Reserve Bank of Australia Annual Report – 1967 Some Specific Activities

The Report so far has sought to describe economic and policy developments and the Bank's exercise of certain of its functions in relation to these. A number of activities not discussed earlier, in which there were developments which call for comment, are mentioned in this section.

Note Issue

Notes in circulation rose by $95 million over the twelve months to 30th June 1967; this contrasted sharply with the fall of $27 million during the previous twelve months. Over the two years prior to June 1965 notes in circulation had tended to remain relatively steady.

Since the changeover to decimal currency on 14th February 1966, banks have paid out to the public dollar notes and returned to the Reserve Bank all £.s.d. notes deposited with them. At 30th June 1967 £.s.d. notes represented only about 5 per cent of the total notes on issue.

The $5 note was first issued to the public on 29th May 1967. While a note of this denomination is a logical unit in a decimal system it had not been issued previously because it was felt that the decimal transition would be facilitated by limiting the initial decimal currency notes to denominations which simply duplicated the old £.s.d. system.

The $5 note was designed by Mr. Gordon Andrews, the designer of the dollar notes of other denominations, and was printed by the Note Printing Branch of the Bank in Melbourne.

By the end of June 1967 $5 notes comprised approximately 5 per cent of Australian notes in circulation. However, it is too early to see what lasting influence the introduction of the $5 note will have on the use of notes of the various denominations. In the period between the changeover to decimal currency and the introduction of this note it appeared that the $20 note and, to a lesser extent, the $1 note constituted a greater proportion of total notes on issue than did their £.s.d. counterparts. This can be seen in graph 19.

Graph 19

Notes in Circulation

Quarterly Level

During the year a number of counterfeit $10 notes were detected and the Bank gave and encouraged wide publicity of the characteristics of these forgeries to help their identification by the public. At the same time the Bank re-affirmed that, as is the case with other note issuing authorities, it is not its practice to pay compensation to members of the public who accept counterfeit notes. A major objection to the payment of compensation is that it would reduce the difficulty a forger has in having his counterfeits accepted since there would be little incentive for the general public to be on their guard against the acceptance of forgeries. It is, of course, an important part of the protection against forgeries that the public should, as a normal practice, make some examination of all notes received by them.

The Bank continued to produce at its Note Printing Branch many classes of security printing. Statistics showing changes in the volume of this work over the last four years are set out above.

Centralised Cash Facilities for Banks

During 1966/67 there was a steady increase in the use of the centralised system for the distribution of cash between the Reserve Bank and branches of eight banks in the Sydney metropolitan area. In November 1966 the system was extended to include New South Wales country branches in the cash supply arrangements and in February 1967 provision was made for these branches to consign surplus cash to the Reserve Bank. It is planned that services similar to those in operation in New South Wales will be made available to South Australian bank branches in the second half of 1967 and to Victorian branches in 1968.

Bonds and Stock

A substantial volume of business has continued to flow through the Bonds and Stock Departments of Reserve Bank branches. This relates mainly to the management and issue of Commonwealth Government securities but it also includes the operation of stock registries for some semi-government instrumentalities as well as the T.P.N.G. Administration.

The Commonwealth Government floated four internal cash and conversion loans during 1966/67 and continued the tap issues of Treasury notes and Special Bonds. The cash loans attracted some 11,000 subscribers who invested $554 million while $84 million was invested in Special Bonds by 53,000 subscribers. Conversion operations were required to cover an increased number of maturing securities. The 54,000 holders of the two series of maturing Special Bonds were offered conversion to the series of Special Bonds then on issue and the 66,000 holders of seven other series of maturing securities were offered conversion to new series ranging from 3 years to 35 years.

In the February and May cash loans, the Commonwealth offered short-dated securities on which the first interest payment fell due within a week of the closing of the loans. The processing of applications to these loans was required to be handled very quickly to ensure that investors received their interest payments without delay. In the May loan the Commonwealth introduced a further new development by issuing bonds for the short term series with a first coupon for three months' interest, whereas previously coupons attached to bonds had been for six months' interest.

Foreign Exchange Operations and Control

Transfers of funds on both capital and current account continue to be freely authorised in appropriate currencies on behalf of residents of overseas countries. Whilst close control was maintained over outward capital movements on Australian account, approvals were granted for certain direct overseas investments particularly in cases where it appeared that material benefit was likely to flow to the Australian balance of payments.

In consequence of the abolition by the United Kingdom authorities in April of “security” or “blocked” sterling, Australia now permits repatriation by non-sterling area residents of disposal proceeds of Australian securities in any foreign currency, regardless of the type of sterling funds originally invested. Previously repatriation was permitted in funds no more convertible than those in which the investment was placed.

It is evident from the material flowing through Exchange Control that the development of Australia's natural resources has continued to result in significant inflows of overseas capital. It is also apparent that the tendency for buyers of Australian goods in certain overseas countries to seek extended credit terms has continued.

Rural Credits Department Advances

Seasonal finance provided by the Bank's Rural Credits Department to assist marketing, processing or manufacture of primary produce, reached a peak of $437 million in March 1967 (see graph 20). In 1965/66 the peak level of $291 million had been reached in February.

Graph 20

Rural Credits Advances

Finance was again provided for a variety of commodities, notably wheat, dairy produce, sugar, canned fruits, barley, oats and eggs. For the first time, assistance was provided for the marketing of safflower seed, linseed, coffee and clover seed.

Favourable seasonal conditions resulted in higher levels of production for most of the commodities financed particularly wheat, and consequently increased demands for accommodation. Special assistance was made available to the sugar industry. The world market for sugar continued to be depressed throughout the year although, in the closing months of the financial year, the London market price strengthened from the very low point reached in January 1967.

Aggregate outstanding advances of $361 million at 30th June 1967, were $186 million higher than at the same date in 1966.

As from 1st March 1967 the interest rate on Rural Credits advances was increased by 0.25 per cent per annum. This made the rate on government guaranteed loans 4.50 per cent and other loans 4.75 per cent.

Research Funds

The Bank provides assistance for research from two funds. Grants are made from the Rural Credits Development Fund for research and extension work connected with the promotion of primary production. The Economic and Financial Research Fund provides financial support for post graduate research in economic and financial fields related to the Australian economy.

The Rural Credits Development Fund is financed by the transfer each year of half the net profits of the Rural Credits Department. Grants amounting to $618,000 were made to universities and to organisations engaged in extension work during 1966/67. These contributed to the establishment of a Post Graduate Diploma course in Farm Management Extension, a farm programming and planning service, a Readership in biometry and other research and extension projects. Grants of $5.9 million have been approved from the Fund since its inception in 1925.

Grants approved from the Economic and Financial Research Fund since its inception in 1952 have totalled $371,200 and for 1966/67 amounted to $46,700. Finance was granted during the year to assist research into various topics including international liquidity, foreign investment in Australian manufacturing, unemployment statistics in Australia, the impact of award wages on earnings, and company reporting.

Publications

The Bank continued to publish during the year the monthly Statistical Bulletin. An innovation this year was the incorporation of comments on financial developments in each issue of the Bulletin. Supplements to the Bulletin—Statistics of the Territory of Papua and New Guinea, Company Statistics and Flow-of-Funds—were also published.

In addition a weekly balance sheet, a weekly statement covering transactions by authorised dealers in the short term money market and a monthly statement of Australia's international reserves continued to be issued by the Bank.

A booklet called “Reserve Bank of Australia” which describes the origin, objectives, functions and activities of the Bank was also produced during the year. By the end of June 1967 some 23,000 copies had been distributed to businessmen, secondary and tertiary students and others with an interest in monetary affairs.

Premises

Melbourne Branch commenced operations in new premises at 60 Collins Street on 5th September 1966. The building, which is 240 feet high, has three basement levels for vaults and bulk cash handling, a ground floor entrance lobby and service area, and 16 upper floors.

Work has commenced on the construction of a four storey building for the Port Moresby Branch of the Bank, and also on a building in Darwin, where the Bank intends to open a branch early in 1968.

Planning for new branch buildings in Brisbane and Perth is proceeding.

Liaison Activities

The Bank continues to maintain frequent contact with members of the financial, business and academic communities and with other central bankers. This contact has enabled helpful exchanges of views in the course of which the Bank has obtained information which has proved to be very useful and for which we are most appreciative. The rural properties visited during 1965/66 seeking information on the impact of the drought were revisited during 1966/67 in order to obtain first-hand information of problems likely to be encountered in the recovery from drought conditions.

The Governors of the central banks of Denmark, England, Sweden and Switzerland and a Manager of the Bank for International Settlements in Basle visited Sydney in April to attend a conference at the Reserve Bank where central banking problems and practices in European countries and Australia were discussed. There were also other occasions during the year when overseas central bankers were able to visit Australia and to spend some time with the Bank. The Governor and some other senior officers visited financial centres in Europe, North America and Asia and this provided further opportunities to discuss developments and problems in the fields of monetary policy and central banking.

Since the end of the financial year a meeting has been held at the Bank to discuss techniques and applications of flow-of-funds statistics; this was attended by representatives of the central banks of Canada, England, Germany, Japan and U.S.A.