Issues Out of Central Fund. - Currency (Amendment) Bill, 1930— Second Stage.

I move that the Currency (Amendment) Bill, 1930, be now read a Second Time. The most important section of this Bill is Section 2. It is introduced because the choice of methods of investing the Legal Tender Fund at present open to the Currency Commission is not wide enough. The Currency Commission, at present, can invest legal tender notes in gold bullion or gold coins, in British legal tender, and British Government securities maturing within twelve months, or by way of deposit in banks. When the Currency Bill was first introduced there was no such proviso as is at present in the Act with regard to British Government securities. It was allowed to have British Government securities of any maturity that it thought proper. In the Seanad an amendment was inserted in spite of the opposition of the Minister for Finance putting in the words "maturing within twelve months." Now the position has been reached where there are practically no British securities available to the Currency Commission other than Three Months Treasury Bills, on which the yield of interest is very low, and it is felt that the Act should be restored, so far as this matter is concerned, to the form in which it was introduced originally. The Banking Commission did not recommend any such limitation as that now in the Act as a result of the Seanad amendment. It certainly is a matter of some importance from the point of view of the earning powers of the fund that the Currency Commission should have a wider choice of securities.

There is a second change proposed in this section. It is proposed that the Currency Commission should not be limited, as it is, to British securities, but should, also, be free to invest in securities of the Government of the United States. It is unnecessary to say that the securities of the Government of the United States are as good and as sound as any securities which could be found. I do not think it is likely at present that the Currency Commission will actually invest in securities of the Government of the United States. As things stand at present as good a rate of interest could not be obtained from those securities as could be obtained from British securities, and consequently, while the whole matter is within the discretion of the Currency Commission, I would say it is not likely at the present time that they will avail of the power which it is proposed to give them in this section. But circumstances may change and it may at some time later on become clear that it would be profitable and wise for the Commission to invest in the securities of the Government of the United States. We feel it is well, as we are making a change in the law now, that we should avail of the opportunity to give the Currency Commission a choice in these securities.

As Deputies know the whole basis of the Currency Act is that instead of, as other and bigger countries I think do, holding gold or anything of that nature behind our legal tender notes we hold interest bearing securities against legal tender notes. That can be done by a small country. I do not think it could be done by a big country. It is one of the few advantages a small country has in its financial arrangements. So long as we hold the securities of the British Government or a Government, say, like the United States, we have something as good as gold for all practical purposes and at the same time producing an annual income.

Section 3 of the Bill simply provides that the Currency Commission may make an interim valuation of the securities in the legal tender notes fund, instead of being confined to the half-yearly valuations, as at present. Section 4 of the Bill makes provision similar to that found in British legislation, and in Dominion legislation, against the defacing of legal tender notes or making them unsightly, which involves actual cost to the Currency Commission or the banks and makes the more frequent renewal of the notes necessary. Under the Canadian Bank Act, 1923, it is provided:

Every person who mutilates, cuts, tears or perforates with holes any Dominion or bank note, or who in any way defaces a Dominion or bank note, whether by writing, printing, drawing or stamping thereon, or by attaching or affixing thereto anything in the nature or form of an advertisement shall, on summary conviction, be liable to a penalty not exceeding twenty dollars.

The British Currency and Bank Notes Act, 1928, provides: —

If any person prints or stamps or by any like means impresses on any bank note any words, letters or figures, he shall, in respect of each offence, be liable on summary conviction to a penalty not exceeding one pound.

The Commonwealth of Australia Bank Act, 1911-24, provides:

Every person who (a) defaces or disfigures any Australian note by writing, printing, stamping or drawing, anything thereon or (b) makes on, or attaches to, any Australian note any advertisement, or (c) designs, makes, issues or circulates any advertisement in the form of or resembling or apparently intended to resemble any Australian note shall be guilty of an offence and liable to a penalty of twenty pounds.

Before the Minister concludes would he tell me what is the nature of the American Government securities that he has in mind and whether they are to be liquid?

Any securities of the Government of the United States. It will be within the discretion of the Currency Commission to choose any securities which meet its requirements with regard to liquidity, which is essential for the Currency Commission and, also, which will give a rate of interest which they will regard as suitable.

Without committing ourselves in any way to approval of the Principal Act we are prepared to assent to the passing of this Bill because we believe that the amendments to the Principal Act which it proposes constitute an improvement. Neither do we propose to discuss, even if it would be in order, the principles underlying the Currency Act of 1927 although we hold the view that the time has come or will come in the near future when it would be of service to have the operations of that Act reviewed by an independent body established for the purpose. The only matter arising out of the Bill before us that does not seem particularly clear is that relating to Section 3. Section 3 authorises the Currency Commission when it realises a profit upon the sale of assets in the Legal Tender Note Fund to transfer the amount of that profit from the Legal Tender Note Fund to the Note Reserve Fund in any one or more of the forms mentioned in sub-section (2) of Section 62 of the Principal Act. The forms mentioned in sub-section (2) of Section 62 of the Principal Act are similar to those mentioned in sub-section (3) of Section 61 of the Principal Act with this difference, that when this Bill becomes law they will not include securities of the Government of the United States of America. Is there any reason why assets of the Note Reserve Fund could not also be held in the form of securities of the Government of the United States as well as the assets of the Legal Tender Note Fund?

It is possible this is a drafting error, because I notice in sub-section (2) that on losses arising in the Legal Tender Note Fund "The Commission may transfer to that fund from the Note Reserve Fund capital assets in any one or more of the forms mentioned in sub-section (3) of Section 61 of the Principal Act," which, of course, now includes securities in the Government of the United States. As there could not be any of the assets of the Note Reserve Fund held in that form, obviously they could not be transferred in that form. I would be glad if the Minister would tell us if there was any deliberate intention to preclude the Currency Commission holding assets in the Note Reserve Fund in the form of securities of the United States of America, or whether there has been some confusion between the two sections. There is no other matter in the Bill that calls for attention. We approve of the proposal to delete the words "maturing within twelve months" in sub-section (3) of Section 61 relating to British Government securities. There does not seem to be any special advantage in holding British Government securities maturing only in twelve months, particularly as there would be a substantial loss due to the lower yield. We approve also of the proposal to include securities of the Government of the United States of America in the form in which the funds can be held.

Why should the United States securities be the only ones chosen for investment outside British? Why should the securities of other governments which seem equally stable with those of the United States of America be excluded?

There was no deliberate intention to exclude United States securities. That is merely a drafting matter. With regard to the question put by Deputy Moore, I do not think there are any other securities that are really in the same class with the securities of the Government of the United States. As we are resting our currency on securities and not on gold, as is usual, we do not want to include securities which, even though they seem to be all right at present, might be liable to be in jeopardy at some future time. We feel that the securities of the Government of the United States are not securities that will be in any jeopardy, and the same cannot be stated with conviction about the securities of many other governments.

Question —"That the Bill be now read a Second Time"— put and agreed to.
Third Stage (Committee) ordered to be taken on Wednesday, 18th June, 1930.