More featuring Hugh Morgan»

Richard Anderson, “WMC chief urges return of a gold standard,”
The Australian, July 8, 1988, p. 12.

The managing director of Western Mining Corp, Mr Hugh Morgan, yesterday called for a return to a gold standard, and said the Australian and New Zealand dollars should be linked with the United States dollar.

Addressing an Institute of Directors’ meeting in Sydney, he said the main story of the past 12 months was the unprecedented rise in commodity prices and the consequent rise of the Australian dollar, which had increased since January last year from US66c to US82c several weeks ago, before dipping to the present $US80c mark.

Mr Morgan said no one outside the commodity export industry seemed concerned at the ability of miners and rural exporters to operate with the rising dollar.

The net result of the high dollar and centralised wage fixing “is we, as a nation, are condemned to spurts of 2.5 to 3 per cent”, but “unquestionably the public requests a response”.

Mr Morgan said he felt certain this proposal would be attacked as ridiculous, and that he would be accused of self-interest.

For that reason, he advocated a second-best choice — that “Australia and New Zealand piggy-back on another currency, say the US dollar.”

He said the greenback was on a quasi gold standard, and that it was widely believed, although not officially confirmed, that the price of gold was the most important indicator now used by the Federal Reserve Board in its money supply operations.

“Certainly, the gold price in US dollars has been fairly steady for two years.”

Mr Morgan pointed out that in 1983, when there was a currency crisis in Hong Kong, with a classic run on the currency, the authorities tied their dollar to the greenback.

Hong Kong had experienced growth rates since then of 10 per cent, with an identical inflation rate to that in the US, and with no central back interference with the currency.

Hong Kong notes, which are issued by several private banks and not by a government authority, are redeemable on demand for US dollars, with a fixed exchange rate.

It was also important for the Reserve Bank to abdicate its monopoly control of the Australian currency, Mr Morgan said.

The Commonwealth’s currency powers had turned out to be a “great mistake”, allowing governments to use their power of note issue to raise taxes through inflation without parliamentary approval. Before 1931, bank notes issued in Australia were based on gold.

Mr Morgan said the problem of the dollar reacting within hours to swings in commodity prices was looming larger day by day.

“A money system based solely on providing sound money should be the sole measure of money management.”

He said the essential characteristics of “sound money” were that it should provide an appropriate medium of exchange, be a store of value, be accepted over as wide an area as possible and be durable.

Mr Morgan also referred to reported statements on Saturday that the chief economist of the State Bank of Victoria, Dr Peter Smith, had said Australia would have to find some way of introducing a program for the stabilisation of the manufacturing industry to insulate it from the wide swings in commodity prices.

Mr Morgan said: “I suspect that the commodity producers will have to pay for the manufacturing stabilisation programs envisaged by Dr Smith … (and) I don’t agree.”

He also said Senator Button had suggested recently that Australian manufacturers would have to learn to live with an US80c dollars.

“The significance of the rising dollar is that the manufacturers are now linked to the commodity producers. The tariff rescue path is no longer open to them,” Mr Morgan said.

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Margot Saville, “Economists deliver their verdict: ‘Good grief, no’,”
The Australian, July 8, 1988, p. 12.

Australian economists expressed disbelief yesterday at the prospect of a gold standard for the Australian currency or tying the value of the Australian dollar to that of the United States dollar.

The economists described the call by the managing director of Western Mining Corp Holdings Ltd, Mr Hugh Morgan, for a return to the gold standard as “silly” and “a step backwards”.

Mr Antonio Dettore, economist with Citibank Ltd:

Good grief, no. The floating exchange rate has served Australia well. We need a relatively free exchange market to complement the relatively free products market. It would definitely be a step backwards.

There are problems with a completely free exchange rate in terms of volatility and overshooting but the other extreme is not attractive.

Mr Geoff Schubert, economist from Wardley Australia Ltd:

Any ideas about returning to a gold standard are just silly. The price of gold is irrelevant — it’s something from the past. It would be a backward move to tie the currency to gold.

I’m all in favour of a stable currency, but if we try to tie the US dollar to the Australian dollar, that would be mistaken. We should try to stabilise the Australian dollar against foreign currencies but we should recognise that these are fluctuating against the US dollar.

Instituting mechanical rules for conducting economic policy through tying the dollar to a gold standard might work for a short period but there are always circumstances where that is inappropriate.

Mr Peter Strachan, gold analyst with Paul Morgan & Co:

This would be negative for gold because once you monetarise gold you take the glamour out of it.

It couldn’t wildly fluctuate any more and it becomes a managed commodity. The thing about gold is that mad, crazy people buy it.

It would be taking five giant steps backwards. This is symptomatic of the export-led lobby who want to see a lower Australian dollar to benefit their own little perch.

Mr Wayne Fitzgibbon, economist with Macquarie Bank Ltd:

It’s a typical loony-tunes proposal — it doesn’t deserve a reasonable comment. It’s stupidity.

These people are happy to accept the benefits of depreciation but when you trade on world markets, you have to take world prices.

The commodity producers are now complaining because the dollar has risen. In trade weighted terms there has been a depreciation of 25 per cent, so they have actually significantly benefited.

In fact, the Australian dollar has just overshot in a downward direction and is correcting itself.

Mr Tim Hughes, economist with Rothschild Australia Ltd:

During the 1970s and early 1980s, the Australian dollar was overvalued because the Australian government, partly for domestic purposes, maintained a policy of exchange rate regulation, and this harmed Australian manufacturing industry.

If we tie our dollar to the US dollar we ignore the much greater part of our trade which is with other countries, such as Japan. Maybe you could fix the dollar to the trade weighted index, but economic circumstances move between countries through cycles and structural change — it’s difficult to pick the fair value of an exchange rate.

Sure, there’s volatility, but the people in the marketplace are more likely to get a real value for the dollar than some government committee.