Reserve Bank of Australia Annual Report – 1972 Summary of Main Public Statements

Foreign currency arrangements

(August—December 1971)

On 17 August the authority of Australian banks to deal in foreign exchange was withdrawn because of the closure of overseas foreign exchange markets following the economic measures announced by the President of the United States. This authority was restored gradually. From 18 August banks were permitted to assist Australian residents to settle amounts contractually due in foreign exchange under trade transactions and to meet the reasonable needs of travellers.

From 23 August some technical changes were introduced, enabling banks to arrange sterling transactions with customers on their own account rather than as agents for the Reserve Bank. These changes altered arrangements in force since 1939 and put sterling transactions on a similar basis to transactions in U.S. and Canadian dollars. Foreign exchange reserves would continue to be centralised in the Reserve Bank and banks were still required to comply with exchange control requirements and, for the present, to observe the rates of exchange for sterling laid down by the Reserve Bank. From 24 August banks were permitted to undertake foreign exchange transactions involved in all normal trade transactions and other current account transactions contractually due. From 27 August the relaxation was extended to include some contractually due capital transactions and limited facilities (up to three months) were provided to banks to cover their forward positions arising from forward exchange contracts entered into by them with their customers in respect of trade transactions. The remaining limitations on foreign exchange dealings by banks were lifted with effect from 13 September. Banks were required, however, to sight specific Reserve Bank approval for all inward capital remittances of $250,000 or more before converting the foreign currency into Australian currency. The three months limitation on forward exchange facilities was removed from 27 September; banks also were given greater discretion to deal with their customers in sterling forward exchange at rates determined by them and, within limits, to vary the exchange rates at which they dealt with the public in spot transactions in sterling. These changes were intended to provide some scope for competition in the foreign exchange field.

From 20 December, dealings in foreign exchange by Australian banks were suspended following the closure of many foreign exchange markets overseas. Banks were authorized to resume foreign exchange business from 23 December. At the same time, some changes in foreign exchange practices were announced, resulting from the Government's decision to link the Australian dollar direct to the U.S. dollar.

(June 1972)

Dealings in foreign exchange by Australian banks were suspended from 26 June because of the closure of major foreign exchange markets overseas, following the United Kingdom's decision to allow sterling to float. Banks were asked to provide the essential foreign currency needs of travellers. From 28 June the suspension was relaxed to allow banks to assist Australian residents to settle transactions contractually due. A further relaxation from 4 July enabled banks to buy and sell foreign currencies for all normal trade and other current account transactions including travel, and all other transactions for Australian residents up to $5,000 per person. From 10 July this limit was raised to $250,000 and forward exchange facilities for trade transactions were restored, but on a different basis from previously. Remaining restrictions were removed from 13 July.

Monetary policy—trading banks

(13 December 1971)

Effective 20 December the Statutory Reserve Deposit ratio of the major trading banks was reduced from 8.9 per cent to 7.1 per cent. The release of funds was intended to strengthen trading banks' ability generally to lend to the private sector and to supplement funds available for term and farm development lending. The situation no longer required bank lending to remain under official restraint.

Term and Farm Development Loan Funds were replenished by amounts of about $68 million and $23 million respectively. The replenishments were made on the usual basis of two thirds from banks' Statutory Reserve Deposits and the balance from banks' other assets.

(3 February 1972)

Trading bank interest rates were reduced from 4 February. The maximum overdraft rate was reduced from 8.25 per cent p.a. to 7.75 per cent p.a.; the maximum applying to personal instalment loans was reduced from 6.50 per cent p.a. to 6.25 per cent p.a. (flat). Henceforth, the maximum overdraft rate would apply only on loans drawn under limits of less than $50,000. The interest rate on larger overdrafts then current would also be generally reduced but the extent would depend on arrangements between banks and their customers. Rates on fixed deposits and certificates of deposit were also generally reduced; in the case of deposits under $50,000 reductions ranged from 0.3 per cent p.a. to 1.0 per cent p.a. Greater freedom on interest rates was given to banks in dealing in larger amounts, i.e. on fixed deposits of $50,000 and over.

Short term money market

(26 January 1972)

The requirement that authorized dealers should hold additional amounts of government securities (“margins”) with the Reserve Bank in addition to security lodged with lenders, was withdrawn from 1 February.