I move the Second Reading of the Currency Bill, 1927. As Deputies are aware, the Currency Bill was introduced into the last Dáil and passed through all stages up to the Report Stage. In the course of the Committee and Report Stages a considerable number of technical amendments were passed. As originally introduced, the Bill was based on the Banking Commission's First Interim Report. As it was necessary in the course of the Bill's progress to elaborate matters which had only been dealt with in a broad and general way in the Report of the Commission it was found that certain details in it could be improved by amendment and so far as possible we met any objections that were raised and we sought any advice that could be obtained. I think in the stage it reached in the last Dáil the Bill was fairly water-tight.
Deputies may be aware that the Currency Commission was appointed about fifteen months ago because it was found amongst other things that there was no such thing in this country as legal tender which could be identified as such. The ordinary British currency note is not legal tender. The only British currency note which would be legal tender in this country is the currency note which was issued before the Treaty. Probably the number of such notes in existence is fairly small and at any rate they could not be identified. Furthermore various joint stock banks had a note issue which appertained to the whole of Ireland and there was no fiduciary limit which had reference to the Saorstát. It was necessary that the fiduciary issue should be divided as between the Saorstát and Northern Ireland because the Saorstát is a definite, fiscal, financial and economic unit. It had also been complained that there were not all the facilities that were necessary in the matter of agricultural credit or business credit. In view of these matters, and in view of the necessity of causing no alarm or taking any action that could cause any reasonable apprehension, it was decided to appoint a Commission to examine the whole question. The terms of reference were:—
"To consider and to report to the Minister for Finance what changes, if any, in the law relative to banking and note issue are necessary or desirable, regard being had to the altered circumstances arising from the establishment of Saorstát Eireann."
The Commission consisted of Professor Henry Parker Willis of Columbia University as Chairman. He was for some time Secretary of the Federal Reserve Board of the United States. He held other very important positions in regard to banking in the United States, has written on banking and has carried out investigations in regard to banking and currency matters, and in particular in regard to agricultural credit. Other members of the Commission were Senator Jameson, Director of the Bank of Ireland; Mr. O'Connell, Director of the National Bank; Mr. F. J. Lillis, Director of the Munster and Leinster Bank; Mr. Smith-Gordon, Director of the Industrial Trust Company of Ireland; Mr. Campion who had been in the service of the Commonwealth Bank of Australia and who also had experience in connection with questions of agricultural credit; Mr. Galloway, a Director of the Ulster Bank; and Mr. McElligott of the Department of Finance. Deputies will see that about half the members of the Commission consisted of representatives of the joint stock banks in this country. It was necessary that the banks should be very strongly represented on the Commission because reform which had not the concurrence of the banks could not be successfully carried out. Certainly no such reform could be safely carried out. As I pointed out on previous occasions in the Dáil, there is no matter on which the Irish people would more readily take panic than changes referring to currency or the credit of the banks. Mr. Smith-Gordon was Assistant Secretary of the I.A.O.S. and was associated with its work in this country. He has written on various economic and credit matters. Mr. Campion had experience in the service of a State bank, a Central bank, in one of the States of the British Commonwealth.
In regard to this matter of note issue, both bank note issue and legal tender note issue, the Commission were able to come to what was very nearly a unanimous conclusion. One member of the Commission, Senator Jameson, presented a minority report but in a great many directions the minority report is in something like agreement with the majority report. The matters on which it differs are considerations, I think, of a somewhat minor character. By the report of the Banking Commission it is proposed and also by this Bill that a legal tender note issue be instituted here. That legal tender note issue will be issued, controlled and regulated by the Currency Commission. It will be backed £ for £ by British sterling so that no exchange variations can occur as between our currency and the currency in Great Britain.
It is provided in the Bill that at the London agency of the Commission any person presenting legal tender notes must receive British currency in exchange. The British money which is presented to the Currency Commission for legal tender will be held in the legal tender note fund and will be invested as to the main part in interest-bearing securities, and dividends obtained from these securities will go to the general fund of the Commission. That fund after paying the expenses of the Commission should provide for certain reserves. The surplus remaining after paying the expenses will go to the Exchequer. It is anticipated that something like £250,000 a year will go to the Exchequer as a result of the issue of legal tender notes. These notes will take the place of the British currency notes which are at present in circulation, and they will also take the place of secured bank notes. The present bank note issue is of two kinds. although the two classes are not distinguishable to the public. It consists of the fiduciary issues of which the security is the general assets of banks. In addition to the fiduciary issues there are excess issues which have to be covered pound for pound by British currency notes held by the banks or by British currency note certificates, so that secured notes issued by the banks here are practically the equivalent of the British currency.
Our new tender notes will take the place of the actual British currency notes in circulation. At present our Exchequer obtains no profit on that circulation. The profit goes to the British Exchequer. The existing bank note issue will be substituted by a new and consolidated bank note issue. The fiduciary issue of the various banks was fixed in 1845. It was a privilege which certain banks had and others had not. As I have said, it was a fiduciary issue fixed for each bank with reference to the whole of Ireland. No limit is fixed for the Saorstát. That was a matter that had to be dealt with in some radical way. It would not be possible to fix new limits for an issue for certain banks, and to leave other banks without a note issue. It would not have been reasonable or possible to fix a Saorstát limit and say that a certain amount of the existing fiduciary issue of a bank related to the Saorstát, and the other amount related to the remainder of Ireland. It was necessary to deal with that point in a somewhat more radical way than that. It would not have been desirable either merely to have given a note issue to the banks that had no note issue and in that way put them on a parity, for these fixed limits of fiduciary issues had no relation at all to the existing state or requirements of the country. They were simply accidental figures arrived at on the basis of the notes of these banks outstanding, and the limits were fixed in 1845.
The tendency at present is to take from ordinary banks the right of note issue and to confine that right to a central bank. If the Commission here had gone the whole hog in the matter of standing for the modern trend they would probably have recommended the taking of the right of note issue from the banks and would have recommended the setting up of a central bank, confining the note issue to that bank. Instead of doing that they took a course which was something in the nature of a compromise, and which will give us a system something like that which exists in the United States. It is proposed that the consolidated note issue be allocated to the various banks, and that it be re-allocated from tune to time and be supervised and regulated by the Currency Commission, so that while the Currency Commission will not perform the function of a central bank, in a general way it will perform certain of the functions in regard to note issue. It will be an independent Commission on which not only the banks but the general public will be represented. The Commission will consist of six ordinary members and the chairman. Three of the ordinary members will be elected by the joint stock banks, and three of the other members will be appointed by the Minister for Finance.
The chairman of the Commission will be elected by the ordinary members, or in default of his election by them he may be appointed by the Minister for Finance. The ordinary members of the Commission will hold office for three years, so that it will not be possible for a Government which might find itself in budgetary or financial difficulties to put sudden pressure on the Commission to alter its policy for the purpose of improperly helping the Government out of its difficulty. The chairman of the Commission will hold office for a period of five years. I think by the constitution of such a Commission we have got the best balance possible. We have got full representation for the banks and banking interests, and we have got the best sort of representation that could be secured for the general public, because the Minister for Finance in nominating representatives is precluded from nominating more than one State servant. His other nominated representatives must be interested in business or industry in the country. I think by that means we have got a board which will be independent in the exercise of its functions, and which will be sufficiently conservative to conduct the business of the Commission on sound lines, and which will be responsive to the credit requirements of the country. The basis, as I have said, of the new consolidated note issue, unlike the old fiduciary note issue, will not be a fixed amount. There is a limit of £6,000,000 for the initial period of two years, but within those two years, under certain conditions, it is provided in the Bill that the limit may be exceeded, and subsequently every three years a new limit will be fixed with reference to the requirements of the country.
That is a much more satisfactory and much more scientific method of meeting the credit requirements of the country than the system that we have known hitherto of a simply fixed limit of note issue. The basis of the issue of consolidated notes either in general or to the individual banks will be the liquid sound advances of these banks. It must not be taken and cannot be taken that the bank will have notes issued to it up to the limit of these liquid sound advances. The proportion of notes which any bank gets out of the total issue will depend on the amount of liquid sound advances which that bank is making and has made.
I think that because of this new basis of the issue of notes we will have the credit requirements of the country better met than they have been in the past. and I think that the institution of the new system is going to have a very good effect upon the banks. As Deputies are aware, I have never agreed with the popular criticism that one hears of the banks; but at the same time I do think it is a fact that there has not perhaps been sufficient attention paid by the banks to the national requirements of the country. Certainly there has been no such thing as a currency or a credit policy here. There has been no machinery for giving effect to such a policy, even if a policy could have been evolved. Now we will have the machinery for giving effect to the policy. We will have, under the new conditions, the likelihood of a definite credit policy suited to the needs and requirements of this country being evolved. This will turn the eyes of the banks to our own machinery here. Heretofore banks have paid a composition stamp duty of 7/- per £100 on bank notes. We have since the setting up of the Free State got a composition duty on the notes issued by the banks as their note issue at headquarters here in Dublin, including of course in that the National Bank which has its headquarters in London, but which has no British note issue. The Northern Government has got the composition on notes issued in Belfast, irrespective, of course, of where they circulate.
On the new consolidated note issue up to the limit of £6,000,000, we will get a composition stamp duty in future. of 30/- per £100, and, on such portions of the consolidated note issue as exceeds this £6,000,000, we will get a composition duty in place of the old duty of £2 per £100. The new arrangement will bring the Exchequer an additional revenue of something between £250,000 and £300,000 per annum. That is a factor of some importance in a country like this. In addition to that it will provide us with what we have not got at the present time—a legal tender. It will provide us with a more modern and more scientific system of note issue. It will I think lead to the development of a definite credit policy in this country, suited to the needs and requirements of the people.
