Reserve Bank of Australia Annual Report – 1974 Other Matters

Papua New Guinea

Direct representation by the Reserve Bank in Papua New Guinea ended on 1 November 1973, when the Australian Reserve Bank Act 1959–1973 and the Banking Act 1959–1973 ceased to apply to that country. On the same date legislation came into effect in Papua New Guinea to establish the country's own central bank, the Bank of Papua New Guinea, and to provide for the licensing and supervision of banks and other financial institutions.

The initial capital of the Bank of Papua New Guinea is $5 million of which $2 million was provided by the Australian Government as a special grant to cover the cost of premises and other property acquired from the Reserve Bank.

At hand-over, the staff of the Bank of Papua New Guinea totalled 95, of whom 80 were Papua New Guineans, and 15 Australians seconded from the Reserve Bank. At 30 June 1974 completion of normal terms of secondment had reduced the number of Australians attached to the Bank of Papua New Guinea to 12.

The four Australian banks with branches in Papua New Guinea—the Commonwealth Banking Corporation, Bank of New South Wales, ANZ Banking Group and The National Bank of Australasia—were licensed under Papua New Guinea law to continue to operate in that country. On 22 April 1974 the bulk of the Commonwealth Banking Corporation's assets and liabilities in Papua New Guinea were transferred to a new government commercial bank, the Papua New Guinea Banking Corporation. However, certain accounts with special contractual aspects were not transferred and will continue to be conducted by the Commonwealth Trading Bank in Port Moresby. The Australian Government made a special grant to the Papua New Guinea Government of $10 million for the initial capital of the Papua New Guinea Banking Corporation. Later in the year The National Bank incorporated the Bank of South Pacific Limited to take over its Papua New Guinea operations from 1 October 1974.

Papua New Guinea has introduced its own exchange control regulations with special provisions exempting its residents' transactions with Australia. This action reciprocates exemptions issued by the Reserve Bank in respect of dealings by Australian residents with Papua New Guinea. With the Australian Banking Act ceasing to apply to Papua New Guinea after 31 October 1973 the Australian Banking (Foreign Exchange) Regulations otherwise would have applied to dealings by Australian residents with Papua New Guinea. It is presently expected that exchange control will not operate on transactions by Australian residents with Papua New Guinea until Australian currency ceases to be legal tender in that country.

In July 1973 the Papua New Guinea Government announced its intention to introduce a separate currency for Papua New Guinea, but elected to continue in the meantime to use Australian notes and coins. The Reserve Bank is assisting the Bank of Papua New Guinea in meeting the costs associated with the circulation of Australian currency in Papua New Guinea. In March 1974 the Papua New Guinea Minister for Finance announced that new notes and coins were unlikely to be ready for introduction before March 1975. The Minister confirmed that, when introduced, Papua New Guinea's currency will exchange initially with Australian currency on a one-for-one basis. The Reserve Bank has been awarded a contract to print a three year supply of the new Papua New Guinea currency notes.

Note Issue

The Australian note circulation increased by 22 per cent during 1973/74 to a total of $2,164 million. This compares with increases of 10 per cent and 17 per cent in the years 1971/72 and 1972/73 respectively. At end June 1974 the $50 note, which was placed in circulation on 9 October 1973, accounted for 9 per cent of the total value of notes in circulation. With the introduction of the new note the proportion of $10 and $20 notes on issue each fell by about four percentage points.

In addition to producing 337 million Australian notes in 1973/74 the Printing Division of the Bank's Note Issue Department in Melbourne also produced 1,570 million pieces of other security printing such as stamps and postal orders. Detailed planning is proceeding for the relocation of the Printing Division from its present outdated premises to a new note printing works to be built on the Bank's site at Craigieburn near Melbourne.

In the early part of 1973 the Bank invited representatives of note printers and issuing authorities from Canada, Indonesia, Japan, Mexico, Thailand and the United States to visit Australia for exploratory discussions about the possibility of joining with the Bank in the establishment of a Pacific Rim Banknote Printers' Conference. These discussions took place during the year and it was agreed that the Conference should be formed for the purpose of regular exchanges of views on note printing and note issue matters, discussion of mutual problems and sharing of knowledge and expertise.

By arrangement with banks the Reserve Bank services the notes and coin requirements of their individual branches. These direct cash servicing arrangements were introduced in New South Wales in 1965 and later extended to Victoria and South Australia. They were further extended to Queensland and Western Australia during 1973/74 in conjunction with the re-location in new premises of the Reserve Bank branches in Brisbane and Perth. In each State involved the Reserve Bank has established a processing centre and transport and despatching services to enable efficient handling of the very large cash flows generated within the banking system by community needs. At 30 June 1974 the facilities were available to some 5,000 bank branches.

Services to Governments

The Reserve Bank is banker to the Australian Government, the governments of four of the States, and the Administration of the Northern Territory. In this capacity the Bank processed approximately 74 million cheques during the year. This was about 8 per cent more than in the previous twelve months and is estimated to have been about 9 per cent of the total cheque issue in Australia. The majority of cheques drawn on the Bank are for regular welfare payments by the Australian Government. The Bank works closely with the Australian Treasury and other government departments to effect economies in cheque issues and to simplify the mechanism of government payments.

Additionally the Bank in 1973/74, through the Inscribed Stock Registries conducted at each of its branches, managed three cash and conversion loans, and the redemption of securities which matured in May, on behalf of the Australian Government. The face value of government debt serviced by the Bank rose by $797 million to $11,328 million during the year. Two further Fiji loans were inscribed on the Register, maintained by the Bank in Melbourne, of Fiji Government loans in Australia. The Registry formerly conducted by the Reserve Bank at Port Moresby for the Papua New Guinea Administration was transferred to the Bank of Papua New Guinea when it began operations on 1 November 1973.

Rural Credits Department

Seasonal finance provided by the Bank's Rural Credits Department to assist the marketing, processing or manufacture of primary produce reached a peak of $380 million in February 1974, $29 million higher than the peak for the previous year. Outstanding advances at 30 June 1974 were $202 million compared with $206 million a year earlier. Wheat, barley and oats advances were higher than last year while lending for cotton and dairy produce was slightly lower. Finance provided for other commodities was little changed from 1972/73.

Deliveries to the Australian Wheat Board from the 1973/74 harvest amounted to 11.2 million tonnes, the third largest on record, and 5.7 million tonnes more than in 1972/73. With the strong world demand for wheat the exportable surplus has been sold or firmly committed at substantially higher prices.

Interest rates charged on Rural Credits Department advances were increased on 20 September 1973 to a range of 7.0/7.25 per cent, and increased further to a range of 9.5/10.0 per cent on 15 July 1974.