I move that the Bill be now read a Second Time.
The purpose of this Bill is to amend in three respects the Central Bank Act, 1942, which is the principal statute covering Irish central banking. The amendments are separate and distinct.
Section 1 is designed to give effect to a suggestion of the Central Bank that it should be empowered to purchase securities of the International Bank for Reconstruction and Development—usually known as the World Bank—which was founded at the Economic Conference held at Bretton Woods in 1944 and of which Ireland became a member in 1957. The Central Bank is already empowered by section 7 (1) (h) of the Act to purchase, for the purpose of or through its General Fund, securities issued by or guaranteed by any Government. Although the members of the World Bank are Governments, its Bonds are not directly guaranteed by member Governments and, therefore, are not covered by section 7 (1) (h) of the Act. It is accordingly proposed to make an appropriate amendment to section 7 (1) (h) and to do this in general terms in order that the Central Bank will be empowered—if it so desires—to purchase securities which may be issued by any other international bank or financial institution formed by Governments.
I should say that, while World Bank Bonds are not guaranteed by Governments, they are effectively backed by the status and resources of the World Bank itself, and are regarded as investments of high quality in the United States, which provides the main market for them. Bonds have been issued by the World Bank on the international capital markets since 1947 and constitute an important part of its finances. The proceeds of Bond issues go to finance the activities of the World Bank, and are mainly concentrated on productive projects in the less-developed countries.
Section 2 of the Bill is intended to replace the provisions in sections 19 (4) (a) and 23 (6) of the 1942 Act regarding the ineligibility of the Governor and Directors of the Central Bank for nomination or election to the Dáil or Seanad or as Uachtarán. The Constitution provides that every citizen who has reached his 35th year of age is eligible for election to the office of President; it does not provide that disqualifications in respect of this office may be imposed by law. It is considered therefore that the provisions in the 1942 Act that the Governor and Directors of the Central Bank are ineligible for election to the office of Uachtarán could be regarded as unconstitutional, and the Bill will repeal them.
The 1942 Act also provides that the Governor or a Director, while he holds office, shall be disqualified from being nominated or elected and from sitting or receiving payment as a member of Dáil Éireann or Seanad Éireann. On the principle that the legislature should have first claim on a person's services, it is proposed to replace these sections by provisions that the Governor or a Director of the Central Bank who is nominated with his consent as a candidate for election to either House of the Oireachtas, or is nominated as a member of Seanad Éireann, shall thereupon cease to be Governor or Director of the Bank, and that any person who is for the time being entitled to sit in either House of the Oireachtas shall, while so entitled, be disqualified from being or becoming Governor or Director of the Bank. The repeal of the existing provisions is provided for in section 3 (ii) and (iii) of the Bill.
Finally, in section (3) (i) of the Bill, it is proposed, at the Central Bank's suggestion, to remove the prohibition on the payment of interest on deposits made with the Bank by Ministers of State, public authorities and the commercial banks. Section 7 (1) (b) of the 1942 Act empowers the Central Bank to accept such deposits but, as interest may not be paid on them, the Bank has, generally speaking, not exercised this power; potential customers naturally avail themselves of the alternative of placing their cash reserves and other uncommitted funds to earn interest at call, or in short-term liquid securities, elsewhere. The words "not bearing interest" were included in section 7 (1) (b) of the 1942 Act following a recommendation of the 1938 Banking Commission on the basis that the general rule at the time was that central banks did not pay interest on deposits.
In post-war years, however, the tendency has been to leave such matters as payment of interest to the discretion of central banks themselves so that they can exercise their functions freely as conditions require. The purpose of the restriction, in countries where it still applies, is to prevent central banks from competing with the commercial banks for deposits. In Ireland, there is, however, no danger of this as the Central Bank is not empowered to accept deposits from the public. The Central Bank considers—and the Government agree—that, in line with the evolution of its functions and with a view to strengthening the resources of its General Fund in conformity with the requirements of our expanding economy, the Bank should be free to offer such return to its possible depositors as, in the light of relevant circumstances, it might from time to time deem appropriate.
In general, this Bill is of a non-contentious nature and I commend it to the House.
