04 August 2008

A History of Gold Controls in Australia

Below is the text of a press release and attachment that deals with a topic that you won't find much information about on the internet. I'm typing it out so that it becomes available and searchable. Next week I'll discuss what this means for the likelihood of gold confiscation occurring in Australia. In the meantime, I'll leave you to ponder the fact that Part IV of the Banking Act 1959 has only been "suspended".

PRESS RELEASE No 29

EMBARGO 6.00pm

STATEMENT BY THE TREASURER, THE HON PHILLIP LYNCH, M.P.

PRIVATE OWNERSHIP AND SALE OF GOLD BY AUSTRALIAN RESIDENTS
SUSPENSION OF PART IV OF THE BANKING ACT

The Treasurer, Mr Phillip Lyncy, said today that Commonwealth restrictions on the freedom of Australian residents to own, buy and sell gold in Australia had been removed.

He added that current restrictions on the purchase of gold coins had also been removed.

Australian residents could now export and import gold subject to normal exchange control and customs procedures.

Mr Lynch pointed out that legislation existed in some States to regulate gold buying and some dealings in gold.

The Treasurer was commenting on the effect of the suspension of Part IV of the Banking Act 1959-1974 by His Excellency the Administrator in Council on 30 January.

In terms of this part of the Banking Act, gold, apart from wrought gold and gold coins to a limited extent, had to be delivered to the Reserve Bank of Australia within one month of its coming into a person's possession.

The legislation had restricted the sale of gold in Australia only to the Reserve Bank or a person authorised by the bank.

It had also prohibited the export of gold without the Reserve Bank's permission.

Mr Lynch said the reasons for these restrictions on gold dealings by Australians no longer existed.

The role of gold in the international monetary system had declined substantially in recent years.

Similar restraints were not placed by the Commonwealth on dealings in silver, precious stones or other like forms of investment.

He noted that several other developed countries, including the United States and Japan, had removed restrictions on the private ownership of, and dealings in, gold.

A number of European countries also had no restrictions on gold holdings.

The Treasurer also pointed out that the Industries Assistance Commission, in its report on the "Production of Gold" dated 5 Jun 1975, had expressed doubts that the continued existence of the restrictions on gold transactions in Australia served any useful purpose.

Submissions received from the Gold Producers' Association (GPA) had pressed for removal of restrictions on gold marketing in Australia.

The Association welcomed the Government's decision to suspect Part IV of the Banking Act.

The Reserve Bank had been holding discussions with the GPA, the Banks and gold refiners to ensure that the marketing of Australia's gold was not disrupted.

The Treasurer said that gold producers, for the time being, would still be able to take their gold to banks or to refiners as they had done in the past.

However, if they wished they could now also sell their gold in other ways.

The industry would, in future, have greater flexibility in the disposal and marketing of its output.

Mr Lynch mentioned that investment in gold was not risk free and it involved significant costs such as storage, insurance and assaying.

An outline of the history of gold controls in Australia is attached.

30 Jan 1976
CANBERRA ACT

ATTACHMENT TO PRESS RELEASE ON PRIVATE OWNERSHIP AND SALE OF GOLD BY AUSTRALIAN RESIDENTS

GOLD CONTROLS IN AUSTRALIA - HISTORY

Australia, like most countries was on the Gold Standard before the First World War. Currency notes were circulated alongside, and were freely convertible into, gold coins. There were no restrictions on the import or export of gold. Legislation existed in some States to protect gold miners and to regulate the buying and smelting of gold.

The War disrupted the operations of the Gold Standard because of the physical difficulties of shipping gold and the special problems involved in financing the War effort. In 1915 Australia followed the United Kingdom in leaving the Gold Standard. Gold exports except with the Treasurer's consent were prohibited until Australia returned to the Gold Standard along with the UK in 1925.

In 1929 falling export prices and the cessation of long-term borrowing abroad called for special measures to conserve Australia’s overseas funds. The Commonwealth Bank Act in 1929 provided for the Bank (of which the Reserve Bank of Australia is the legal successor) to requisition all Australian gold in return for Australian notes. Formal action was never taken under this legislation but it marked the beginning of the end of holding of gold by banks and the public in Australia. In fact, there were no Commonwealth restrictions on the ownership and sale of gold between 1925 and 1939. Banks voluntarily accepted deposits with the Commonwealth Bank in return for their gold.

The outbreak of World War II again called for special Commonwealth gold controls. In 1939 regulations under the Defence Act provided for the acquisition by the Commonwealth Bank of newly won and other gold; regulations under the Customs Act prohibited the export of gold from Australia without authority.

After the war these controls were continued in the Banking Act and with some modifications were exercised by the Reserve Bank until today.

Until 1931 new-mined gold was added to the Commonwealth Bank’s stocks. The Bank made gold available to meet domestic industrial demand; exports were strictly controlled. The effect was to centralise gold in the Commonwealth Bank’s hands as part of Australia’s international liquidity.

In 1951 a premium over the official IMF price for gold emerged in world markets. Arrangements were made for Australian producers to obtain this premium for gold sold overseas. The Gold Producers’ Association was formed specifically for this purpose. In practice the Commonwealth Bank allowed the Association to repurchase the gold for sale overseas provided the foreign exchange earnings were returned to Australia and thus added to our international reserves. The Bank continued to retain sufficient gold to meet domestic demand.

In the 1960’s the gold premium rose markedly. For a time the major countries (not including Australia) sold gold to the free market to keep the price down. This was abandoned in 1968 when the major central banks agreed (Washington Agreement) not to add gold to their official reserves by way of purchases from the private markets. Australia was not a party to the Agreement but co-operated in it. Hence, the Reserve Bank held Australia’s gold reserves virtually constant and although the legislation required newly-won gold to be delivered to it, in practice the Bank returned it to the producers. Gold producers were permitted to export gold and sell to domestic industrial users. These arrangements continued until the suspension of Part IV.

EFFECTS OF SUSPENDING COMMONWEALTH CONTROLS

One effect of suspension is that gold producers (and the Reserve Bank) are freed from the requirement to pass newly-mined gold bank and forth between them.

More importantly suspension widens the market for sales of gold by the producers. Hitherto, they have been free to meet export demands but have been limited domestically to sales for professional and trade purposes. Now, so far as Commonwealth Law is concerned, they may sell to any person within or outside Australia. Concurrently of course, the previous Commonwealth restrictions on who may buy, hold and deal in gold are withdrawn. Although imports were not controlled, imported gold was subject to delivery to the Reserve Bank. Gold may now be imported free of this control.

Restrictions on the holdings of gold coins also have been withdrawn. Hitherto holdings of coins with an aggregate gold content of more than $50 required the prior consent of the Reserve Bank. The Bank administered their provision so as to enable genuine collectors to improve their collections and to permit dealers to meet the needs of genuine collectors.

While the Commonwealth restrictions have been removed there is still legislation in some States dealing with gold. Essentially legislation in Victoria, South Australia and Western Australia requires gold buyers or gold smelters in those States to hold a State licence. Certain classes of industrial users of gold are exempted from the licensing provisions. It will, of course be up to individuals wishing to buy gold to comply with State legislation.

MARKETING ARRANGEMENTS

The Reserve Bank has been in touch with the main parties concerned with the handling of Australian gold to ensure a smooth transition to the new situation. These parties are the representatives of the producers themselves (the GPA), the four refiners (including the Perth Mint which is the major refiner) and the Australian banks who have handled the transmission of much of the gold from mine to refiner.

In practice, newly-won gold hitherto has been sent by the producers to the refiners either direct or through one of the Banks. The refiner paid the producer the official price less assay and refining costs; the refiner received the official price for the gold from the Reserve Bank. Similarly, the Reserve Bank informed the Gold Producers’ Association of the gold available for sale and recouped from the Association the official price. The GPA then sold the gold domestically or overseas at the ruling market price and passed the premium over the official price back to the original producers.

In future, the steps involving the Reserve Bank will be omitted, and, as a technicality, the refiners and banks will not be agents of the Reserve Bank in this connection. Otherwise, there will be no essential change in the handling of newly-won gold because of suspension of Part IV. Eventually, of course, the greater freedom in gold trading may lead to new practices.

CANBERRA ACT
20 January 1976

5 comments:

Bullionmark said...

This is new and very useful information for me, thanks. I would be keen for you to be a contributor on my blog www.bullionmark.com

Anonymous said...

Any further details on confiscation in Australia?

Bron said...

See http://goldchat.blogspot.com/2008/11/australian-gold-confiscation.html for the follow up to this blog.

Anonymous said...

Hi Bron,

This a very interesting press release.
Could you advise where you sourced it from ? Perth Mint Archives ?
I can't seem to find any reference it on the web, as you point out.
Any information greatly appreciated.
Cheers,
Keith

Bron said...

We got it from the RBA when we asked them for info on gold confiscation in the past