Memorandum by the Department of External Affairs
'Steps which the Minister for External Affairs Proposes to the Government in Relation to the Devaluation of the Sterling'

1. Estimate of Increase in Internal Prices:
   As many of the measures to be taken depend largely on the extent of the likely increase in price levels, the Minister for External Affairs considers it essential that as accurate a forecast of likely increases should be made as rapidly as possible. The Minister for External Affairs does not accept the view put forward on the 17th instant by the Secretary of the Department of Finance¹ that the increase would be negligible. For the purpose of computing the likely increase in prices, the following method of examination is suggested;
   • Estimate of the increased cost of imports from the dollar area in terms of sterling.
   • Estimate of the increased cost of imports from non-dollar areas (except Britain) having regard to the extent of the devaluation, if any, in each.
   • Estimate of the increased cost of imports from Britain. This particular estimate will be more difficult than the others as a variety of indirect factors will come into play. Apart from the hard currency contents of many of these imports it is likely that devaluation will result in higher production costs. Certain commodities have already undergone sharp increases – metal and commodities made from metal in particular. The increased prices of metals and commodities made from metals can already be determined fairly accurately. Copper has gone up from £107 per ton to £140 per ton; lead from £87 per ton to £122 per ton; Zinc from £63 per ton to £87 per ton; Aluminium from £93 per ton to £112 per ton; Nickel from £224 per ton to £321 per ton.
   • Estimate of the likely increase in home production costs taking into account increased cost of raw materials, petrol and likely increase in wages.
2. Freezing of Prices:
   The making of an Order freezing the cost of all commodities is in the view of the Minister for External Affairs necessary. Otherwise, under the pretext of devaluation, traders and manufacturers will begin to mark up their prices even in respect of commodities which were in no way affected by devaluation or which were in stock before devaluation. This process has already begun.
3. Increasing Dollar Earnings
   Immediate and drastic steps should be taken for the purpose of maintaining the level of our dollar earnings and if possible increasing it. This could be considered under two main heads:
   • Tourism:
     In relation to tourism it has to be borne in mind that in order to maintain our present dollar earnings it will be necessary to increase the value of our tourist traffic from America by 44%. It is quite clear that tourist accommodation for such an increase is not now available. Accordingly, the first step will have to be to provide before next Spring additional accommodation for American tourists. It is suggested that the quickest and most efficient method of doing this would be to have designed and constructed units of a road house type, which would be either put up by the Tourist Board or when constructed sold to private enterprise.

     The type of unit proposed should be somewhat similar to that provided at Shannon Airport for overnight passengers. Such units could be either prefabricated or mass produced.

   • Exports:
     A number of trade attachés should be appointed immediately in U.S.A., Canada, Western Germany and Scandinavia whose function it would be to study market conditions and help to develop export trade. In addition, the manufacturers of commodities which are exportable to the U.S.A., such as tweeds, whiskies, boots and shoes, should be formed into separate groups and induced to send out at once representatives to the U.S.A. If necessary, the Government should be prepared to finance either in part or in whole the cost of sending out one representative from each particular group.

     Again, in the sphere of exports, it has to be borne in mind that in order to maintain our present dollar earnings it will be necessary to expand the volume of our exports by 44%.

4. Immediate steps should be taken to amend existing legislation so as to empower the Government by Order to vary the rate of parity between the Irish Pound and the Pound Sterling. While in the view of the Minister for External Affairs it would have been possible under the provisions of Section 2(c) of the Supplies and Services (Temporary Provisions) Act, 1946, to vary the parity between the Irish Pound and the Sterling, this view is not accepted by the Department of Finance. In any event it would be more satisfactory to have specific powers given by statute to the Government.

   Having regard to the unsettled economic position of the world it seems absolutely essential that the Government should be provided with adequate powers to deal with any situation that might arise in the future which might render it advisable to vary the parity or to otherwise deter-
   mine the exchange rate of our whole currency. By voluntarily continuing in this position the Government is deprived of any control of the finances of the nation; this is both intolerable and imprudent.

   An examination should be made of the relevant statutes to ensure that all necessary consequential, or ancillary, powers that may be necessary are vested in the Government.

   An examination should also be carried out of the actual steps which would be necessary should it become advisable to alter the parity. This matter should be gone into and a detailed plan prepared so that no operational difficulties would arise if at a future date such a decision became necessary.

5. Government Funds: The whole question of the investment of Government funds and of Central Bank funds in British securities should be exhaustively reviewed. For some extraordinary reason vast sums of Government monies are invested at very low rates of interest in British securities when they could be much better invested in Ireland in development projects such as afforestation, drainage, housing and industrial development. Quite apart from the advisability, from the national and economic point of view, of utilising such funds for development purposes another important consideration now urgently arises. In my view, it is more than likely that the sterling area, as it has been known, will disintegrate.

   The devaluation of the sterling was, in the main, due to the over-spending of dollar resources by Britain. In other words, the bank in which the sterling area countries deposited their money utilised those deposits for its own purposes; this fact will, in my view, inevitably lead to disintegration of the sterling area as we have known it in the past. Before this disintegration takes place I think that it is essential that we should take active protective measures to safeguard the Government funds which are invested in Britain. The best and safest course would be, of course, to invest as large a share as possible of these funds in Ireland itself. That portion of it which it is not possible to invest in Ireland should be dispersed in other sterling area countries so that all our eggs will not be kept in one basket. The carrying into a fact of this policy is likely to take some considerable time and, accordingly, it is essential that preliminary steps should be taken at once.

6. In order to give effect to the proposals in the foregoing paragraph active steps should be taken at once to formulate proposals for investment projects in Ireland – in particular the following projects should be envisaged or expanded:
   • Afforestation. The afforestation programme envisaged at the moment could be doubled and would provide a secure investment.
   • Arterial Drainage. The present arterial drainage schemes should be examined with a view to determining whether their speed and scope could not be vastly extended.
   • Industries. The Industrial Development Authority should be requested to formulate plans for the erection and equipment of industries in different parts of the country which could be created by the Government and then sold or leased to co-operatives or private interests.
   • The Turf Board. The Turf Board should be advised that Government Funds would be made available to it for additional development schemes.
   • E.S.B.² The E.S.B. could be advised that it was the Government’s desire to step up the rate of hydro-electrical and turf generators development.

Revision of Trade Agreement with Britain. One of the matters to be determined urgently is the extent to which it has become necessary to revise our existing trade agreements with Britain. The necessity for such a revision arises from three separate and distinct causes:

• Prices. The rise in prices here will render it essential to secure increased prices for our exports to Britain, unless a lowering of the standard of living of those who depend on exports is to be envisaged. The increase in prices must inevitably cause an increase in the cost of production of our exports; the net question therefore to be decided is whether this increase is to be borne by Britain or by the producer and exporter. In this connection it is interesting to note that Denmark has suspended her negotiations with Britain for this very reason.
• Balance of Payments. The very considerable increase in the cost of our imports, both from the devaluated and non-devaluated areas, unless accompanied by a corresponding increase in the price obtained for our exports, will have a serious effect on our balance of payments position. Unless a compensating increase can be obtained for our exports our balance of payments position must inevitably be worsened by the lack of equilibrium. In other words, unless we secure increased prices for our exports a further portion of our sterling assets will disappear to compensate the increased cost of our imports.

  We have already sustained severe losses to our sterling assets through devaluation. The net question that arises is whether we are going to seek increased prices or meet the inevitable increased deficit in our balance of payments position out of our sterling assets.

  It is quite clear that there is a sharp conflict between Ireland and Britain on this question. Britain has everything to gain by devaluing our sterling assets and, in addition, forcing us to utilise the balance, in effect, to subsidise exports of food to her. On the other hand we must lose heavily unless increased prices for our exports can be obtained.

• Restrictions on export of cattle and meat. Having regard to the fact that our balance of payments via-à-vis the hard currency countries has been severely worsened by the devaluation, it appears to be imperative to free ourselves from the restrictions imposed upon our exports of cattle and meat to countries other than Britain. Having regard to the fact that most European countries to whom we export cattle or meat have not devalued to the same extent as Britain, the possibility of increasing exports and thus minimising the increased adverse balance of payment becomes of importance.

Having regard to the very high cost of meat in the United States it might become possible to develop an export trade to the United States.

The Minister for External Affairs strongly urges that in this situation the trade policy of the Government should be to purchase our imports in the cheapest markets and to sell our exports where we will get the best prices possible.