Australian decision after long meeting

Press, Volume CXI, Issue 32797, 23 December 1971, Page 1

Australian decision after long meeting

(N .2.P. A.-Reuter—Copyright)

CANBERRA, December 22.

The Australian Government tonight devalued the Australian dollar by about 1.75 per cent after a Cabinet meeting which lasted 10 hours and a half.

The Prime Minister (Mr McMahon) said the Government had decided to establish a market rate for the Australian dollar which was 6.32 per cent above the devalued United States dollar.

He said: “This means an over-all depreciation in relation to the parities of our trading partners as a whole of approximately 1.75 per cent.”

He said that on this basis the Government had decided that the Reserve Bank would fix market limits for buying and selling centring on a mid point of 1.1910 United States dollars to the Australian dollar.

Mr McMahon said that the changes in currency rates would affect some rural industries where times were already difficult Mr McMahon said that the Government was pressing ahead with its urgent examination of the extraordinarily high rate of capital inflow over the last 18 months “We will not hesitate to take what action we consider necessary,” he saidHe said: “The Government has also decided that in future exchange rates for the Australian dollar will be fixed on the United States dollar rather than on sterling as has previously been the practice.”

Mr McMahon said: “On this basis the daily quotations for the Australian dollar will maintain a fixed relationship with the United States dollar.” Mr McMahon said that having in mind the margin of 2| per cent above the gold parity recently approved by the International Monetary Fund, the Government’s decision was consistent with maintaining Australia's gold parity in the fund. He said that Australia's gold parity showed an appreciation of 8.57 per cent on the previous parity relationship with the United States dollar. I.M.F. obligation Mr McMahon said the gold parity of a country’s currency was a matter for its own determination, but as a member of the International Monetary Fund Australia had an obligation to obtain the fund’s concurrence to any change Australia might wish to make in the parity of the Australian dollar. He said: “Having regard to the present strength of our balance of payments, there would not have been any possibility of demonstrating to the fund that we are suffering from a fundamental dis-

equilibrium, the condition that must be satisfied to gain the fund’s concurrence.” Earlier, the leader of the Federal Country Party (Mr Anthony), theatened to withdraw his party from the Federal Coalition Government unless the Cabinet agreed to devalue the dollar. Mr Anthony delivered this ultimatum on the third day of the dollar crisis. The Country Party holds 20 seats to the Liberal Party’s 66 in the 125seat House. Mr Anthony was pressing for the dollar to be 5.2 per cent above the United States dollar. The Liberal members of the Cabinet wanted to revalue the dollar by 8.57 per cent to keep it in line with the franc and sterling. The Liberals hoped that by revaluing by the full amount, the inflationary tendencies in the Australian economy would be countered. However, Mr Anthony said that the Liberals’ plan would cause a further reduction in farm income at a time when fanners were already seeking relief. Mr Anthony therefore

called for the devaluation. This- will strengthen Australia’s export position although at lower prices. To counter this, foreign imports will be more expensive.