEVER; THAT THE CAMPBELL COMMITTEE CAME TO A
DIFFERENT VIEW.
IT SUGGESTED THAT TO DO FOREIGN EXCHANGE BUSINESS A
BANKING LICENCE SHOULD BE REOUIREDJ. SO THIS PROPOSAL IS
MORE THAN A " TECHNICAL" ADJUSTMENT TO THE EXCHANGE RATE
MANAGEMENT SYSTEM.
THAT IS NOT THE END OF THE MATTER AS FAR AS WE ARE CONCERNED.
BUT WE THOUGHT IT INAPPROPRIATE FINALLY TO SETTLE THIS MATTER
AT THE PRESENT TIME.
THIS ISSUE IS TO SOME EXTENT RELATED TO THE GRANTING OF
BANKING LICENCES AND THE GOVERNMENT IS WAITING FOR THE
REPORT OF THE MARTIN COMMITTEE BEFORE IT MAKES ANY DECISIONS,
WE GREATLY WELCOME THE CONTRIBUTION THAT THE MECRCHANT BANKS
1
ARE MAKING TO AUSTRALIAN DEVELOPMENT
WE LOOK FORWARD TO YOU CONTINUING TO PLAY A KEY ROLE IN
IMPROVING THE EFFICIENCY OF OUR FINANCIAL SYSTEM.
I INVITE YOU TO REMAIN IN TOUCH WITH US OVER THE NEXT FEW
MONTHS, AS WE ADDRESS A RANGE OF ISSUES OF CRUCIAL IMIPORTANCE
TO YOUR INDUSTRY, AND TO THE LONG-TERM GROWTH PERFORMANCE
OF THE AUSTRALIAN ECONOMY,