Ceisteanna—Questions. Oral Answers. - Effect of Exchange Rate Policy.

Wednesday, 11 May 1994

Dáil Éireann Debate
Vol. 442 No. 6

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  9.  Mr. Deenihan  Information on Jimmy Deenihan  Zoom on Jimmy Deenihan   asked the Minister for Tourism and Trade  Information on Charlie McCreevy  Zoom on Charlie McCreevy   if his attention has been drawn to the recent concerns expressed by the Irish Exporters Association about the strength of the Irish pound against sterling and the problems that this could create for Irish companies especially in the food, clothing and furniture industries; and if he will make a statement on the matter.

Mr. McCreevy: Information on Charlie McCreevy  Zoom on Charlie McCreevy  I am aware of the comments made by the Irish Exporters' Association regarding the Irish pound/pound sterling exchange rate.

Overall, exchange rate policy is a matter for my colleague, the Minister for Finance, and the Central Bank. I am concerned, however, about developments which could make any of our exports less competitive. That is why, following the 1992-93 currency crisis, I exhorted firms to take steps towards improving their treasury management capability, and I placed particular emphasis on the need to explore the possibility of collective action by small and medium enterprises on a sectoral or geographical basis.

An Bord Tráchtála were asked to hold a number of regional seminars on treasury management to alert firms to the need for taking preventive steps and to advise them on the type of options open to them.

In addition, a small expert group, including a representative of the Exporters' Association, has been established, whose main job is to devise the best practice for small and medium enterprises in the treasury management area.

The group is expected to report by the autumn and it will have particular regard, of course, to the sectors perceived as being most vulnerable, including the food, clothing and furniture industries.

Mr. Deehihan: Information on Jimmy Deenihan  Zoom on Jimmy Deenihan  I am sure the Minister agrees that if we had a single European currency, this problem would not arise. What is the Government's policy now in relation to a single European currency?

[1227]An Ceann Comhairle: Information on Seán Treacy  Zoom on Seán Treacy  That clearly is a distinct and separate question.

Mr. Deenihan: Information on Jimmy Deenihan  Zoom on Jimmy Deenihan  It is very much linked to this question.

An Ceann Comhairle: Information on Seán Treacy  Zoom on Seán Treacy  The Deputy should put down a question on that matter.

Mr. Deenihan: Information on Jimmy Deenihan  Zoom on Jimmy Deenihan  In the event of a currency crisis or a strengthening of the Irish pound against sterling, is it the Minister's opinion that the Governor of the Central Bank should intervene to influence the trend of the pound to protect Irish exporters?

Mr. McCreevy: Information on Charlie McCreevy  Zoom on Charlie McCreevy  Having been Minister for Tourism and Trade during the last currency crisis and the Irish economy having survived that particular knock to its system, I believe we have learned some lessons. I realise the Deputy's question relates to the fluctuation but to believe that the only factor involved in exports is the exchange rate position is to misunderstand the issue. To have a successful export policy we must take account of low inflation and interest rates as well as other business factors. The exchange rate at a particular period is not the sole determining factor in deciding the level of exports; many other factors must be taken into consideration. The period during which we had a fixed exchange rate was hepful to Irish exporters in that they could plan further ahead.

I remember being in business before 1979 when we had parity with sterling. Every time there was a sterling crisis it affected the Irish pound. We then had the exchange rate mechanisms from 1979 to a period in the 1980s which allowed exporters to plan their activities a short time in advance. However, it also removed an essential aspect of business that existed in the 1970s which involved having to take account of one's treasury management function and many businesses forgot how to handle that aspect of their business.

Questions regarding a single European currency are premature and are not being [1228] considered at this stage. At present I am satisfied that the rate at which the Irish pound is trading is not placing an undue burden on exporters because of the other factors I outlined.

Mr. Deenihan: Information on Jimmy Deenihan  Zoom on Jimmy Deenihan  Will the Minister agree that if the Irish pound trades at 98p, it will pose a threat, particularly to the food, textile and furniture industries, as accepted by the Exporters' Association? The Minister outlined the measures various companies should take but what are the Government's contingency plans if we have another crisis similar to that in 1992? Has the Minister and his Department any immediate intervention plans to cope with such circumstances?

Mr. McCreevy: Information on Charlie McCreevy  Zoom on Charlie McCreevy  Exchange rate policy is a complicated mechanism and if one predicts it will go one way, it usually goes the other. The success of the Irish economy over the years has led to some exchange rate problems. The weakness of our near neighbour, the UK, due to the various aspects of its economy, is placing the Irish pound in a stronger position than sterling. Our successful economy has produced its own exchange rate difficulties vis-à-vis the UK and is exacerbated by the fact that while our dependence on the UK market has decreased since the 1960s from a ratio of approximately 70:30, 30 per cent of our total trade continues to be exported to the UK. Any strengthening of the Irish pound, therefore, vis-à-vis the pound sterling rate creates problems for Irish exporters.

The last currency crisis underlined one key aspect of which nobody seemed to be aware. Due to the competitive position of Irish exporters in the past number of years, they have held on to their market share despite the deteriorating currency position. Our strength in the other areas or the other economic indicators has convinced me that there is no crisis and, therefore, I see no reason to worry.


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