Private Deputies' Business. - Report of the Central Bank, 1951—Motion. – Dáil Éireann (14th Dáil) – Wednesday, 12 Nov 1952

Major de Valera

When I was speaking on the last day I was trying to deal with the background of this motion and this problem. I would like to make the general summarising remark that, whether we like it or whether we do not, whether a change is desirable or whether it is not, this problem is conditioned by a particular background and by the existing state of the facts which must be taken into account. In particular, there is a certain financial structure, both internal and related to the sterling area, and its mechanics, as a whole, that simply must be taken into account.

To take the content of this motion, in the first place the report itself comes under fire, and I hasten to add that there are many things in that report with which I personally might not agree. We must have regard to the fact, however, that this is a body set up with a duty to report, and that this is its report.

Mr. MacBride

A report of its proceedings.

Major de Valera

It is a very valuable thing to have a body which can report on such matters and report objectively. I was going to keep to the finances, but there is the point that when you have a body which is required to report—and I think it is a very important thing that such a report should be available—it is better to have that body in the position of reporting freely.

Mr. MacBride

The only thing it is authorised to do is to report its proceedings.

Major de Valera

We should not want to have that body apparently presenting a report when it is in fact producing something under duress. That would be a rather invidious and improper position in which to place a body like that and I am afraid that that is what Deputy MacBride's suggestion boils down to. I am prepared to argue with Deputy MacBride if he says: "do not have a report," but when they make a report——

Mr. MacBride

Of their proceedings.

Major de Valera

I have not actually checked on their terms of reference.

Mr. MacBride

I have.

Major de Valera

I have not got them here, but they have the duty of reporting——

Mr. MacBride

Their proceedings.

An Ceann Comhairle

Deputy de Valera has the right to express whatever opinion he likes.

Major de Valera

It is better that they should have power to do it openly without hidden pressures so that we know that we are getting that report from a known source and that it is the genuine product of that source, not an emanation from a hidden source. I am not going to tie myself, no Government could tie themselves, to such a report. In many cases Governments in the past have not accepted similar reports. But I think it is hardly fair or right to pillory the people responsible for a report like this in the way they have been pilloried here.

To come to the terms of the motion. I do not want Deputy MacBride to take this in any personal sense but this motion is drafted as a case. It is drafted in a way that deprives us of almost all opportunity of objective discussion. Look at the words of 4:

That in so far as the said report directs or orders.

Then follows (a), (b), (c) etc. I know of no better way of conveying an innuendo. We have had plenty of experience of innuendoes in the courts. Deputy MacBride and myself have come across that word. I take exception to the form of the drafting because it contains a series of innuendoes which are not justified, or if they are, why not put down straight, in black and white, what you are objecting to instead of hinting?

Let us take a couple of the concrete points to which the Deputy referred on Friday. He was agitated about the investments of the moneys that are shown in the balance sheet or statement of accounts of the Central Bank of Ireland for the year ended 31st March, 1951. In the particular document to which I refer the sum shown to be invested in British securities is £55,000,000 odd. Deputy MacBride asks why, and certainly it is no harm to query it. I have no quarrel with Deputy MacBride for raising the matter. I think it is a question to answer. He also has a question mark about the return on that sum of money. I think I am putting it fairly: the Deputy asked why it should be invested there, and queried the return on that investment. There are two answers to the first question why it is entered there. One is, if you like, a legal answer. The simple answer is that under our currency law as it is it is mandatory to invest these assets in that way. On the question of the bulk that is invested in British securities——

Mr. MacBride

May I correct the Deputy? It was originally under the 1927 Act mandatory but that was amended——

Major de Valera

I know.

Mr. MacBride

——on two occasions——

Major de Valera

Yes, by Section 3 of the Act of 1930 and by Section 64 of the Central Bank Act of 1942.

Mr. MacBride

——to enable the Central Bank to invest in Ireland.

Major de Valera

I am going to deal with those points. I will make my points in advance so that you can knock me down as I develop them. As the law stands at the moment—and that situation can be changed only by a legal process in this House in one form or another—it is mandatory to invest there. If you say: "Why do you not do something about it?" my answer is that you had three and a half years. Probably since neither Government has done so they had very good reasons. There is the summary of my argument.

Mr. MacBride

It is not mandatory on them to invest. They have power to invest here.

Major de Valera

All right. Under Section 61 of the Currency Act of 1927 it was mandatory to invest under those heads and in fact it was at that time mandatory to invest in British securities "maturable in 12 months." I want the House to note that point, "maturable in 12 months." Now that Act was amended by the 1950 Act and a section of that Act deleted the "maturing in 12 months." That left the situation under the amendment in Section 3 that by the unanimous request or representation of the Currency Commission, the Minister, by a process of legislation by Order—there is no need to go into the actual details —could alter that situation, but until that situation, mandatory under the Act of 1927, was altered by the appropriate action, the 1927 law remained.

Let me pause to consider the effect of the 1930 Act before I go on to the 1942 Act. Without going into a legal argument with Deputy MacBride upon the content of the words "unanimous request of the commission"—I know it could be claimed that if you made the suggestion to those fellows you would be able to make them come and tell you to do it—the legal position is that the Minister could not do anything under the 1930 Act without a unanimous approach from the commission. I think that is a fair statement of the position.

Mr. MacBride

Yes.

Major de Valera

Then we come to the Act of 1942. The Central Bank Act of 1942 contains Section 64 which is an emendation by reference to previous relevant legislation as the Deputy knows. I think the Deputy will agree with me that emendation by reference is not always very satisfactory, but in this particular case the amendment amounts to the deletion of the word "unanimous" and its effect. I think that is right.

Mr. MacBride

It was replaced by "a simple majority".

Major de Valera

All right. In other words the position after 1942 was that upon the request of a simple majority, to use Deputy MacBride's words— frankly I was not going to commit myself to that because it was drawing an inference, but if the Deputy wishes I agree—the Currency Commission could approach the Minister and, upon the Minister being approached in that way by a majority of the commission, he could take the necessary action. Then there is a further complication of the machinery which I need not go into.

Mr. MacBride

It is provided for.

Major de Valera

Yes. I forget exactly, but there are two separate considerations to be dealt with. However, that is merely a question of machinery. The net position we have arrived at to-day—and let us note the identically same position existed in 1948 when Deputy MacBride and his colleagues were in the Government—is that Section 61, which prescribes for the investment of the assets of the legal tender note fund under those headings, one of which is British Government securities, remained mandatory with the deletion of the words "twelve months" I referred to above. With that one amendment Section 61 of the 1927 Act remained mandatory until amended in the particular way provided for by the two Acts we traced. That was the position, and the Minister for Finance to-day, no more than Deputy McGilligan as the Minister for Finance in Deputy MacBride's Government, could not amend that position except in that particular way, or by bringing in new legislation into this House. Let me summarise that by saying that legislative action of some form or other was necessary in this House before that situation could be altered. I know that is a lawyer's answer.

Mr. MacBride

That is surely not so. A majority request——

Major de Valera

A majority request to the Minister would still involve legislative action, and I am accurate in law and in fact in stating that the mandatory situation, with the amendment in regard to 12 months I have mentioned, under the 1927 Act, could be altered only by legislative action as provided by the subsequent amendment in the form we have discussed.

Mr. MacBride

That is not legislative action.

Major de Valera

It is in the long run. The Deputy is begging the question. Does not all legislative action depend on the Minister? If Deputy MacBride will let me go on I will make it a bit clearer. I am talking as a lawyer, but I realise what the simple answer to me is. That is all right for a lawyer, but the fact is there is no difficulty in changing that situation. Is that not the fact?

Mr. MacBride

That is right.

Major de Valera

As far as law goes, the answer is that. There are a great number of problems that arise in changing that, with which I will deal in a moment. I think I am entitled to reiterate that the situation on the 19th February, or whatever date it was in 1948, was identically the same as it is to-day. Why did the Coalition Government not do it? There must have been some very good reasons. I know Deputy MacBride would certainly do it if it were a practical proposition. I think I can pay him that tribute. Why, because there is, when you clinch with the problem, a very difficult situation there. It is not easy of solution. I am giving the Deputy that answer in the same spirit in which I gave him the answer on the question of breaking the link with sterling. There are many of us who would sympathise with some of the fundamental ideas in that approach, but when you clinch with the problem you find the insuperable difficulties. I am also certain that this served, when Deputy MacBride was in office, to prevent him and his colleagues from taking action, and I am sure that is the reason why to-day we are no further advanced in that regard than we were then. I am saying that in an exculpatory way for Deputy MacBride.

Mr. MacBride

Thank you.

Major de Valera

Let us look at it from another point of view. You have so many million pounds in the sterling invested in British Government securities. Why do we not take them back and invest them here? Is that not point No. 1 with Deputy MacBride?

Mr. MacBride

Or change the currency whereby——

Major de Valera

Is not that point No. 1? Do you not want them invested here?

Mr. MacBride

Yes, I want them invested here.

Major de Valera

It is a very laudable aim when it is put as neatly as that but let us look at the problem. These assets, looked at from one point of view, are claims in the sterling area outside this country. They are claims on goods and services which in the last analysis are to be equated against goods or services at one time or another furnished by this country. In other words, whether we look at it generally or from the point of view of the individual, a sum of money held like that in the sterling area is a claim.

Let us see what the processes of repatriation would be and let us get down to a single unit. I own £1 sterling. That is a claim abroad for £1 worth of goods or services. I can certainly repatriate my asset if I buy something with that £. If I buy, say, so many packets of cigarettes or if I buy an essential part for a machine which I am working at home, and bring those cigarettes or that machinery home, I repatriate those assets, with the distinction that if I bring in machinery and it is productive machinery, I will be conserving my asset as well and, in the case of cigarettes, I blow it up in smoke, in which case I have simply blown my asset.

Supposing I do not choose to do either of these things, supposing I want to repatriate the money, what is the only thing open to me? I have to sell it to someone for an Irish £. Is not that so? I transfer it for an Irish £, that is, a claim for goods or services at home, for the person who gave me that, if I bring it home in that way, has taken over this sterling claim and, if it is an Irish person, all I have succeeded in doing is transferring the sterling claim. I have not repatriated anything. I have merely transferred it.

It is quite obvious, therefore, that in regard to actually repatriating the assets, as Deputy MacBride admitted on Friday, if I read the report aright, I can only do it by importing goods or services and, obviously, it is no very great economy to import consumable goods of a non-essential type, like the cigarettes I spoke of, in the long run, to the community.

If you consider the thing in reverse, somebody has a claim on us here, has Irish assets, which would be a debt for us, the reverse position holds and, granted—I think this is where the confusion arises—you can then apply the national transfer in both of these cases to cancel out, but you cannot go beyond the cancelling-out process. So that your position is, except in so far as claims on both sides cancel out, your net balance, if it is a positive one or even if it is a negative one, I think, is not repatriable. So there it is.

The Central Bank has so many millions there. If it were to invest that number of millions here, as the Deputy is talking about, that in effect means giving credit to that extent here at a particular rate of interest, and that will not in any way affect the net holding of sterling, as I tried to argue. It is rather difficult to go into a rather arithmetical argument here without a blackboard. I think I have indicated a general line from which it will appear that it is just not feasible to take these assets as such, being sterling claims, and just import them back.

That argument becomes reinforced when you consider what they are there for—as a backing for your currency and its relation to the banking system. I can summarise the whole thing by saying that, short of a very radical overhaul and complete change of your banking and currency system, it is not possible to take that sum there as it stands and invest it in Irish securities.

Mr. MacBride

Your main problem would be to find investments for them.

Major de Valera

I will come to that in a moment. If Deputy MacBride says that the thing is so rotten that we have to face up to complete revolution in our financial system, if he says that we have to scrap our relation with London, that we have to set up a completely new monetary system, I would say: "Very well; now we are on a talking basis."

Mr. MacBride

Will you agree with me then?

Major de Valera

If you say that, I have one very simple question to ask you: "You might have something there, but will you put it down in black and white and let us see what it is? Give it to us in a form that we can criticise. Give us forms A, B, C and D and let us see what concretely you propose to do. It will be a very big revolution."

Secondly, there are certain problems that have come up in this discussion before and I am not going to refer to them—the transition problems. What are you going to do with regard to these? Put up your blue print of what you are going to do. It is not enough to say: "Break the link with sterling." You might as well say: "Fly to the moon." I will talk about flying to the moon with you when you give me the design of your rocket. If you come along with your rocket and tell me: "My mass ratio is such and such and my fuel load is this, and so forth," then I can talk to you in concrete detail and decide whether I will travel with you in your rocket attempt at the moon or not. If you come along and say simply: "We will go to the moon," I will say: "You will go alone." In the same way, with regard to this problem, if you are serious about it, give us a set of concrete proposals upon which we can argue and then we can join issue on a lot of practical details as well.

As the banking situation is, as the whole monetary machine is, for the general reasons I gave, reinforced by considerations of what that legal tender note is there for at all, it is not possible to do what Deputy MacBride has suggested should be done.

Now let us come to the question of industry. It is all very well to say: "Invest that at a higher rate of interest", but Deputy MacBride, I am sure, has gone to the trouble to read a little bit about this subject at least——

Mr. MacBride

Even more than the Deputy. He probably has read quite a lot.

Major de Valera

I am not suggesting that the Deputy has not. It is only my way of stressing the point that the Deputy has read all that is available and knows as well as I do that one of the conflicting things in banking as it developed is the balance between liquidity and return on a bank's asset. That is always the problem, is it not?

Mr. MacBride

It is.

Major de Valera

It is. Is it not just that problem that is at the root of the interest rates?

Mr. MacBride

No, no.

Major de Valera

Why not?

Mr. MacBride

Because no country would be mad enough to maintain a currency fund that was 100 per cent. liquid. No one will ever demand to change every single pound overnight.

Major de Valera

Now the Deputy is getting away from the concept of this particular fund as it is. If the Deputy is going to argue about the whole system itself, that is a different line of country.

Mr. MacBride

No—on the question of liquidity pure and simple.

Major de Valera

In this particular case, these investments have to be liquid.

Mr. MacBride

No.

Major de Valera

Why not?

Mr. MacBride

In every country in the world——

Major de Valera

I can give you a very good example. It is very easy to say that on this consideration of liquidity—it is not peculiar even to banking—it is a big problem for any concern with anything to invest.

Mr. MacBride

But no bank——

Major de Valera

The Central Bank needs its cash liquid in a very peculiar way which I am not going into now. The fact is that if it is not liquid you upset the whole mechanism that is there.

Mr. MacBride

No, no. That is nonsense.

Major de Valera

Let us get into it another way. Take the case of a firm that invests in an Irish industry. I do not like to go into this because it seems to be rather decrying Irish investment. I do not want to get into detail here for reasons Deputy MacBride can appreciate as well as I do. He knows the great difficulty of getting investment in a restricted area where that money is going to be tied up indefinitely and may suffer a big loss. We have had examples of it here in this country.

Mr. MacBride

Have we not lost equally by investing in England?

Major de Valera

No, except in so far as the actual value of the monetary unit is concerned, you are always equivalent to that, but not in the sense that you would lose on the long-term investment. I do not want to go into questions affecting Irish securities here for a very obvious reason, but I would put it this way, that one of the big advantages of having the whole sterling area is this—the whole sterling area is a big pool and if I invest in that, even on long-term, a sizeable sum of money I can withdraw it rapidly because even though it is a sizeable sum of money it is only a drop in the pool and I do not affect the balance. However, although I am only a few drops, if the pool is much smaller and the ratio of the withdrawal is much bigger, then of course I am only able to liquidate quickly at the expense of changing the whole complexion of the pool.

Mr. MacBride

Does the Deputy mind if I interject like this or does it put him off his track?

Major de Valera

No, no.

Mr. MacBride

Where you invest in British Government securities it has nothing to do with the sterling area pool or reserve.

Major de Valera

All right. Then my argument is easier. I thought I was answering or up against the question why not invest it here at home? I have given the first part of that answer, which was the impossibility of repatriation except in a particular way, and secondly, the banking system. Now, if that is not the issue, it is easy.

Why is it invested in British Government securities? Are not these the safest and surest investments in the sterling area? They have the advantage of liquidity and, as a matter of fact—it is a pertinent question to Deputy MacBride—when certain large funds came into the hands of the Coalition, why were they invested just precisely in that type of investment? I think the answer will be found to be that it was because it was necessary to have them liquid and able to be drawn upon. I would like just to follow that out. I take it now that Deputy MacBride is withdrawing from the position that they should be invested at home as such.

Mr. MacBride

No, no.

Major de Valera

You are allowing them to invest in the sterling area?

Mr. MacBride

No. I was pointing out to the Deputy that he was mistaken in thinking that they were at the moment invested in the sterling area.

Major de Valera

They are—and specifically in British Government securities.

Mr. MacBride

The sterling area reserve or pool, therefore, has nothing to do with it.

Major de Valera

I am not so sure of that. The sterling area reserve and pool has a good deal to do with it if you follow it up, but I want to get clear the basis on which I am arguing with Deputy MacBride. I joined issue with him first when he naïvely suggested that you could lift that £55,000,000 worth of sterling assets and take them over and seek to invest them at home.

Mr. MacBride

You could invest at home.

Major de Valera

I said you could not do it and I tried to trace out how. I am not going over that again. I asked Deputy MacBride first to analyse the process of dealing with claims and to look at it from the point of view of the claim of a citizen here on an asset externally and a reverse claim. I agree that you could have a cancellation, but short of that, cancellation being equivalent notionally to an equal double transfer of goods and services——

Mr. MacBride

Creating credit here.

Major de Valera

——on that basis I said that it is not feasible just to repatriate them in that sense. Right; now, there is one thing you could do, you could go on issuing more notes and say you have that security there, but that is going to upset the balance. If you look at the balance sheet, you see that they are already equated against the note issue and if you were to go through a form of that nature I think it is a type of inflation that would not be very beneficial to anybody.

Thirdly, I mentioned the complexity of the machine, the whole disjointing of an economy and monetary machine. On these three grounds, I say that it is not feasible to repatriate them in the sense that Deputy MacBride is talking about. We then come to the question of a return on these investments.

Mr. Hickey

Supposing we ordered England to-morrow morning to build us two ships and that they cost us £1,000,000 each, would that not be £2,000,000 repatriated?

Major de Valera

And we got the ships?

Mr. Hickey

Yes.

Major de Valera

I am all with you if you can do it. If you can get goods or materials, as far as external assets are concerned.

That is an answer regarding external assets. Do not let us get confused. I am all with the Deputy as regards our external assets. Our quarrel with the Coalition Government was that they were scrapping factories in Inchicore and elsewhere when they should have been buying machinery, building factories and spending our external assets in that manner. I would have been delighted to clap my hands and say "hear, hear" if they had done that, but they spent them on consumer goods. That is what they did. I am in agreement with the Deputy, but do not let us get the question of external assets in the broad tied up with our banking. The Central Bank cannot repatriate its assets in that form. I have not gone into it in any detail in regard to the mechanism of backing the currency. The money is already balanced against notes outstanding, against currency. It is already balanced, and to issue any further credit—that is what investment would mean—would be unbalancing that situation and would be inflation unless there was some other corrective mechanism involved or brought into play, but Deputy MacBride has not worked that out or made any suggestion.

I hope that, in that tortuous way, I have got to the point where I say that these sterling assets in the net cannot be repatriated. These assets are necessary as a backing for the currency.

Mr. Hickey

All of them?

Major de Valera

Yes.

Mr. MacBride

Might I be permitted to ask the Deputy a question? Could the Deputy give an instance of any other country in the world that backs its currency 100 per cent. by foreign securities?

Major de Valera

That does not answer anything. What I am trying to impress upon Deputy MacBride is that we are dealing with a particular situation here. We have got to take our trade situation into account and think of the very ordinary commodities such as wheat, tea and all sorts of machinery which are involved in trade. There is a very particular advantage in this one-to-one relation between the Irish £ and the £ sterling. That relation depends very intimately upon the set up of our currency and banking.

Deputy MacBride more or less put me off the logic of my argument. Having disposed of the contention that you could just take that money as a sum on paper, transfer it home and forget about it, we are back to where we were a moment ago. If we are at the point where those assets are to be invested in the sterling area, where are you going to invest them better than in the British Treasury which is really the Central Bank of the sterling area? That is very roughly the situation. That may not be scientifically accurate but that is the case. Will you invest, as Deputy MacBride suggests, our money and assets which are at the moment, under existing conditions, the back-bone or the backing of our monetary system here in speculations in the sterling area? Will the Central Bank for instance put that money into speculative undertakings at 4, 5 or 6 per cent.?

Mr. MacBride

Which would be most beneficial.

Major de Valera

These are claims on the sterling area. Short of cancellation by equivalent imports and exports there is no way that you can repatriate that credit balance. On that premises they are claims on the sterling area. Under the monetary system that obtains in the sterling area those claims can be set to work and earn more interest. You have the choice of having them completely liquidated as cash. You can buy gold and hold it. In that case the claims are dormant. They are not working. They are asleep. You could set them working at a highly speculative rate but if you do that you are up against the balance of liquidity and security as against return.

I should like to ask Deputy MacBride a question. If those assets are not invested in the safest place in the sterling area, where you have the advantage of liquidity and where those claims can be realised at any moment, where will you put them in the sterling area? Will you put them into some big industrial undertaking in the sterling area? How liquid will it be? If you are going to sacrifice liquidity will you be satisfied with such security and will you tie up this money for a long time in such an undertaking having regard to the economic conditions of the present day? Will you specifically give credit or money to specific undertakings instead of to the sterling area at large? You have an advantage and an interest in the sterling area at large. I do not think that the Government or the Central Bank would be justified in limiting its interests to some particular things in the sterling area. The Central Bank would have to do the same as a big firm. They would have to look out for a list of investments. It could get them. I could rattle off a list but, perhaps, it is just as well not to. If one procures a copy of the Financial Times one will see therein a list of places where the money can be put but what would be the consequences of doing that?

Mr. Hickey

Did not some of those firms on the other side compete unfavourably with our industrialists here in that they had the £55 million at a little over 1 per cent. as against the 5 per cent. we paid?

Major de Valera

If one went very deeply into the matter the Deputy would have something in that point, but one is up against the whole system in that. Once we have granted the point that that money represents claims in the sterling area, they are going to stay in the sterling area external to this country. Once we have got to that common point of agreement —we are in agreement as to the methods by which we could repatriate our assets and that they could not be effectively repatriated in any other way—the complaint of Deputy MacBride why it should ever be done that way is inherent in the whole banking system, not only for here but for the sterling area at large and what is involved is not such a simple transaction as Deputy Hickey suggests. What is involved is a revolution.

Mr. Hickey

Do not frighten the people with that name.

Major de Valera

I am not trying to. I am trying to argue reasonably and I think the Deputy is trying to argue reasonably with me. We agree that there is a way of repatriating assets, but only by bringing in worthwhile goods. You can do it by bringing in any kind of goods, but we are agreed that it should be done in an economic and profitable manner, so the Deputy and I would agree that the best form would be capital goods. I am going a little further and I do not know whether the Deputy completely grasps the point. I have tried without the aid of a blackboard to bring out that you cannot effect a repatriation—I think Deputy MacBride agreed with me on Saturday last and I can give him the quotation if he wants it—in any other way but the way the Deputy said. If you cannot effect a repatriation in any other way, these existing assets on this day represent claims that cannot be repatriated in any other way. They are there at the moment to back currency. Assume that the Central Bank took Deputy McBride's advice and set about repatriating. The only way would be by buying, say, the ships you mention. The Central Bank would have to buy 55 ships, and is it the suggestion, then, that our currency should be backed by 55 ships?

Mr. Hickey

No, not by 55 ships.

Major de Valera

I am quite serious. I am not trying to make fun of the Deputy. There was a time when that kind of idea was afoot. After the 1914-1918 War, the Germans issued something, backed by the land of the country, which merely boiled down to one big bluff, and, on the same principle, although it sounds funny, you could back your currency with 55 ships, but it is not sound finance in the system we have got. When I talk of sound finance, I am talking of it specifically in relation to the system that is there.

Mr. Davin

And you are defending it.

Major de Valera

I am not.

Mr. Davin

Of course you are.

Major de Valera

It is going to require a revolution to get over it.

Mr. Davin

A bloodless one?

Major de Valera

If Deputy Davin or Deputy MacBride will produce their blue-print for this revolution and deal with the transitional problems surmounting very serious economic repercussions such as I dealt with on another occasion, he might have some unexpected recruits to follow him. But we have to deal with the system as it is to-day, and you cannot do these one-sided, isolated things without upsetting the whole concept.

With regard to this sum of £55,000,000 which Deputy MacBride talked about, I say that, as the monetary machine, the monetary system, is, we cannot repatriate these £55,000,000 in the way so naïvely suggested. If you cannot—I am repeating myself, I know, but I am afraid this friendly argument lends itself to repetition—then the money which represents claims in the sterling area can be dealt with in two ways outside as it lies outside. It can be held dead by buying gold, for instance, or it can be set to work for return. The return would be sterling, which must be remembered, but then you are up against the question put by Deputy MacBride: Why British securities? My simple answer to that is: Where else? Let us follow up the consequences of "where else?" Is the money to be invested in some British colonial development, in armaments or something like that? If that is the idea, I should say that it is not a very safe security.

Mr. Davin

What about Persian oil?

Mr. Hickey

Reading the Deputy's speech, I did not get the impression that he wants it invested in that way.

Mr. MacBride

Invest it here.

Major de Valera

How are you going to invest it here?

Mr. MacBride

Invest it in securities in which you utilise credits you have elsewhere, by utilising credits you have elsewhere to pay for the goods you require.

Minister for Finance (Mr. MacEntee)

Popcorn machines.

Major de Valera

Suppose Deputy MacBride is in charge of the Central Bank and he has £55,000,000 invested in a way which is both liquid and gives a small return. He wants to invest that sum in Ireland. Will he give me specifically how he would do it?

Mr. MacBride

In the first place, we had last year £50,000,000. We increased that sum by £5,000,000.

Major de Valera

Let the Deputy not get away from the point.

Mr. MacEntee

Answer the question.

Mr. MacBride

I am giving the answer. The first step is not to add to it. We added £5,000,000 in the course of the year. The first step is to keep that money and find an investment here for it.

Major de Valera

Where did these £5,000,000 come from?

Mr. MacBride

The Central Bank acquired them.

Major de Valera

How?

Mr. MacBride

Presumably from the funds at their disposal and they invested the money in British securities.

Major de Valera

How did they acquire that sum of £5,000,000 external assets?

Mr. MacBride

That raises another question.

Major de Valera

It raises a very pertinent question.

Mr. MacBride

From funds under their own control. The first step is not to accumulate them.

Major de Valera

I asked the Deputy a very specific question and I want to follow it up. I asked him how he would repatriate this sum of £55,000,000 and the answer I get is that it increased by £5,000,000 in a year.

Breanndán Mac Fheórais

You asked him how he would invest it.

Major de Valera

Yes, but the answer was that it increased by £5,000,000.

Mr. MacBride

The first step is to prevent its accumulation over there.

Major de Valera

How did it accumulate? How did the Central Bank get £5,000,000 more of sterling in the year? I should like the Deputy to tell me what he thinks happened.

Mr. MacBride

If the Deputy will argue reasonably instead of shouting, I might perhaps be able to answer. Let him ask the Minister for Finance how, for instance——

Minister for Lands (Mr. Derrig)

Answer the question.

Mr. MacBride

——he was able to utilise the sum of £20,000,000 which he had on deposit with the Central Bank and invest it here. You can repatriate that money in exactly the same way.

Mr. Davin

Is it in order that there should be three to one against Deputy MacBride—two Ministers and Deputy de Valera?

An Leas-Cheann Comhairle

The Chair would prefer if Deputy de Valera made his statement. Deputy MacBride will get an opportunity later on.

Mr. Davin

I never listened to such a debate in all my life.

Major de Valera

We live and learn. I think I have shown that, short of the actual importation of goods and services, it is impossible to repatriate assets of this nature. May I quote from Friday's debate? I admit that on Friday I was more tentative on the point because I came in more or less impromptu. I said on Friday:—

"Short of the importation of equivalent goods or services, I wonder can we actually, by monetary transaction alone, effect any repatriation of assets."

Mr. MacBride

Of course not.

Major de Valera

We are agreed on that. I want to go a little further to-night. I think I have shown that it is not feasible, short of that or a cancellation of claims, which really boils down to a notional double transfer, to repatriate these external assets by monetary transaction alone, to use the phrase with which Deputy MacBride agreed.

Mr. MacBride

Is the Deputy not confusing external assets with actual investments in securities?

Major de Valera

I am not. These investments are, of course, external assets.

Mr. MacBride

Of course they are and it is a question of which is the lower.

Major de Valera

In any event, what are your external assets unless they happen to be real assets? I do not know that we have any real external assets. What are they? They are claims on goods and services. That is what money is in this sense. Deputy MacBride and I seem to be agreed on that. I was going on to argue then on the particular form of investment, treating it as a monetary transaction in the sterling area. Deputy MacBride challenges me and I ask him a very simple question: "How can you invest these assets at home? How will you do it?' That is a very simple question. Deputy MacBride says in reply to that question: "The first thing I would do is prevent them from increasing." I take it from that that Deputy MacBride thinks it just is not possible——

Mr. MacBride

No, no.

Major de Valera

——to repatriate our sterling assets in the simple way in which it has been suggested they should be repatriated.

Mr. MacBride

Of course, one does not really repatriate them like that. Surely one can utilise them to pay for goods and services.

Major de Valera

Then we are back again to backing the relationship that establishes my argument, or to something equivalent.

Mr. MacBride

Of course not.

Major de Valera

If you are in it you have got to be in the whole revolution of the monetary machine.

Mr. MacBride

Of course not. You back them with your own Government securities.

Major de Valera

One can look at it from two points of view. One can come back again to this national idea that was invoked—shall I say?—as a confidence trick in Germany after the first world war. It worked there for a while. Alternatively, one comes back to a change in the whole monetary system here, including breaking the link with sterling. Again, I am compelled to ask the Deputy: "In what way can we do that? How can we do it in concrete form?"

Mr. MacBride

What does the British Government back its own currency with if it is not the security of its own Government? Why cannot we do likewise?

Major de Valera

Because over and above all that there is all the machinery of claims. The whole banking system is involved in this. That is what I am trying to hammer home. All that must be taken into consideration.

I would like to join issue now with Deputy MacBride in connection with another matter. Deputy MacBride talked about stock increasing. How does the Central Bank increase its holding? How does it come about that the Central Bank has increased its stock? What happened? I ask the Deputy that question so that we may find out the practical way in which to do what the Deputy suggests should be done in order to stop stocks increasing. It is very easy to say: "Stop something", but if you intend to stop something you must first find out the best way in which to bring about the desired cessation.

Mr. Davin

Stop emigration.

Major de Valera

Exactly, but you must first find out how to do that.

Breanndán Mac Fheórais

Conscription.

Major de Valera

Does the Deputy advocate conscription?

Breanndán Mac Fheórais

Fianna Fáil did.

Major de Valera

Of what?

Breanndán Mac Fheórais

One of the Fianna Fáil Cumainn did.

Major de Valera

I have asked Deputy MacBride, and I want an answer, how did this £5,000,000 come about?

Mr. MacBride

Does the Deputy want my reply to that now?

Major de Valera

Yes.

Mr. MacBride

The additional £5,000,000 accumulated by the Central Bank in the currency fund was transferred from other accounts of the Central Bank. That happens because the Central Bank refuses to invest here, and adheres to the position wherein they insist on investing every penny of the currency fund in England.

Mr. MacEntee

The Deputy does not even understand the position. He has not a scintilla of understanding about it.

Major de Valera

I think the best thing I can do is read a paragraph from an answer given to Deputy MacBride on the 28th November, 1951. It may throw some light on the matter. It will be found at column 1664 of the Official Report, Volume 127:—

"A little reflection, coupled with a knowledge of finance, will enable it to be seen that some Irish residents, or Irish institutions, must hold the foreign exchange reserve of the Irish community, so long as they are fortunate enough to have any. When one Irish holder transforms his holdings of foreign assets, i.e., claims upon foreign goods or services, into Irish currency or bank deposits within Ireland the first effect is to increase by an equal amount the holdings of other Irish institutions or individuals. If Irish commercial banks, for instance, transform their foreign holdings into Irish currency, the foreign holdings of the Central Bank would be increased accordingly. If the Central Bank were compelled by law to hold part of its funds in the form of Irish securities the external holdings of the commercial banks would be increased to an equal amount. If an Irish individual translated his personal holdings of foreign assets into Irish pounds or a deposit in an Irish bank the foreign holdings of the Central Bank and/or the commercial banks would be increased in the same amount. In short, we can only repatriate or liquidate the holdings of foreign assets in the hands of Irish citizens and institutions by using them to claim foreign goods and services, that is, by importing foreign goods and services in excess of our current foreign earnings from exports of goods and services."

There is more than that to the answer, but I think the relevant information for our purpose to-night is contained in that paragraph.

An Leas-Cheann Comhairle

If the Chair might interrupt the Deputy for a moment. Deputies will understand that this motion is limited to three hours and there is now less than 40 minutes to go.

Mr. Davin

And the Deputy is talking it out.

Mr. MacBride

I am very glad Deputy de Valera has spoken at some length on the matter. May I make a suggestion? Would it be possible to have an extension of the time—not necessarily to-night but in the course of the next few weeks? The subject is one worth discussing. It is an important motion and many Deputies want to discuss it. Would the Deputy agree we should secure an extension of the time for discussion?

An Leas-Cheann Comhairle

That can be arranged on Friday. It does not arise to-night.

Mr. MacEntee

If we are given an opportunity of talking after Deputy MacBride we will be very glad to extend the debate. When we have heard Deputy MacBride's answer to the question Deputy de Valera has put to him we will be very glad to continue the debate almost interminably.

Mr. MacBride

Will the Minister agree now to extend the time?

An Leas-Cheann Comhairle

As the Chair has pointed out, that does not arise at this stage. As the debate is being carried over, that question can be settled on Friday when the debate is resumed.

Mr. MacEntee

If the Deputy wishes, we can discuss this in Government time in the debate on the Estimate for my Department. I will be very glad to give the Deputy as much time as he likes with the permission of the Chair and the House.

Mr. Hickey

I would go further and say the motion is worthy of a private session of every member of this House.

Mr. MacEntee

Not at all.

Mr. Hickey

We can then discuss the implications of the whole banking system and of the Central Bank.

Mr. MacEntee

When the Deputy has listened to Deputy de Valera and learned something from him there will be no need for a private session or anything else.

Mr. Davin

I was thinking we were in a schoolroom all the time.

Major de Valera

In connection with that, in a sense I think we are. This is really a very difficult subject.

Mr. Hickey

Of course it is.

Deputies

Hear, hear!

Major de Valera

It is, really. There is no use in trying to pretend that we know all about it. Economists do not know all the ramifications of this delicate machine that has grown up.

Mr. MacBride

Hear, hear!

Major de Valera

This financial, economic and social machine is so delicate and complex that it is——

Mr. Davin

Fundamental.

Major de Valera

——very difficult to deal with these isolated things. Take an example. It might be quite easy for me to say: "That light is not shining too well." I do not know very much about it, but I could put a spanner in my pocket and go down to the Electricity Supply Board central distribution circuit and start twisting screws. I would certainly affect the light, but I wonder what other lights in the whole system would be affected. Something the same can be said in regard to this matter also.

Mr. MacEntee

What would you do to yourself?

Major de Valera

I should get a certain amount of pleasure from getting after Deputy MacBride in regard to a lot of things but, on this particular matter, I am inviting Deputy MacBride to answer some of these things concretely.

Mr. MacBride

I will answer them in full if I get an opportunity of doing so.

Major de Valera

Why I tried to press home the matter of the £5,000,000 can arise this way, or can it? Suppose I export so many cattle. If I am right in this matter——

Breanndán Mac Fheórais

On a point of order. We have heard Deputy MacBride for a pretty long period. We have heard Deputy Major de Valera for a long and interesting period. Perhaps, before Deputy MacBride concludes, it would be a good thing for the House to hear a third point of view. If Deputy Major de Valera continues to talk until 10.30 to-night it may be impossible to hear the third viewpoint.

Major de Valera

Does the Deputy wish to speak?

Breanndán Mac Fheórais

No, but a member of the Labour Party wishes to speak.

An Leas-Cheann Comhairle

It was for that reason that the Chair pointed out that only 40 minutes were left.

Major de Valera

I will give way now. I just want to make this one point in conclusion. If I export 50 cattle to Liverpool and the cattle are sold there and I get so many pounds sterling in return for them, what happens? Do I not want that money here? As I have already said, and as Deputy MacBride has agreed with me, the only way to do it is to give the Central Bank my 50 English pounds sterling and to get in return the equivalent value in Irish pounds. I know that that transaction may be masked in view of the fact that the actual English pound note sterling will circulate here also but, fundamentally, that is what happens.

What you are up against there is a trading matter. Some Deputy on the Labour Benches wants to talk and I think that would be unfair to prevent him from doing so. I want to summarise like this. I put the question to Deputy MacBride and he is not able to tell me concretely how he will repatriate those assets.

Mr. MacBride

He will, certainly.

Major de Valera

How he will invest them concretely.

Mr. MacBride

That is the biggest problem.

Major de Valera

The nearest that Deputy MacBride got to answering my question was to say that we should stop increasing it. Time is against my following up that point now but perhaps I shall get an opportunity of doing so on another occasion. That, then, is my first point. My second point is of interest. That is tied up with where you invest it and particularly with liquidity. I asked Deputy MacBride if, having those claims and that money there in the sterling area and externally and at large, you do not invest at the central point in British Government securities, where else are you going to invest it.

Mr. MacBride

In Ireland.

Major de Valera

I did not get an answer from him. My third point is the legal point. Anyway it is mandatory, short of Government action—and it is very significant that we had no Government action during three years of another Government of which Deputy MacBride was a member. I am not throwing that in his face as there is his promise and there is what he did. I am giving it as a very cogent reason why the situation remains as it is. I am giving it also in connection with Deputy McGilligan's insistence, as Minister for Finance—and I am sure, again, only under the compulsion of circumstances—in investing certain moneys that came into his disposal in the same channel.

With these words I will, I think, say that this criticism of this report is unfounded and I finally take objection to the innuendo method of presentation. I take objection to that particularly as, in reading Deputy MacBride's opening speech, he did very little, if anything, to substantiate his charges.

Mr. MacEntee

The debate does not conclude at 10.30. That is understood. So far as I can, with the consent of the House and of the Ceann Comhairle, I shall be very glad to welcome the resumption of the debate on the token Estimate which is now before the House.

Mr. MacBride

Is the Minister suggesting that the debate should continue on the token Estimate?

Mr. MacEntee

Yes, or if the Deputy wishes, we can use the balance of Private Deputies' Business on Friday and carry over the discussion to my Estimate.

Mr. MacBride

It would convenience me if it were not taken on Friday but, instead, on the Minister's token Estimate.

Mr. MacEntee

Certainly. I think that, having been opened on this wide range, it is better that we should continue it.

Mr. Larkin

It is quite clear that the debate on the motion has somewhat changed its facets. Following upon Deputy MacBride's introductory speech—which, to some extent, ran into a confined channel—and the opening remarks by Deputy Major de Valera, we were then getting on to the question, not of economic and fiscal policy but rather of the economic background which, he alleged, had been created by the inter-Party Government, and then, again, we got back to the question of policy. Like many other members of the House, I feel anxious to have the question of policy pursued, but I am somewhat nervous of getting between the two protagonists who have been arguing here for the past one and a half hours, not on policy but on mechanism.

Deputy Major de Valera has gone to great lengths to explain all the difficulties and obstacles in the way of his trying to do certain things—on which, apparently, we all agree in principle. I take it that Deputies on practically every side of the House agree that within certain limits it is desirable that such assets as we have should— as I say, within certain limits—be invested in our own economy. We recognise that we are bound by certain fiscal handicaps in that sense, to the extent that portion of our assets, in the form of external assets, cannot quite clearly be readily realised and repatriated in the way we want. We recognise that we have a currency tied to the British £ and we also have a certain balance in relation to our external trade.

All these factors go to make up the general atmosphere in which you have to try to deal with this problem. My objection to the line of argument which Deputy de Valera has pursued is that instead of trying to seek a solution to the problem with which we are all concerned, he has spent an hour and a half explaining, not the difficulties from the point of view of removing these difficulties, but the difficulties from the point of view of getting a solution to the problem. I do not follow Deputy MacBride all the way in his attitude on many of these questions, but I am inclined to go a good deal of the way with him. I think that very often a solution of such problems may be found in probably the simplest statement, and the simplest statement in regard to the solution of this problem has been, I think, that of Deputy Hickey. Speaking of our external assets he quite clearly said that a very simple way of repatriating these assets was to buy two ships, say at £1,000,000 each. In that way we could get £2,000,000 worth of our assets home.

Major de Valera

We are all agreed on that.

Mr. Larkin

We are all agreed on that. That is the point I am coming to. While we are all agreed on that as one means by which we could repatriate our external assets for the purpose of using these assets in our domestic economy, the difficulty I see is that the whole question of our financial policy— and now it appears, also, of our economic policy—is largely not being determined by members of this House who are charged with that duty, but by bodies external to this House. I agree with Deputy de Valera that if we are going to make any progress on any line on which we have broad agreement, it is going to involve a revolution, not in the usual popular sense in which that term is used, but in the sense of a complete change-about of our financial and banking policy—not of our economic policy because that is something on which we have broad agreement.

What I am concerned with in regard to the motion is that we are debating it now 12 months after it was set down on the Order Paper and that very many of the things we were fearful of 12 months ago have now come to pass. They have come to pass, not alone from the point of view of the Opposition and of those who took part in the debate, but they have come to pass even in the words of the spokesmen of the Government Party. That is a most serious situation. These developments seem to me at least indicative of the fact that, whether it be a Fianna Fáil Government or an inter-Party Government that is in power, both Governments, in so far as existing conditions are concerned, are largely the servant of those forces which are external to this House.

Mr. Hickey

We all realise that.

Mr. Larkin

Possibly, as between the Fianna Fáil Party and members of the Opposition Party, there may be fairly wide differences of opinion on the mechanism and the methods which should be adopted to repatriate our external assets, to change or amend the dependence of our currency on sterling and on the question of how to deal with the problem of our balance of trade in regard to other trading areas of the world, but I think there is agreement amongst us all that, whatever be the policy we should pursue in the interests of the nation, it should be a policy that would emanate from this House and from nowhere else. That is a matter on which I have grave doubts. The mechanism of finance and banking is so complicated, so difficult, and so delicate that the ordinary man in the street, a class to which most of us here belong, finds great difficulty in approaching that self-defensive mechanism built up by the banks themselves so that they can preserve their own little sphere in which they have their own authority which nobody can challenge.

Major de Valera

The Deputy might perhaps give us a statement of the historical build-up of that situation and the way in which it originated. It was built up by the banks and now they are faced with their own Frankenstein which is not completely amenable to them.

Mr. Larkin

If that is the position we could easily determine by agreement on both sides of the House the steps that should be taken to deal with it. If we now get the admission that that is the position, that the banks are in control, then we know where we stand.

Major de Valera

Historically the banks built up the system, but the system has grown up with all its ramifications and it is so delicately balanced that it is very difficult to change anything. Nothing short of the revolution of which I spoke could achieve it.

Mr. Hickey

We need not go outside the economy of the country if we decided to use the power which we should have.

Major de Valera

I am sorry for interrupting the Deputy.

Mr. Larkin

You are not interrupting me. I would interrupt the Deputy if necessary. If we agree that is the present situation, if we agree with Deputy de Valera that it has been an historical growth which has now reached a point so delicately balanced that any attempt to change that balance may bring consequences to us, in respect of which we are not clear but which may be very serious in their effects on the country; if from that we then proceed to the conclusion that in fact we can make no change——

Major de Valera

Oh, no.

Mr. Larkin

——at least it would be an advantage and we would have a clear position to deal with, but our difficulty at the moment is that we all know we have got certain conditions in the country that we should like to see changed. We have got underdevelopment of agriculture. We have got an insufficiently developed industrial economy. We have got between 60,000 and 70,000 men and women unemployed. Men and women for whom we have, not alone a sentimental regard but who represent an important factor in the country's economy are leaving the country. That is an important fact in respect of which all Parties in this House have got certain viewpoints. They want to see changes and the ordinary people in the country look to each other and every one of us to bring about the changes we all desire. Now it is one thing to say that there are difficulties in the way of bringing about these changes and that these difficulties can be tackled along certain lines—A, B, C, D, etc.—and that if we are going to tackle these difficulties we have got to get agreement on certain principles. It is an entirely different thing to turn to the people and say: "The difficulties are there; we would like to tackle them but we have not got the power to tackle them, and if we had the power we dare not use it." Then the people would know where they are.

There is no sense if that is the situation—and I am not saying that we agree upon it—in any of us going outside this House, going on election platforms and holding out, as we all have held out, that it is possible for us to provide for our people a more secure life, higher standards and conditions within the country which will enable our people to obtain work at reasonable wages and on reasonable conditions and to enjoy the ordinary amenities of civilised life without being faced with the prospect of their children having to emigrate to seek work in other countries. That seems to me the problem with which we are all concerned.

In so far as the motion before the House is concerned, the important fact to consider is not whether the Central Bank made a mess of their forecast or whether they gave good or bad advice upon which the Government acted. The important thing which we have now to decide amongst ourselves is whether we can agree on the objective and, secondly, whether it is possible to start to bring about, even in a small way, the revolution of which the Deputy spoke. We have got one point of agreement at least, that it is possible to repatriate some of our external assets.

I move the adjournment of the debate.

Dáil Éireann debate - Wednesday, 12 Nov 1952