The Money Men Chris Bowen (the red fox clan .txt) 📖

there was a push from Hawke to stop the Hawke–Keating government from ever emerging. Hawke dispatched his political adviser Peter Barron, who was also well known to Keating, to attempt to convince Keating not to take up the Treasury portfolio, but rather to take a lesser economic portfolio like industry. Hawke was concerned that Keating was unprepared for the top economic job, and he was more comfortable with his former ACTU colleague Willis in the position. Perhaps even at this early stage, completely secure in the party leadership, Hawke was identifying the most likely source of any challenge to his position down the track and attempting to splinter the springboard Keating would need for his ambitions. But while Keating was a reluctant shadow treasurer, he had studied the exercising of power too closely at the feet of people like Jack Lang to lightly give it up. He informed Barron that he would not be relinquishing the Treasury portfolio.

With this inauspicious exchange, one of the most effective prime minister – treasurer relationships in the nation’s history, and the period of greatest economic change in Australia, had commenced.

The Big Gamble: Floating the Dollar and Deregulation

On election day 1983, no-one could have predicted that the new government would soon usher in the biggest financial deregulatory reforms in the history of the federation.

Financial deregulation had had a tortuous history in Australia over the previous decade. It had begun ever so tentatively under the Billy McMahon government in 1971, when quantitative controls on bank lending were removed, followed by the raising of the interest rate ceilings on large loans (over $50 000) in 1972. The Whitlam government had increased the pace of deregulation in 1973 with the important lifting of interest rate restrictions on certificates of deposit. But despite the Fraser government promising inquiries into financial deregulation at both the 1975 and 1977 elections, nothing was achieved until the early 1980s.

Keating, meanwhile, had slowly and steadily been developing his deregulatory instincts when it came to finance. The experience of his father had been seared into his consciousness, prompting a lack of regard for conservative lending practices brought about by an atrophied, protected and over-regulated system. As shadow minister for resources, Keating had told the House of Representatives that Australia’s oligopolistic banking system should be broken up by approving the entry of foreign banks,9 a bit of freestyle policy-making that provided a window into the thinking of the next Labor treasurer of Australia.

Keating had only just taken over as shadow treasurer when John Howard finally received Cabinet approval to issue banking licences to foreign banks, and he allowed a press release to be issued that had actually been prepared for his predecessor, Willis, which condemned Howard for a breach of promise in doing so. This did not, however, belie an anti-deregulatory approach. In April 1983, the new treasurer told Fairfax economics correspondent Ross Gittins that he did not intend to allow the deregulatory recommendations of the Campbell Inquiry to sit on the shelf.10 In order to sway his party towards the deregulatory agenda, Keating commissioned a new inquiry to review Campbell’s recommendations and incorporate Labor’s social and economic agenda. Keating carefully ensured the appointed reviewers, led by Ian Martin, were of an appropriately deregulatory mindset. The Martin Committee reported in 1984, confirming Campbell’s pro-deregulation recommendations.

Hawke and Keating would not wait until 1984, however, to make the most important deregulatory decision of them all. The decision to float the Australian dollar was the most significant single postwar economic decision that any prime minister and treasurer had had to make, and it was done in a highly charged environment.

From 1931 to the early 1970s, the value of Australian currency had been directly pegged to the pound sterling, with cabinets having to take the painful and inevitably controversial decision to revalue or devalue the Australian currency compared with the pound every few years. In 1971, as the Bretton Woods system collapsed, the Australian dollar’s value peg was simply transferred from the pound to the greenback, in recognition of the fact that the US dollar was now the world’s reserve currency. This, though, was simply an acknowledgement of reality as opposed to a far-reaching reform. A further change came three years later when the dollar was pegged to a trade weighted index, a basket of currencies of Australia’s major trading partners as opposed to one particular currency. The year 1976 saw the adoption of the ‘crawling peg’, a halfway house in which a committee of officials met daily to make small, incremental changes to the value of the currency relative to the trade weighted index.

Each of these measures was delaying the inevitable: the necessary floating of the Australian dollar to reflect market realities. Hawke and Keating had begun considering floating the dollar in 1983. Contrary to fears that the election of the ALP would result in an outpouring of capital from the country as a vote of no confidence in the new government, the moderate and fiscally responsible approach that was quickly evident saw foreign funds flooding into Australia. Under a fixed exchange rate, this meant the government needed to either increase the value of the dollar or risk such an increase in the money supply that high inflation would result.

By mid-1983, the RBA, under the leadership of a new governor, Bob Johnston (who had been appointed by Howard partly because he supported financial deregulation), had reversed its previous opposition and now supported a float. Johnston’s support was pivotal. A new treasurer making a decision of this magnitude needed the backing of at least one of the two key economic advisers of the government, and the Treasury’s John Stone was implacably opposed to the float.

In October, a key meeting occurred with the Treasury in which Keating expressed his support for letting the market determine the value of the currency. Stone, however, repeated his opposition. Frustrated at Treasury’s intransigence, Keating asked the Treasury officials if any of them supported him in his views that the dollar should be floated. Showing