Reserve Bank of Australia Annual Report – 1973 Summary of Main Public Statements

Foreign currency arrangements

From 21 July, Australian residents could arrange to receive payments from and make payments to overseas countries in any foreign currency. Previous arrangements required foreign currency settlements to be in currencies appropriate to the monetary area in which a particular country was situated.

Following the Prime Minister's announcement on 26 September of policy changes in respect of overseas investment, including a prohibition on overseas borrowings repayable in two years or less, certain types of transactions between residents of the Australian currency area and residents of overseas sterling area countries which had been exempted in the past from the application of the exchange control regulations, were placed on the same footing as transactions with all other non-residents.

Following the Government's decision of 23 December to change the gold parity of the Australian dollar, new outer limits were set for banks' spot exchange transactions with the public in United States dollars; the Reserve Bank's rates for forward exchange transactions were set initially at a discount of 1 per cent per annum on the spot rates for the United States dollar. At the same time, details were outlined of the Government's deposit requirement scheme which obliged borrowers of overseas funds to lodge with the Bank an interest-free non-assignable deposit in Australian currency representing 25 per cent of the amount borrowed. Non-trade credit, borrowings not exceeding $100,000 and drawings under loan agreements already approved were exempted from the deposit requirement. The existing prohibition on overseas borrowings repayable in two years or less remained in force and was to be broadened.

From 12 February dealings in foreign exchange by Australian banks were suspended following the closure of major foreign exchange markets overseas. Banks were asked to provide the essential foreign currency needs of travellers. The I.M.F. parity of the Australian dollar was not changed following the devaluation of the United States dollar and new outer limits for banks' spot exchange transactions in United States dollars with the public were announced on 14 February. At the same time, the suspension was relaxed to allow banks to deal with the Bank in “spot” United States dollars only. Remaining restrictions were withdrawn on 15 February.

With the closure of major foreign exchange markets abroad, the Bank's dealings with Australian banks were restricted to United States dollars both spot and forward from 2 March to 19 March. As from 20 March the Bank resumed dealing with the Australian banks in sterling, as well as United States dollars. The past practice of quoting to the banks daily rates for Reserve Bank dealings in Canadian dollars was not resumed.

Monetary and banking policy — trading banks

(1 November 1972)

General arrangements for lending from Farm Development Loan Funds of the major trading banks were widened and the limitations on the type of rural lending from the Funds were lifted with interest rates charged on new longer-term lending to be at commercial rates. To enable banks to undertake this new lending the Funds were replenished by $65 million, two-thirds from the banks' Statutory Reserve Deposits, thereby reducing the ratio by 0.5 per cent to 6.6 per cent, and one-third from the banks' other assets.

(9 April 1973)

The Statutory Reserve Deposit ratio of the major trading banks was being increased from 6.6 per cent to 7.6 per cent of deposits, the increase to be made in two equal parts. Major trading banks were required to lodge an additional 0.5 per cent of their deposit liabilities with the Reserve Bank on 17 April, and the remainder on 30 April. Each lodgement amounted to about $50 million. With the economy advancing firmly it was felt prudent to modify the very easy monetary policy which had prevailed since December 1971.

(6 July 1973)

The Statutory Reserve Deposit ratio was being increased by 1 per cent on 2 August and by a further 1 per cent on 28 August. The action was being taken to bring about some further tightening in monetary conditions. Continuation of bank lending at the recent very high levels would add unduly to available funds, and an appreciably lower level of new lending was more appropriate to the current needs of the economy.

Term and Farm Development Loan Funds of the major trading banks were being replenished by about $103 million, about two-thirds of which would be provided from banks' Statutory Reserve Deposit Accounts by a reduction of 0.6 per cent in the Statutory Reserve Deposit ratio in early August and the balance by a transfer from banks' other assets by the end of September.