In Committee on Finance. - Currency (Amendment) Bill, 1930—Committee Stage.

Section 1 put and agreed to.
Sub-section (3) of Section 61 of the Principal Act is hereby amended as follows and that sub-section shall be construed and have effect accordingly, that is to say:—
(a) by the deletion from paragraph (d) thereof of the words "maturing within twelve months"; and
(b) by the addition at the end thereof of a sub-section as follows, that is to say:—
"(f) securities of the Government of the United States of America."

We are not opposed to the Bill, but we think that we ought not to permit it to go through without pointing out some of the dangers which may be associated with the amendment which the Minister proposes in the terms of sub-paragraph (a). When the original Act was before the Seanad, I think the words which it is now proposed to delete from paragraph (b) of sub-section (3) of Section 61 were then inserted, and they were, in my opinion, prudently inserted, because there is no doubt whatever that there is in this instance an element of danger in investing in long term securities. There is an element of danger in investing in either long or short term securities, but undoubtedly the risk does increase with the currency of the securities.

One of the reasons which possibly actuates the Minister in this connection is the fact that recently the yield from British short term securities has been very small, almost infinitesimal, and for that reason the fact that one can purchase a British long term security which will give a yield of approximately five per cent. makes it, from the point of view of a Government which proposes to derive some portion of its revenue from currency, desirable that it should have freedom to invest in long term securities. But, as I said, there is an element of risk, whether the investment is in a long term or a short term security, and that element of risk increases with the length of the term of the security. There is no absolute certainty in these matters, but the element of time increases the element of risk. A long term security, even a British Government security which may seem as safe as a house to-day, to-morrow may be worthless. We have had numerous examples of that within the last two decades. I do not suppose there was any investor in January, 1914, who thought that the securities of the German Empire would be worthless in January, 1919, but the fact remains that they were. Similarly those who invested their money in Russian securities in 1914 certainly did not think that they would not be worth the paper they were printed on five or six years later. I am not suggesting for a moment that the British Government is in such a parlous condition to-day that the securities in which the Minister proposes to invest will be worthless to-morrow, but I have cited these examples to prove the contention I am making—that the element of risk does increase with the currency of the security.

With regard to the long term securities in which the Minister desires to empower the Currency Commission to invest, I would point out that the fact that they at present stand above par is due to the conjunction of a number of fortuitous factors which may not occur again. If we consider what the effect of the recent events in India and in Malta on British securities would have been if these events had not been neutralised by other factors, I think most of us would come to the conclusion that British long term securities would be depressed to-day, that they would not be standing above par, and that as against them the British short term securities, in which up to the present the Currency Commission has had power to invest only, would, I think, be yielding a rather higher rate of interest than the British long term securities would. That is to say, when a State is passing through a crisis its long term securities, which it may not be called upon to redeem for a prolonged term, and in connection with which the investor naturally has to undergo a considerable amount of risk, the risk that his money may be altogether lost or, at least, that owing to some change in the money market he may find when he tries to realise these investments that his capital has depreciated—we can understand that the long term Government securities in a crisis may very likely go down.

On the other hand, that Government, when it comes to the money market for a short term loan, has to pay a correspondingly higher amount, so that if it were not for the fact that there are other circumstances at present operating in the money market which neutralise the effect upon British Government securities of the things now taking place in India and Malta, the probabilities are that the short term securities would be yielding an even higher rate of interest in 1930 than they were in the year 1928 and the early part of 1929. The two factors which have neutralised the effect of the events in India and Malta are, first of all, the deliberate policy of the British Treasury. Since the present Chancellor of the Exchequer came into power in Great Britain there has been, I think, on his part or on the part of those who are responsible for financial policy in Great Britain a deliberate restriction of the opportunities for short term investment, the consequence being that the money market in Great Britain has been flooded with an excess of money available for investment in short term security; the effect of which has been to drive down the yield from short term securities, the idea here being to compel this money to invest itself in long term securities so that British securities may appreciate and the way be clear for the new conversion loan which the authorities on the other side have in mind. As well as that, this deliberate policy on the part of the British Chancellor of the Exchequer has been reinforced and assisted very much by the monetary depression, which is world-wide. That, of course, has also meant that a considerable volume of funds which otherwise would be invested in industrial long term securities is now being placed on the short term market and again has operated to drive down the rates of interest there.

But these two factors are purely fortuitous. These are temporary and will pass and when they do pass the tendency will be I believe so far as the British securities are concerned for short term securities to appreciate and to give a yield more or less similar to that which they were giving in the year 1928-29. We on these benches realise that it is possibly advisable to give the Currency Commission a discretion in the matter, but while we are giving them discretion and power we would like to know that that discretion and power would be exercised wisely. We on this side of the House would not like to feel that the acceptance of this amendment would mark a change in the policy which the Currency Commission has hitherto been compelled to follow.

We would not like to think that they would deliberately resolve that henceforward the major portion of their funds would be invested in long-term securities. That would be a dangerous policy to pursue. The yield may be more attractive but the risk is correspondingly greater, and what we have to bear in mind in this connection is not the earning capacity of the assets of the Currency Commission, for, no matter how hard driven the Government may be for revenue, the primary factor in the whole of this problem is not and should not be made by the Government to be the earning capacity of the assets of the Currency Commission or the revenue those assets are going to secure for us. The primary fundamental factor is the absolute intrinsic safety of the securities in which the moneys of the Currency Commission are invested. I think the risk of the short term security is very much less than the risk of the long term securities. We do hope, while we are not prepared to refuse to the Commission this discretionary power, that the power which we are giving them will not be abused.

What is running through Deputy MacEntee's speech has been in my head since this Bill was introduced on Wednesday last and he has expressed himself very much better than I could. The object of the Currency Commission is safety first and it is possible that they may be tempted to put their money in the long term securities, either British or American. It is not likely that there will be another big war but it is possible. I do not say it is probable there will be another big war. I think war loan went down very low during the last big war. The object of the Currency Commission is really not so much to make profit as to ensure the stability of our own currency. I do not know how the Minister could safeguard it with the Currency Commission, but he might do something so that they would, first of all, put their money into short dated securities and not be tempted by the possible profit they might get out of long dated securities, I think the Minister might consider these points because it is very important to us that our currency should be stabilised.

This matter has been under consideration not only recently but before the original Bill was introduced and it is a matter in fact which was given consideration when the Banking Commission was sitting. The result of the Banking Commission's deliberations on the matter was to make no recommendation limiting the Currency Commission as to its purchase of long term securities. That is, the Banking Commission was of opinion that this was a matter in which the Currency Commission should be allowed to exercise its discretion. When the Banking Commission report was under consideration in the Department of Finance as when the original Currency Bill was being drafted we came to the conclusion again that it was a matter in which the Currency Commission should be allowed to exercise its discretion. It is quite true that there are certain risks of depreciation involved in the purchase of long term securities which are not present when short term securities only are held. I am quite satisfied if the Currency Commission errs at all in this matter it will err on the side of caution. The constitution of the Currency Commission is such that that will be the inevitable tendency. If something like a new world war broke out undoubtedly the Currency Commission would find itself faced with difficulties; I think if something of the character of a world war broke out it might very well find itself faced with those difficulties. Then it can only hold short-term securities. It might find itself faced with difficulties brought about by lack of stability in British currency if we had such a catastrophe. I am satisfied that the Currency Commission will so divide its investments that, combined with full consideration of all elements of risk, it will also get the best revenue that it is reasonable for the Currency Commission to aim at getting.

There were two factors which dictated the particular arrangements which are made in the original Currency Act which is administered by the Currency Commission. One was that we should have parity of sterling, that our currency should be exchangeable for sterling at par for any amount which might be offered, and consequently, instead of backing our currency by gold which would be held in vaults not earning anything, we should hold the securities of Great Britain to which are now added the securities of the United States which would earn money. That is, while the factor of earning is by no means the primary factor, it was one of the factors which were taken into account in devising the currency scheme we have in operation, and while every risk must be fully looked to and investments must be so placed that undue risks of any sort are not taken, at the same time it would be unreasonable to continue the restriction which is at present in force and which, if it continues in force, would limit very seriously the earnings which it would be possible to make on the legal tender note. I think there is absolutely no danger that the Currency Commission is going to avail of the powers now given in any rash way.

There is just one point possibly which might meet Deputy Murphy's position and also our position. The Minister, I think, has power to prescribe the form in which the Currency Commission will make its report. Will he take into consideration the question of taking out under separate heads the amount invested in long-term and short-term securities so that, if necessary, the House might be aware of the form in which the legal tender note has been so invested, and, if necessary, the matter could be raised here?

There is one other point. The Minister made reference to the fact that we were working on the gold exchange standard. While we are not opposing this Bill, we do not wish on this side of the House to be taken as endorsing the decision arrived at by the Currency Commission in that regard and the effect which the Minister has given to that in the currency system. I believe it would be much safer if we were working on the gold bullion standard and to make up our mind that however we were to make money we would not make it out of gold currency.

Question—"That Section 2 stand part of the Bill"—put and agreed to.

Will the Minister deal with the point I mentioned?

I do not see any objection to it. It is a matter which I will discuss with the Currency Commission.


I move:—

Before Section 3 to insert a new section as follows:—

"Sub-section (2) of Section 62 of the Principal Act is hereby amended by the addition at the end thereof of a paragraph as follows:—

(h) securities of the Government of the United States of America, and the said sub-section shall be construed and have effect accordingly."

This follows a remark made in the debate on Second Reading and makes the provisions of the Bill more logical. It allows the note reserve fund to be invested in the United States. The matter is relatively of small importance, because the amount of the reserve fund will only be one-tenth of the currency note fund.

Amendment put and agreed to.
Question—"That Section 3, as amended, stand part of the Bill"— put and agreed to.
Question—"That Sections 4 and 5 stand part of the Bill"—put and agreed to.
Bill entitled an Act to amend the Currency Act, 1927, by making better provision for the investment of the Legal Tender Note Fund, by authorising interim transfers in certain circumstances between the Legal Tender Note Fund and the Note Reserve Fund, and by prohibiting the mutilation, defacement, and disfigurement of legal tender notes and consolidated bank notes.

I move:

On page 2, line 8, after the word "fund," to insert the words "and the Note Reserve Fund."

This is a consequential amendment.

Amendment put and agreed to.
Question—"That the Title, as amended, be the Title of the Bill"—put and agreed to.
Bill ordered to be reported.
The Dáil went out of Committee.
Bill reported with amendments, and passed through its Final Stages.