Reserve Bank of Australia Annual Report – 1960 Economic Survey

International Developments and the Balance of Payments

While 1959/60 was a year of continued recovery and expansion in world production and trade, not all countries shared in the increased prosperity. Growth was marked in the industrial economies and in a few countries producing raw materials, but many non-industrial countries, comprising a large part of the world, fared little better than in the previous year. Some under-developed countries, beset by the domestic problems of the initial stages of growth, were further handicapped by the failure of commodity prices to improve with industrial activity.

Although Australia was more fortunate than many other exporters of primary products, and export prices rose significantly, they still failed to recover their losses of the previous two years. Meanwhile, with continued growth in Australian industrial output and incomes, and the relaxation of restrictions, imports rose sharply.

Industrial countries

Expansion of output in industrial countries continued strongly in the early part of 1959/60 but slowed down later in the year.

Industrial output in the United States of America was 6 per cent higher than in 1958/59, despite a general steel strike from July to November, 1959. An atmosphere of uncertainty developed in the early months of 1960, with the seasonally adjusted index of industrial output showing little change from December to June. Although consumption and investment expenditures continued to rise, unemployment of around 5 per cent persisted, and in May and June credit conditions were eased, with an appreciable decline in interest rates.

Following several years of little or no change, industrial output in the United Kingdom rose by 10 per cent, and Japan maintained its remarkable growth, although by the end of the year rates of expansion were showing signs of slowing down in both these countries. At the same time, all evidence suggests that industrial production continued to increase strongly in the U.S.S.R. and China, and in the more industrialised of the countries of Eastern Europe.

Economic growth was also impressive in the European Economic Community, comprising Belgium, France, Italy, Luxembourg, the Netherlands and Western Germany. The combined industrial output of these countries was more than 10 per cent greater than in 1958/59. Early in 1960 the Community decided to accelerate its programme of economic integration. Meanwhile, the United Kingdom, Austria, Denmark, Norway, Portugal, Sweden and Switzerland came together in the European Free Trade Association which, besides working towards a free trade area, aspires to “build a bridge” in trade with the E.E.C. By mid-1960, however, little had come of the negotiations between the two trade areas.

Apprehensive of inflation in a year of fairly rapid growth, the authorities of industrial countries took firm, early measures, monetary and fiscal, to moderate the expansion of credit. U.S. and West German concern was largely with the movement of wages and costs. Western Germany, having absorbed its reserves of capital equipment and manpower, faced labour shortages and the probability of further wage increases.

In the United Kingdom, on the other hand, the threat of demand inflation and of consequent pressures on the balance of payments caused serious concern. Bank rate was raised from 4 to 5 per cent in January and the Budget in April was designed to moderate the rate of expansion; in June there was a further increase in Bank rate, to 6 per cent. The Bank of England has also introduced a Special Deposits scheme to help check the expansion of credit, and hire purchase terms have been restricted.

General Industrial Production Indexes

Graph Showing General Industrial Production Indexes

Individual countries experienced varying degrees of price increase. In the United Kingdom and United States the consumer price index rose during 1959/60 by about 1 per cent, but in Western Germany it rose by 3 per cent, in Japan by 6 per cent and France by about 5 per cent. In each case except Japan wages rose more than prices.

The weakness in the U.S. balance of payments evident in 1958/59 continued into 1959/60, but by late 1959 exports had begun to recover, imports levelled out and the gold outflow shrank. Excluding the gold subscription to the International Monetary Fund, the loss of Treasury gold was about $1,000 million less in 1959/60 than in the previous year, and the rate of increase in short term liabilities declined.

Whereas it was mainly Western European countries that added to their gold and foreign exchange reserves in 1958/59, increases in 1959/60 were more widespread. The year also saw a large expansion in the second line reserves, represented by member countries' subscriptions to the International Monetary Fund, which were increased by about 50 per cent to bring I.M.F. subscribed capital to over U.S. $14,000 million.

The United Kingdom's quota with the I.M.F. was increased in September, 1959, from $1,300 million to $1,950 million and, along with additional quotas for other sterling area countries, including Australia, substantial second line reserves were built up for the area as a whole. The United Kingdom's first line reserves of gold and foreign exchange fell by $269 million during 1959/60 to $2,903 million, but this reflected heavy loan repayments, including the early repayment of the 1957 Export-Import Bank loan of $250 million.

Non-industrial countries

While activity in industrial countries was at record levels in 1959/60, conditions in many other economies were unsatisfactory, due largely to the disappointingly small improvement, from their viewpoint, in the general level of world commodity prices and trade and the persistent deterioration in the terms of trade of some primary producing countries. In spite of higher rates of consumption of many raw materials, the gains made in 1958/59 were not generally added to in 1959/60 and there were further price falls in a number of important commodities. Thus, while total world exports expanded, the rise was confined mainly to manufactured goods.

“The Economist” index of commodity prices was about 4 per cent higher on average in 1959/60 than in the previous year, but this was due to the recovery in the later part of 1958/59. There was little change in the index during 1959/60, although experience differed as between commodities.

The moves during the year in various countries to relax import and exchange controls benefited exports of manufactures most and failed to relieve the plight of the less developed countries, including those of South-East Asia, where growth fell short of targets set in development plans. Largely owing to enforced cuts in imports of capital goods, growth of output during India's second five-year plan from 1956/57 to 1960/61, though substantial, has been less than expected, while the growth of population and unemployment has been greater. Good rubber markets facilitated the recovery of the rubber exporting countries of South-East Asia; Malaya had a good year, but political uncertainties added to the difficulties of Ceylon and Indonesia.

The slow and in many cases only partial recovery of under-developed countries from the effects of the recession years 1957–1958 has emphasised that much more needs to be done to raise the incomes of these countries. There is now a greater recognition that the problems of the less developed countries are world problems, calling for co-operative action to help build their capital goods industries and set them on the road to self-sustaining growth.

There was in fact some progress in economic co-operation in these fields during 1959/60. International aid and investment are growing and progress was made towards the establishment of an International Development Association, linked with the International Bank, to lend to less developed countries on flexible terms for worthwhile development projects that cannot be otherwise financed.

Australian balance of payments

Export income in 1959/60 rose sharply from the levels of the previous two years and capital inflow, both private and official, continued at a high rate. The overall improvement in receipts was balanced by a higher expenditure on imports, resulting from increased economic activity and the progressive relaxation of import restrictions. International reserves fell slightly over the year.

Although the terms of trade showed some improvement in 1959/60, they did not fully regain the substantial loss which had occurred in the previous two years. In fact, they were still considerably less favourable than in any year from 1947/48 to 1957/58, and worse than in the late 1930's.

Most of the improvement in 1959/60 was due to a marked rise in wool prices in the June quarter of 1959; prices rose further at the opening sales of the 1959/60 season, but this advance was not maintained and, although the average price for the year was 17 per cent above that of 1958/59, prices at the end of the season were much the same as a year earlier. Butter prices in the first half of the year reached their highest level for four years, but fell sharply in later months, and by the end of June were lower than in June, 1959. Metal prices showed some improvement but prices for most other primary products were lower.

Export Volume and Terms of Trade

Graph Showing Export Volume and Terms of Trade

On average, export prices were 11 per cent higher than in 1958/59, but at the end of June were only 2 per cent above those of a year earlier. Meanwhile import prices rose fractionally, reflecting slightly higher prices for imports from most countries. Prices of machinery, textiles and some basic materials rose but these increases were partly offset by lower prices for petroleum and some foodstuffs.

Direction of Australian Trade — Percentages of Totals

Graph Showing Direction of Australian Trade — Percentages of Totals
Australian Balance of Payments (£A. million) 1957/58 1958/59 1959/60
Exports +810 +810 +936
Imports −791 −796 −946
Trade balance +19 +14 −10
Net invisibles −193 −221 −233
Current account balance −174 −207 −243
Capital—official +8 +20 +31
private (including errors and omissions) +125 +178 +208
Movement in reserves −41 −9 4

Export income in 1959/60 was £126 million higher than in 1958/59 and the total of £936 million was the third highest on record. Almost all the increase can be attributed to our two major exports, wool and wheat. A record level of wool production and a higher average price combined to raise the value of wool exports from £317 million in 1958/59 to £410 million in 1959/60. A feature of the auctions over the last few years has been the increased buying by Japan, which in 1959/60 was our largest customer, taking a quarter of our total wool exports.

Shipments of wheat and flour rose by £25 million to £77 million, due mainly to increased demand from the Middle East, India and Japan. Butter proceeds were £4 million higher than in 1958/59, but meat exports, particularly of lamb and mutton, were lower. However, during the year the demand from the United States for beef and veal continued at a high level, and that country took more of Australia's exports than the United Kingdom, normally our main market. Lower prices and reduced shipments were responsible for a fall in the value of sugar exports.

There were only small increases in exports of manufactured goods generally, but exports of iron and steel rose by £6 million to a record level of £31 million.

The Government relaxed import restrictions in August and December, 1959, and again in February, 1960, by which time 90 per cent of imports were free from licensing. Although the full effect of the latest relaxations was not apparent by the end of 1959/60, imports for the year rose by £150 million to £946 million (including aircraft not recorded in monthly trade statistics). This was the highest annual figure since the import boom of 1951/52. In the June quarter imports were running at an annual rate of £1,020 million. The main increases over the year were in machines and machinery, metals and metal manufactures, textiles, rubber, drugs and chemicals. As usual, the United Kingdom was Australia's major supplier, although its percentage share continued to fall. There was a sharp increase in imports from the United States and Canada, reflecting the progressive removal of discrimination against dollar goods. Imports from the countries of the European Economic Community and from Japan also rose strongly.

Net invisible payments in 1959/60 were £12 million higher than in the previous year. The higher volume of imports was responsible for an increase in freight payments, and expenditure by Australians travelling abroad also rose, but these increases were partly offset by increased expenditure by overseas ships in Australian ports. There was little change in investment income payable overseas.

The net inflow of official capital in 1959/60 amounted to about £31 million, compared with £20 million in 1958/59. During the year the Commonwealth Government floated four new loans abroad, two in New York, each of $25 million (£11 million), one in London for £Eng. 12 million and another in Switzerland for 60 million Swiss Francs (£6 million). In addition, drawings under loans previously arranged in New York amounted to the equivalent of £5 million. In June, 1960, the Government arranged loans totalling $30 million from the Export-Import Bank and a group of United States companies to finance the re-equipment programme of Qantas Empire Airways Ltd., but no drawings under these loans had been made by the end of the financial year. Repayments under existing loans from the International Bank for Reconstruction and Development amounted to £7 million and the International Bank drew on Australia for £3 million, representing a portion of Australia's capital subscription.

During the year Australia was granted a further increase in its quota with the International Monetary Fund from $300 million to $400 million and this required a payment in gold equivalent to $25 million. The remaining $75 million was payable in Australian currency and was met by the lodgment of a non-negotiable non-interest-bearing security with the Reserve Bank as depository for the Fund in Australia. The increased quota means that Australia's second line reserves, in the form of potential drawing rights on the International Monetary Fund, is now $473 million, equivalent to £211 million. Along with the increase in the I.M.F. quota Australia raised its capital subscription with the I.B.R.D. from $400 million to $533 million and this involved a payment to that institution of $1.3 million. A further $12 million was subscribed in Australian currency by lodgment of a note similar to that lodged with the Fund and the balance of $120 million remains uncalled.

Private capital inflow increased to £208 million, £30 million more than in the previous year. Although no official statistics are yet available, it is clear that investment in branches and subsidiaries of overseas companies continued at a high level, and there appears to have been a further increase in portfolio investment.

So far as the immediate prospects for the balance of payments are concerned, much will depend on the extent of any increase in imports. Unless wool prices or capital inflow rise from their 1959/60 levels, it seems likely that any increase in imports in 1960/61 will need to be financed out of international reserves.

In the long run the success of our programme of rapid economic development will depend largely upon our ability to continue to import large quantities of equipment and materials from overseas. This in turn will depend mainly upon our capacity to earn from our exports the income we need to pay for them.

Net Capital Inflow (£ million)

Graph Showing Net Capital Inflow (£ million)

As in the past the primary industries will continue to provide the bulk of our export earnings but there are indications that world demand for our main export products is not growing with our needs for foreign exchange to pay for imports and meet other commitments. Consequently, manufacturing industries must play an increasing part in the expansion of export income. Such an expansion requires that our costs of production, both in primary and secondary industries, should be competitive with those of other trading countries.

Gold and foreign exchange holdings

Australia's net gold and foreign exchange holdings fell slightly during the early part of 1959/60 but the seasonal increase in export proceeds enabled them to rise to £547 million by the end of December, £31 million more than in June, 1959. In subsequent months an inflow of official capital helped to maintain reserves, but towards the end of the year the increased flow of imports, together with subscriptions to international institutions, resulted in a substantial fall. Reserves at 30th June, 1960, stood at £512 million, £4 million less than a year earlier; central reserves totalled £460 million and working balances £52 million.

Net Gold and Foreign Exchange Holdings Official and Banking Institutions
(£A. million)
End of
Foreign Exchange
1956 73.2 21.8 31.4 228.6 355.0
1957 51.7 26.7 43.8 444.3 566.5
1958 65.8 27.0 43.8 388.8 525.4
1959 60.2 32.0 34.7 389.5 516.4
1960 66.5 42.6 44.1 358.8 512.0


The year 1959/60 was one of continued expansion and prosperity. Population growth continued and there were significant gains in productivity. Wages and profits rose strongly, and although prices increased faster than in previous years, most people enjoyed a higher material standard of living than ever before. At the same time, investment expenditure increased sharply.

These conditions brought with them increasing pressure on resources. Rises in costs and prices were larger than for several years, and further increases appeared to be in prospect.


Each of the principal forms of expenditure increased over the year. Personal consumption expenditure showed a rise of 9 per cent, compared with 5 per cent in 1958/59; this increase was partly due to the rise in population and prices but also indicated some increase in real per capita consumption. While the higher level of spending was well spread over the several groups of consumer goods and services, the most significant increases took place in sales of clothing, drapery and footwear, electrical goods (notably television sets) and furniture. This increase in consumption expenditure, particularly in the field of consumer durables, was undoubtedly stimulated by wage increases; although many of these increases were granted during the second half of the year they were, in a number of instances, retrospective to December or earlier.

Expenditure on construction rose strongly during the year. The increase of 9 per cent in expenditure on residential building again reflected some rise in building costs, but more houses were commenced and more completed in 1959/60 than in any previous year. Investment in non-residential buildings, which had levelled off over the two preceding years, also rose significantly. Although facilitated by the increased finance available, the higher construction outlays reflect the strong demand for private buildings of all kinds. The demand for new dwellings is particularly buoyant.

Outlay on new motor vehicles rose substantially under the stimulus of higher incomes and ready access to credit from finance houses. New registrations of cars and commercial vehicles, at nearly 300,000, were some 20 per cent above the previous record in 1958/59.

Rural investment was well maintained despite the lower farm incomes in recent years. There was an upward trend in investment by industry in new capital equipment, mainly in the engineering and vehicle industries, and in those producing food, drink and tobacco.

The proportion of available supplies being used for gross capital formation continued to run at about one-quarter. This figure, although high in relation to our pre-war experience, is not especially so by comparison with some other countries (e.g. some of the countries of Western Europe).

Moreover, when allowance is made for the fact that gross capital formation includes expenditure on dwellings and cars, which has been running at extremely high levels, the proportion of resources made available to equip our growing population and to raise standards of production and consumption is not high in relation to our needs. There is still a widespread need for improved transport and other productive facilities and for social equipment such as schools and hospitals for our increasing population.


The increase in expenditure was met partly by an increase in imports, but domestic output for the home market rose substantially in response to the higher level of demand.

Although seasonal conditions were generally favourable to the animal industries, particularly wool and dairying, they were unfavourable at crucial periods for many crops. Overall, the volume of rural production fell slightly over the year. Wool production increased by a further 6 per cent to 1,689 million lb. (greasy) and dairy production also reached record levels, but output fell in the cereal-growing industries and meat production declined slightly.

Outstanding gains were recorded in the production of electricity and ingot steel, although demand for some types of steel increased much faster than output and shortages developed despite the diversion of supplies from export markets to the local market. Marked rises also occurred in the output of durable goods, particularly motor bodies, television sets and other electrical goods. Generally the picture of secondary industry in 1959/60 was one of rising output and buoyant activity.

The industrial structure has continued to broaden with an increasing complexity of production in many fields. The most important increase has been in heavy industry, embracing the manufacture of both capital goods and consumer durables, and chemical and allied industries and the oil industry have grown rapidly. In 1959/60, our additional requirements for the products of heavy industry were met jointly by imports and local products, but the increase in the demand for consumer durables was largely matched by higher levels of domestic production.


Increased production in 1959/60 was due partly to higher productivity and partly to higher employment. The population increased by some 220,000 over the year, and was about 2 per cent higher than in 1958/59. With larger numbers of young people entering employment for the first time, and a high working-age component in the intake of migrants during the year, the work-force increased more rapidly than in previous years, and with expenditure buoyant the whole of the increase was absorbed into employment. The average number of wage and salary earners recorded over the year was 3,040,000, an increase of 73,000 or nearly 2½ per cent compared with the previous year.

Unemployment, which at the beginning of the year was low in relation to nearly all other countries, fell further, and by the end of the year there was evidence of shortages of skilled labour in some industries. By the end of June the number of unemployed applicants registered with the Commonwealth Employment Service had fallen to 47,000, a reduction of some 19,000 over the year, and the number of persons receiving unemployment benefit had fallen from 27,500 to 16,300. Over the same period the number of registered unfilled vacancies increased by 12,000 to 32,000. At June, 1960, there were more unfilled vacancies and fewer unemployed applicants and persons on benefit than at any June since 1956.

Over the next few years there will be a rapid increase in the number of young people leaving school and becoming available for employment, and as a result the number of people in the work force will rise at a faster rate.

Registered Unemployed Applicants and Registered Unfilled Vacancies (Seasonally adjusted)

Graph Showing Registered Unemployed Applicants and Registered Unfilled Vacancies (Seasonally adjusted)

Costs and prices

Following the June, 1959, basic wage increase of 15/- per week and subsequent widespread rises in wage margins, prices and wages showed their most marked advance for some years. The increases in award rates were reflected almost entirely in actual earnings, with little evidence of any reduction in over-award payments. Average weekly earnings per male unit were 9 per cent higher in the March quarter than twelve months earlier.

A new retail price index, entitled the Consumer Price Index, was recently released by the Commonwealth Statistician. This index for 1959/60 was, on the average, 2½ per cent higher than in 1958/59. Over the year the index rose by about 4 per cent, compared with 2 per cent in 1958/59 and 1 per cent a year earlier. The Wholesale Price Index, after remaining fairly steady in the first half of the year, rose by 8 per cent in the second half; most of the increase resulted from higher prices for Australian-produced goods.

In view of the increase in the basic wage and margins, some increase in prices was probably unavoidable, but it is disappointing that the increase was greater than in either of the two preceding years. Regrettably, many sections of the community are still accepting continued price increases as inevitable, and instead of resisting inflation are looking about for new ways of protecting themselves from its effects. At the same time, new institutional facilities are encouraging the belief that protection from inflation is in fact possible. There is a very real danger, however, that in their attempt to protect themselves, they will only aggravate the price rises.

There is no doubt that rising prices are undesirable. Apart from the unnecessary hardship imposed on those sections of the community who cannot pass on cost increases, they cause serious economic distortions and waste of resources.

It is not enough, however, to avoid as far as possible any price increases in individual commodities. If prices overall are not to rise, the prices of goods from industries whose productivity is increasing rapidly must fall, to permit some increases in goods and services where the opportunity for productivity growth is much smaller, or where costs are rising from external causes. It is only in this way that the fruits of economic progress can be equitably shared.

Sources of finance

The higher level of activity in 1959/60 was accompanied by increased borrowing, both from the banks and from institutions outside the banking system.

Total new loan approvals by the major trading banks were higher and outstanding advances rose strongly, particularly in the second half. The increase in advances by these banks over the year was about £99 million or 11 per cent.

The additional finance available from banks and other lending institutions was a major factor in the high rate of dwelling construction. Loan approvals for new housing by the major institutional lenders showed a significant increase in the July-December period of 1959; some levelling-off occurred in later months but over 1959/60 as a whole the volume of funds channelled into new housing by these lenders was materially greater than in earlier years.

New Capital Raisings (by listed Companies in Australia)

Graph Showing New Capital Raisings (by listed Companies in Australia)
Finance for Housing 1957/58 1958/59 1959/60*
Number of loans/contracts ('000) 50.3 54.6 57.6
Amount of finance (£ million) 123.4 138.1 154.0
*Partly Estimated
Includes building contracts let by Government Housing Authorities and loans approved by trading banks, savings banks, major life assurance societies, the Commonwealth War Service Homes Division and certain building/housing societies in New South Wales, Victoria and Queensland (including societies financed under the Commonwealth and State Housing Agreement).

The banks provided the greater part of the additional funds for housing, but assurance societies and building/housing societies also contributed to the increase. Of the funds provided under the Commonwealth and State Housing Agreement, a proportion was again made available through building societies; these bodies also received substantial assistance from the banking system.

Although building costs showed some rise over the year, the difficulties of home ownership were increased much more by the very sharp rise in the price of residential land, partly as a result of speculation in land sub-divisions.

Borrowing and lending outside the banking system continued to increase very rapidly. Retail hire purchase outstandings of finance businesses had risen by £58 million or 16 per cent by April. Financing of motor vehicles, tractors, plant and machinery again accounted for most of the increase, with little change in the amount provided for the financing of household and personal goods. In addition, there was a strong movement by finance companies into fields other than hire purchase, such as housing finance and personal loans, which are not included in the above figures.

A high proportion of finance for growth was again provided by companies from internal sources. However, by March listed companies had raised £184 million in new money from the market, an increase of £41 million or 29 per cent on the first nine months of 1958/59. There was little change in raisings by share issues, but issues of debentures, notes and deposits have shown an increase to more than four times the amount of total share raisings. Convertible notes have become a popular means of obtaining new finance, and figures already available indicate that raisings in this way in 1959/60 were more than twice as high as the £10 million raised in the previous year.

Business in the share market was very buoyant throughout the year, although there was some uncertainty in the second half. After rising by 30 per cent in the first seven months, the Sydney Stock Exchange share price index for all ordinary shares fell in February by 7 per cent but recovered this loss in subsequent months.

The year was marked by increased take-over activity and by heightened company interest in real estate. There were increasing signs of speculation, which was to some extent responsible for the rises in share and land prices.

As in 1958/59, the financial operations of the Commonwealth Government resulted in a smaller cash deficiency than had been estimated; this arose principally because taxation revenue was greater than expected. Consequently, the Commonwealth Government was able to support the Loan Council programme as arranged, and to meet its other commitments with a smaller issue of Treasury bills than the £61 million which had been contemplated in the Budget.

The Commonwealth cash position over several recent years has been as shown in the table below.

The Loan Council programme of £220 million for State works and housing in 1959/60 was not varied, but approval was given for the raising of an additional £4 million by local and semi-governmental borrowers, thus increasing their approved borrowing to £104 million.

Volume of money

The volume of money in Australia rose during 1959/60 by about 8 per cent, compared with an increase of 5 per cent in the previous year.

Commonwealth Cash Position (£ million) 1956/57 1957/58 1958/59 1959/60
Increase in Treasury bills on issue −15 −10 31 30
Increase in cash balances 2 1 1
Cash deficit −17 −10 30 29
Treasury bills on issue at end of year 150 140 171 201
Volume of Money—Averages for June (£ million) 1957 1958 1959 1960
Notes and coin in hands of public 369 375 382 400
Deposits of public with all cheque paying banks 1,517 1,514 1,577 1,684
Deposits with all savings banks 1,218 1,288 1,379 1,512
  3,104 3,177 3,338 3,596
Analysis of Changes in Volume of Money (£ million) 1957/58 1958/59 1959/60
Movement in International reserves −41 −9 −4
Government cash position −10 +30 +29
Government debt position* +21 +97 +51†
Loans and advances      
All cheque paying banks +82 −27 +102
Savings banks +26 +33 +40
Rural Credits Department −5 +37 −1
Miscellaneous factors −2 +35 +67
  +71 +196 +284†
Less increase in public's holdings of Commonwealth Government securities −2 +35 +26†
Volume of money +73 +161 +258
Notes and coin in hands of public +6 +7 +18
Deposits of public with all cheque paying banks −3 +63 +107
Deposits with all savings banks +70 +91 +133
*Commonwealth Government securities other than Treasury bills; excludes holdings by governments.
Net holdings of Commonwealth Government Securities redeemable in Australia (including Treasury bills) (Movement—£ million)
  1956/57 1957/58 1958/59 1959/60†
Reserve Bank* −31 +19 −8 +38
All cheque paying banks +44 −21 +78 −38
Savings banks +33 +15 +23 +55
Other non-Government holdings −6 −2 +35 +26
Total +40 +11 +128 +81
*Before 14th January, 1960, Commonwealth Bank holdings including Mortgage Bank Department and Industrial Finance Department.

Deposits of the public with cheque paying banks increased by £107 million compared with £63 million in 1958/59. The increase of £133 million in savings bank deposits was an all-time record.

Government debt in Australia rose less than in 1958/59, but loans and advances by the banking system increased much more than in the previous year. The increase in miscellaneous factors was due largely to a rise of £36 million in savings bank holdings of local and semi-governmental securities, compared with £24 million in 1958/59.

The volume of money at June, 1960, was about 53 per cent of the gross national product for 1959/60, much the same as the ratio for the two previous years. However, debits to accounts of trading bank customers were on the average about 17 per cent higher than in the previous year. This rise was proportionately greater than the increase in trading bank deposits, an indication that the rate of turnover of this part of the money supply is increasing.

The greater rise in bank debits than in gross national product arises mainly from the development of the financial structure and the diversification of non-bank financial institutions. It also reflects the increased turnover at rising prices of existing assets and claims, particularly land and shares.

Volume of Money and other Aggregates

Graph Showing Volume of Money and other Aggregates

Non-bank financial institutions

Mention has already been made of the growth of borrowing and lending outside the banking system.

A range of institutions participates with banks in the general task of collecting funds from lenders and distributing funds to borrowers. Some of these institutions have operated in Australia for a long period and some are of quite recent origin—e.g. life insurance offices have operated for over a hundred years while the official short term money market began operations only in 1959. In the post-war period, Australia, along with many other countries, has seen an expansion in the business of existing institutions and the development of new groups. Both the growth of new types of institutions and of new types of contracts between borrowers and lenders are evidence of an increasing specialisation in markets for funds.

As a contribution to the problem of measuring the movement of funds, work was begun in the Bank in 1957 on estimating flow-of-funds accounts for the Australian economy. Part of this programme has involved the compilation of aggregate balance sheets for various financial groups. Detailed results and a description of the composition of items will be published shortly.

In the meantime, however, the following table gives an indication of the total assets in respect of their Australian business of certain groups of financial institutions in June, 1953, and June, 1958.

Total Assets in respect of Australian business (£m) June 1953 June 1958
Trading banks 1,548 1,791
Savings banks 1,000 1,358
Life insurance offices 559 851
Pension funds 235 438
Hire purchase and other instalment credit companies 89 364
Building societies 121 198
Non-life insurance offices 101 168
Pastoral finance companies 129 166
Unit trusts and investment companies 19 51
Friendly and health societies 28 43

While an increase in the range of activities of financial institutions is a natural accompaniment to economic growth and diversification, the problems which such an increase entails need to be carefully considered. These arise not only in relation to the regulation of general economic activity but also in relation to the growing amount of funds entrusted by the public to bodies which, unlike banks, are not closely supervised or required by law to conduct their affairs in a way which ensures their continuing ability to meet cash withdrawals.