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Seanad Éireann debate -
Wednesday, 6 Mar 1940

Vol. 24 No. 7

Offences Against the State (Amendment) Bill, 1940. - Irish Currency and Sterling—Motion.

I move:—

That Seanad Éireann would welcome a statement of policy by the Government regarding the Irish currency and its connection with sterling.

As the Seanad is well aware, the Irish pound is interchangeable with the pound sterling, and our currency is backed by a mixture of gold and British securities. It must have occurred to many people since the war started to wonder what would happen to this country if the war went badly for Great Britain, and if anything developed in the course of time in Great Britain at all resembling the appalling inflation in Germany after the last war. I am very conscious of the advantages of keeping an exact parity with sterling, and I am also conscious of the economy of backing our currency to as large an extent as possible by interest-bearing securities rather than by gold, but, under present circumstances, one is tempted to wonder whether we ought not to go further than we have so far gone in reducing the amount of the sterling securities backing our currency, and either increasing the quantity of gold held or acquiring dollar securities. One is also tempted to wonder whether it is possible at all for the Government to plan in advance some means of extricating ourselves and our currency in case of emergency, an emergency that I hope will never arise, from the sort of collapse to which I have referred.

It may be looking very far ahead, for I am afraid this war will go on for a long time. I do not imagine that, actually during the war, anything fantastic is likely to happen to the British currency; but if, by misfortune, Britain were to suffer defeat, the question is whether to any extent at all we could get out from under, and whether there are any steps we can take now to make our position somewhat more secure. The arguments, it seems to me, are all against any hasty departure from sterling. We have, even in this war situation, the experience of Denmark, our principal competitor in the British market, to guide us. The Danes left the sterling group at the beginning of the war, and I do not say they could help doing so, but the results have been disastrous. None of the Scandinavian countries, and, in fact, none of the neutrals, has suffered as much economically from the present war as the Danes.

Their currency was allowed to appreciate only 10 per cent. above what it had been in relation to the pound, but, even so, the phenomena that have accompanied that change have been extremely discouraging to anybody who might be tempted to do likewise. Their bank rate, instead of being 3½ per cent., is now 5½ per cent. Owing to shipping difficulties, imports have not been made less expensive to the Danes as might be expected to happen on account of the currency appreciating. Their import prices have actually gone up by 45 per cent. between August and September. Their export prices, on the other hand, have risen only by 15 per cent. and the prices of all Danish securities have depreciated to a catastrophic extent. That is certainly a warning to us that even the very unusual circumstances of the war should not hurry us into any departure from sterling.

The main object of this motion was not really to make these remarks about the war situation, which could have been made in private, but to try to bring the Government face to face with the very active campaign in various quarters to popularise certain monetary conceptions which involve the overthrow of the present arrangements with regard to the Irish pound and sterling. What I want to do is not to deliver an economic lecture to the Seanad, a task for which I am not qualified, but to induce the Government to take proper note of what is going on. I am afraid that if all this propaganda is left unchecked and unanswered, a time will come when it will be impossible to settle the questions involved simply on grounds of reason and logic, that so much feeling, so much prejudice, will have been imported into the situation that it would be psychologically impossible to resist the demand for revolutionary changes in our system. This agitation is supported by the Labour Party, by various university professors, the most conspicuous of whom, I think, is Professor O'Rahilly, by the new movement started a few days ago in the Mansion House, which has distinguished itself by bringing together such men as Mr. Con Lehane and General O'Duffy, and by a very widely-circulated influential religious newspaper called The standard.

While I do not feel myself qualified to deliver a technical economic lecture to the Seanad—a task that, indeed, I think ought to be unnecessary for anybody to do in view of the immense amount of material that is accessible to every Senator in the report of the Banking Commission—I do feel myself capable of dealing with the arguments that are being used in the course of this popular campaign of which I have been talking, arguments that are unsound and mischievous and far more directed to the emotions than to the head. I might as an instance, refer to a speech that was made ten days ago by the Lord Mayor of Cork to the Galway branch of the Irish Transport and General Workers' Union. He said:—

"The characteristic of youth is that it should see visions of what should be. The old dream dreams of what has been. They are tempted to accept things as they are. We must be rebels—rebels against the worldly interpretation of life which conflicts so openly to-day with the law of God. We must rebel against the humbug and pretence of the world of money and credit. I am not now referring to those who are doing imprisonment for their gambling on the stock exchange. I am referring to those who are held in honour, the men of big business and big bankers. Many of them are good men, but they are blind—blind to the present and to the future. They are in possession of everything, and tell you that economic laws are so binding that they cannot help if you have nothing. These men have been warned by Pope Pius XI in his Encyclical."

And so forth, at great length. Now, Professor O'Rahilly, like the Lord Mayor of Cork, when discussing this matter, makes constant references to Papal Encyclicals, and so does The Standard, and the implication in all these speeches and articles is that they are preaching the cause of the Church and the doctrine that the Church has enunciated, to which cold and worldly men, either because they are bad at heart—perhaps, even Freemasons—or because they are just plain stupid, are shutting their eyes. I think that the first great truth that ought to be accepted by everybody in connection with this subject, is that the division of opinion is not between those who are indifferent to poverty, unemployment and suffering and those who want to cure them. We all want to cure these evils. I think that none of us is indifferent to them, but the conflict is as to the best way of reducing their proportions, and the assumption of a superior moral status by those who are advocating expedients which I believe to be unsound, fills me, I must say, with indignation and even with disgust.

There are a few points in connection with this "hot-gospelling," quasi-religious handling of an economic question that ought to be borne in mind by any man of common sense. First of all, it must be remembered that poverty and unemployment are not new; that they are not the invention of the present day or even a result of the 19th Century industrial movement or of the form of capitalism that developed as a result of that industrial movement. Secondly, the ideas of social justice that are embodied in Papal Encyclicals are not just recent discoveries of the Church. The Church, during all the years of its existence, has had the same fundamental principles in regard to social justice that it has to-day, and the Papal Encyclicals merely sought to set forth those principles in a manner that was applicable to the particular disorders of our present time. The principles themselves are not new, any more than poverty and suffering are new, and if it merely required a good heart and the acceptance of the Catholic Faith and of Catholic sociological views in order to wipe out poverty and unemployment from the world, then those things would have been wiped out a very long time ago. There was a time when the Popes themselves were the rulers of temporal dominions. In certain cases the Papal States were often unjustly abused, and naturally enough, by the enemies of the Papacy, but this much at any rate anyone with a knowledge of history must realise—that even in the Papal States poverty and unemployment and the hardships of life were not abolished. That was because these things were very difficult to abolish, and not because the Popes were blind to the principles of social justice then any more than they are to-day.

When you take the Papal Encyclicals and extract a number of passages from them, as The Standard or, let us say, Professor O'Rahilly does, and say that if these ideals have not been attained, your present financial system must be all wrong, I believe that that is faulty reasoning. These are aims set forth for us to struggle towards, but it does not follow that, because we have not attained these aims, we should plunge into wild and dangerous experiments, even though some people have convinced themselves and would endeavour to convince you that the adoption of these ideas would have miraculous effects. The question is whether they would have better or worse effects than the economic policies that obtain at present. If one is to proceed by the method of quoting extracts from Papal Encyclicals, divorced from their context, and unbalanced by other quotations, one arrives at absurd results. Here for example, is an extract from a famous Encyclical, Rerum Novarum:

"To suffer and to endure, therefore, is the lot of humanity; let them strive as they may, no strength and no artifice will ever succeed in banishing from human life the ills and troubles which beset it. If any there are who pretend differently...

I omit some words here;

"...they delude the people and impose upon them, and their lying promises will only one day bring evils worse than the present."

Now, if one were to pick out a sentence like that and nothing else, it would perhaps discourage anyone from making any attempt to improve things. I am far from wishing to discourage any such attempt, but I do say that the quoting of selected passages can be very misleading.

After all, mankind in all its efforts for social betterment is necessarily limited by physical conditions. If you took, shall we say, Professor O'Rahilly, and handed him 100,000 unemployed and sent him off on an expedition to the Aran Islands; if you gave him possession of the Aran Islands and told him to get on with the work on the basis of his economic ideas, fortified by the Papal Encyclicals and the assurance they gave him that economic conditions might be made ideal by their proper application, he would necessarily fail. There is a limit to the resources of any country, and it is absurd to argue—as these people constantly do— as if there were no limit at all to what can be attained provided you are prepared to stimulate the people living in the country with immense doses of Government credit. The doses of Government credit may be absolutely monumental, yet they will be of no use if the national resources are not there.

It was pointed out in an appendix to the Majority Report of the Banking Commission by the Bishop of Raphoe and Mr. George O'Brien that humility is needed in approaching the interpretation and application of the Papal Encyclicals, and that it is undesirable that individuals, however learned, should take upon themselves to dogmatise confidently about them and abuse other people for not taking the same view as they take. The Bishop of Raphoe and Mr. George O'Brien pointed out that, if anyone were asked to name the country in Europe which had founded its whole policy for years past most consciously, consistently and loyally on the Papal Encyclicals, one would probably name Portugal; and the financial policy of Portugal, which, incidentally has proved very successful, has been ultra-conservative.

Far from increasing their public debt, they proceeded on the basis of reducing it; they have been paying all the expenses of the State out of revenue and balancing their Budget. Surely, that is a very obvious warning to people who interpret the Encyclicals as imposing upon us the duty of doing something revolutionary. So much for what I may call the quasi-religious side of the propaganda being pressed upon the people, and especially upon the young people, of the country at the present time.

There is another side, one which I find less objectionable and more natural, but not any wiser. It is what I may call the nationalist side. It is alleged to be beneath our national dignity to have our currency connected with any foreign currency. The new movement of which I have spoken has announced that what we have got to do is to get back to Gaelic economics. What are Gaelic economics, especially in relation to currency? I looked up the question and found that the unit of value in Gaelic times was the cow, and when it was not the cow it was the female slave. That does not seem to help us to find the solution.

Is the unit not still the cow?

We have no female slaves and should find the cow inconvenient as a form of currency, whatever merits it may have in other respects. What is the Gaelic economy we have to get back to? From my reading of the Annals of the Four Masters and the Annals of Lough Cé, I would say that the last thing Gaelic economics provided was economic security. One could not say it was easy in Gaelic times to be sure of the morrow, or to be sure of a just compensation for one's labour. In fact, it pains me to say—as one deriving from a Gaelic clan—that the prominent men of the country, even before the British came and corrupted us, seem to have borne a marked resemblance to the modern Chicago gangster or racketeer. I should be sorry to go back to the system of economics in which, from one day to another, Gaelic bands were making raids on each other's territory and carrying off either cows or female slaves. The economics of some other countries in those days were no better. The barons in England behaved in much the same way as the Gaelic chiefs in Ireland. I do not think that there is much sense in the sort of nationalism that wishes to cast aside every economic development that has taken place since the days when the Norman-Welsh first set foot in this country, and go back to the Gaelic scheme of things in the domain of economics.

Apart from Gaelicism, there is, of course, a nationalist argument. It does seem at first sight, to anybody who has not thought very much about finance or had much experience of international trade, that there is a limitation upon one's freedom when one is not able to do exactly what one likes with one's own currency. But if one wants to have any international trade, one obviously cannot do so, because people will not trade with you unless you have some standard of value as acceptable to them as to you. Look at Japan: Japan has no great liking for the United States, and still less any great liking for England, yet until quite lately the Japanese tied the yen to sterling. Now they have tied it to the dollar. The Japanese are an intensely patriotic and nationalist people, but they are practical enough to see that, if international trade is to go on—and they wish it to go on—it is desirable to have their currency yoked up to one of the great groups of the trading world. If we were, for any reason, to divorce ourselves from sterling, we would have to yoke ourselves to something else, presumably to the dollar. As we can never hope to have the trade with the United States that we have with our neighbours in Great Britain, it seems more natural, more sensible and practical, to yoke our currency to sterling.

When people from nationalist or other motives express the desire—as the Labour Party do in their official programme, "planning for the crisis"— to see the abandonment of a fixed rate of exchange with any foreign currency, one feels inclined to ask them what it is they wish to do with our currency when they get it free. Do they wish to make the Irish pound more valuable or less valuable? If it is to be less valuable, how are we going to compete with the appalling increase there will be in the cost of our imports and the consequent rise in the cost of living, which is already far too high for the liking of most of us? If, on the other hand, the Irish pound is made more valuable than the English, what is going to happen to our farmers? How is it going to continue to be profitable for them to produce for the British market if they are going to be paid in pounds that are worth substantially less than the pounds they have to pay out here for living, for their raw materials, for keeping their farms going? Those who clamour for that sort of freedom do not as yet condescend to make clear what it is they really want to do with it. I gather that on the whole they wish to depreciate the Irish pound because they link up these proposals for changing our currency arrangements with other proposals for immense issues of credit by the State.

I do not want to go at all deeply into the probable effects of large issues of credit by the State, but this much can be said: Nobody can deny that credit is at present readily available from the banks for any purpose that is likely to show a profit. Anybody of repute who has a business to finance can get credit as readily as in any other country. He can get it more cheaply, and always has been able to get it more cheaply, here than in most countries in the world. So far from any connections we have had with British finance and the Bank of England having tended to make credit more expensive, it has had precisely the opposite effect. For a small country, our credit is marvellously cheap.

Nobody can deny that the bankers here have performed their two main functions with very great success. They have kept the savings of the people secure, and, Heaven knows, that is more important to the small man than to anybody. It is important to the man who makes his little nest egg from a life of hard toil, that the bank should be able to pay him that money any time he wants it. There has been no bank failure in this country for, I think, 50 years. They have had an extraordinarily fine record in giving security to the people in the care of their savings. The second thing to be said of the banks here is that nobody can justly charge them, or even plausibly charge them, with failing to give credit to those who deserve it. The sort of credit that the Labour Party and others want the State to create is not credit that is to enable an immediately profitable business to be carried on. It is credit that may have results of a productive kind only in the fairly distant future. In regard to afforestation, drainage and so forth, it is very doubtful, if these large sums were expended forthwith, whether there would ever be an adequate return for all that expenditure. But, assuming that the return did come some time, it certainly would not be now, and the immediate effect of this creation of credit, the most noticeable immediate effect of it all, would probably be a further steep rise in the cost of living. What you gained momentarily in employment in one direction, you would very possibly lose or more than lose in disemployment in other directions.

Consequently, I think that those who for nationalist motives are eager to free our currency from any connection with outside currencies are misguided, and that, as their proposals would tend to diminish the resources of this country, to weaken us financially, they would make us not more independent of, but more dependent on outsiders. Instead of being able to hold our heads high, as we have done up to the present, the time might come when we would find ourselves going to the British or to somebody else, with our hats in our hands, for succour.

There are moments, say, in listening to Senator Healy, when I feel we jumped over a precipice in 1916, and that we have not yet got to the bottom, that we must go on until we get to the bottom, and that things must get worse before they get better. In that sort of mood, one might be prepared to do anything, including cutting all connection with sterling and destroying all trade with Britain; but except in that mood of desperation, it is not the sort of measure that I feel the people of this country, and the young people of this country, ought to have pressed upon them in the name of patriotism. The youth of this country, like the youth of other countries, are naturally ardent and naturally caught by new ideas, especially if they are pressed upon them with unlimited self-confidence in the name of religion and in the name of patriotism.

I think this campaign to which I have been referring has had a good deal of success in influencing the minds of our citizens, and especially of our young citizens. I hope that the Labour representatives who are here in the Seanad will take the trouble to make more specific, more definite, the rather vague and cloudy proposals that have appeared elsewhere in their name, so that we may have something concrete to examine, to consider, to criticise or to adopt.

But I wish still more that members of the Labour Party, however well meaning, as I am sure the Lord Mayor of Cork is, and that university professors, however learned, as I am sure Professor O'Rahilly is, would in future abstain from clouding the issue and preventing the people of the country from considering these things, these very complicated technical subjects, with cool head, and that they would cease from making passionate appeals to them, based on the supposition that those who take conservative views of finance and who believe, as the Minister for Lands and the Minister for Supplies have recently indicated they believe, that the one road to prosperity is the increase of production, the improvement of our efficiency, especially our agricultural efficiency, thrift, hard work, more knowledge, more enthusiasm in the ordinary daily round, are necessarily villains or freemasons, or devoid of patriotism or blind and deaf to the teaching of the Papal Encyclicals.

I beg formally to second this motion and I suggest that I reserve my remarks until later, perhaps, in the proceedings.

Senator MacDermot has set me some difficulty in not affording me room to criticise, because as one of these hard-boiled orthodox believers in the present financial system, I agree entirely with what he has said. I am not prepared to follow him on his interesting excursions into the financial structure of our early ancestors in the Gaeltacht. I think there must be a considerable element of doubt and surmise about it, but I am reminded of once talking to a historian and asking him what was this "golden age" we heard about. He said, "I have read about it, but in those days did anybody die in his bed?" I gather that in those days there was extraordinarily little stability of life, financial or human, at all, and this golden age of which we are told was largely mythical and legendary.

So far as these practical aspects of currency are concerned, I feel that the Government has got a very complete answer in the fact that there have been two expert commissions into the matter since the State was formed. There was an inquiry in the early days by the Parker-Willis Commission in, I think, 1926, which recommended after full and expert inquiry that our currency should be tied to sterling. There was no particular affection for Great Britain. I do wish to challenge this extraordinary doctrine that because we choose the currency of a certain country, therefore we are committing a political crime. The gentleman who was chairman of that commission was actually an American and he might very well have suggested that our currency should be tied to the dollar. Then, of course, there was the Banking Commission which recently reported and which has endorsed that view, and given full approval to the views of its predecessor.

I do not deny that there are certain anxieties in the present position due to world conditions. When the whole of the world has gone mad who can feel safe? If the Government could afford it, I do not know if it would be unwise to cover our sterling with a larger purchase of gold. That means a larger portion of expenditure on a non-interest bearing asset. In our state of economy we want all the interest and revenue we can get. Some people say that some day gold may be found to be a myth and that the gold myth may be exploded. There are a great many countries carrying on to-day with little or no gold but still I think it would be generally agreed that if you could afford it a larger backing of gold might be desirable. The Senator dealt very fully with the effects of making the Irish pound dearer than the pound sterling— that is, than the pound of the country with which we would have to trade. It would have a very serious effect on the farmers, and the farmers would not at all like it. In fact, if you were to depreciate the pound there would be almost a revolution in the country from our main wealth producers. I think that although the situation must be watched, the Government has got ample justification for the attitude it has taken up now in the fact that the subject has been examined by experts on two commissions. When you come to these fantastic notions of developmental credit, and giving everybody something for nothing, I am bewildered. I say quite frankly that I do not understand it. I do not follow the arguments. You can, of course, borrow largely and by borrowing you can spend and create the illusion of wealth. Anybody who has any money saved can create an illusion of wealth by spending his capital, but the day of reckoning will surely come and the last state of that man will be worse than the first.

Some years ago I got an insight into the mentality of these gentlemen. Let me say that I do not impugn their sincerity. Two gentlemen came along to an institution in which I am interested. They were very earnest about a complete new economic order. They had a blue print worked out, something in the fashion of those genealogical tables or one showing the hierarchy in authority with something at the top and lines of descent. The whole of industry was there on a formal and completely new structure. Heavy industries were in a group, and so was agriculture, and there were lines going from one to the other rather like the interlocking of the Royal Mail that appeared once in a financial paper. All the interlockings of the various industries—the tourist industry, Government services, brewing had a group of its own, iron and steel was in another group—all these were set out with very considerable diligence, but apart altogether from any reality, and apart altogether from what is going on in the world, as if everything had been swept away and we were going to build up a new structure. These gentlemen were. They wanted to begin building up this new economic order, and they asked: "Are you going to help? We must get credit." We asked: "How do you expect to begin?" and they said they would make a beginning with an industry which has since been started, the cement industry. They said: "We think cement is a basic, heavy industry and we want money from the bank to start a cement factory." They were asked what security they had. The reply was: "Oh, nothing but the security of the industry itself." Then they were asked what experience they had, and they replied: "Personally, we have no experience, but undoubtedly we can get experts to do it." That is not exaggeration. It is a true picture and a very terrible picture of the minds of a lot of these people. They think you can start out of the blue with no experience and no resources, and get money from somebody, and they feel aggrieved if you have not got it. That would spell disaster in a very short space of time.

I am glad to see that Senator MacDermot paid a well-deserved tribute to the generosity and the patriotism—I use the word "patriotism" advisedly—of the banks. I speak from what I know. I have never known banks to refuse credit to people who were hard-working and credit-worthy, and have got behind them some experience, and who know their job and can make a success of it. With those credentials, banks are every day taking risks, and the cases where they do hesitate are those of people with wild schemes, without experience of any concerns that are not likely to be productive, that are not profit-producing, or are concerns which are liable to come under the pressure of political agitation.

We have had cases where the security is not a security that can be realised and where, if it has to be realised, there is political pressure to prevent that being done. In that case the banks must act in the interests of their trustees. They must have regard to their trustees and to the interests of those whose money they hold. There is some fantastic notion that the banks' money is owned by rich men. If you examine it you will find that the percentage of the banks' resources and the money they use, owned by individually rich men, is comparatively small. I have not worked out the figure, but I think that three-quarters of the resources used by the banks represents money for which they are trustees. Naturally, their first duty is to obtain security for those people who have entrusted them with the money. That is the basis of the whole thing, and it would be criminal for those institutions to lend out money on schemes such as those we hear coming from irresponsible quarters, or for such purposes of developmental credit merely to give employment for no productive purpose and possibly no real increase in our national wealth.

I was glad to hear the Senator refer to the experience of Portugal. I was in Portugal some years ago but, just as a visitor, one cannot get to very close quarters or become very intimate with the financial methods of a country. The Portuguese system of finance, as I understood it, is not of a character that we would enjoy ourselves. If we were to model ourselves on the Portuguese method—one that I personally would welcome—we would all have to tighten our belts very much. We would have to put a stop to Government borrowing to a large extent, to unemployment assistance, to all these various credit schemes and to all this uneconomic housing. We would have to have a very much lower standard of living. I am credibly informed that the standard of living of the working classes in Portugal is almost as low as that of any country in the world. That is deplorable, no doubt, but it is a fact.

Senator MacDermot is right in stating that you cannot have a higher standard of living than the country can afford. That is the danger, that we are striving to maintain a higher standard of living than the country can afford. We may maintain that illusion by borrowing for some time but, sooner or later, disaster must come and the last state will then be worse than the first. It is perfectly true, as the Senator stated, that the measure of what is possible is determined by our resources, and we are a country that is not rich in resources. Agriculture is our main resource, and the only way, to my mind, that we can really increase our wealth is by more expert methods and development in that primary industry. There is very great scope for education, for greater efficiency and greater production. We have only got to look at the example of Denmark to see how far they outstripped this country in the technique of what is our chief industry.

I do not think there is anything more to be said. I agree almost entirely with the Senator who has just spoken. Probably it may be due to tradition but I hold these orthodox views. Honestly, I am quite open to conviction but I have never seen any of these loose statements based on generalisations ever put in a form that could be put into practice without great danger to the savings and the resources of the country. If they were put in a form in which they would be practicable, I am sure that a number of people who are now doubting Thomases might give them a trial. Until they are put in a convincing form, and until you can point to the experience of other countries that have tried these methods and made good with them—because that is the greatest argument of all—I think you are running a great risk in embarking on remedies of that kind.

There is only one further remark that I wish to make. It may be one thing to secure your currency against inflation by adopting some other form of currency or by going on to gold or to the dollar, but you must remember that will not protect a large proportion of the savings of the country which are held in sterling securities. They would in any case be bound to suffer if there was any measure of inflation or any untoward results from the unfortunate struggle now proceeding in Europe.

I rise somewhat apologetically, appreciating my limitations in speaking, especially after the illuminating review which we have heard from Senator MacDermot. Every Senator here, with any sense of responsibility, must feel considerable difficulty in approaching a matter of this kind. If I might throw out a hint, with all respect, to the Government I think they would be well advised to set up a committee consisting of Senators and Deputies, who would sit in camera, review every angle of this abstruse delicate question and discuss many matters which it would not be judicious to discuss here. There are just a few points that I would respectfully submit to this House, but at the outset, in order that I should not be misunderstood, let me say that I do not advocate here and now any attack on sterling. I think the Minister for Finance ought to give to this House an undertaking that he and his advisers would keep this question constantly under review.

Let us for a moment examine our currency structure. On each of our consolidated banknotes is stamped: "payable on demand at the bank of issue in Dublin." The bank thus guarantees to exchange that consolidated banknote for a legal tender note. Let us look at the legal tender note and we find stamped on it: "payable"—£1 or whatever the amount may be—"on demand in London." So that the legal tender note is based on paper whose value is definitely guaranteed in terms of the pound sterling. Prior to the crisis in 1938, this guarantee was given by the Bank of England because the Irish Currency Commission always held British gilt-edged securities equivalent in value to the amount of legal tender notes issued. When the threat of war came in 1938, our Government, in my opinion, very properly converted some of the gilt-edged securities into gold, so that the cover of our note issues is partly gold and partly British gilt-edged securities.

Since the outbreak of the present war, however, some very important developments have taken place. Nearly all the gold in the Bank of England has been transferred into the Exchange Equalisation Fund, with the object specifically of keeping the external value of the £ steady. The £ has dropped from about 4.68 dollars since the war to 4.03 dollars, at which it was pegged. Notwithstanding that it was pegged at that point, it has since fallen much below that official figure. The financial editor of The Observer stated recently that it has fallen lower than even 3.76 dollars, and he calls attention to the unfortunate impression of collapse in the £ which the New York movement is liable to create in foreign centres. Now that the arms embargo has been removed by the United States and colossal quantities of arms and war material must be purchased and paid for by cash, the pressure on the £ may easily become greater and it will require very careful handling. Another point which is of some significance is that, within the last couple of months, the French Minister for Finance, according to reputable English journals, came to London and they point out that the French and British gold may have to be pooled for the successful prosecution of the war, so that our £ is linked not alone with British securities, but with the French franc.

When England went off the gold standard in 1931, a number of other countries followed suit, including the Scandinavian countries, and linked with sterling in preference to gold, but, since the war, nearly all these Scandinavian countries, as well as Japan, have gone from sterling and have linked with the American dollar. As Senator MacDermot pointed out, even the Danes have left the sterling group, and if my memory serves me aright, Denmark, which is akin to our country in that it is largely an agricultural country, and Ireland were the two countries which the report of the commission held some 20 years ago or less held out as creditor countries. Let me repeat at this point that I am not advocating here and now any break with sterling, and still less am I advocating any of the wild-cat schemes of those who seem to think that all our ills are due to some mysterious and sinister influence over our affairs by the Bank of England. I am not advocating the policies of those half-baked theorists who think that the only cure for this country's ills is to get more money. Yes, we can get all the paper money we want as fast as the printing presses can turn it out, but it will have such a deleterious effect on the economics of this country that, in a short time, a Senator's allowance will scarcely buy a box of matches.

Whatever arguments have been adduced in favour of a fixed relationship in normal times between England and this country lose their relevancy in war-time, when all England's currency is involved in the prosecution of the war, but even the experience of 10 or 12 years of normality has shown that this enforced restriction of currency issues has been accompanied by all the indications of decay in this country — increased unemployment, emigration, a decline in population and birth-rate, lower marriage figures and general impoverishment in rural towns and villages. If this tremendous upheaval had not happened, it is inexplicable to me why our Government, with the knowledge to be gained from the Banking and Currency Commissions, and with unemployment and emigration, permitted this restricted currency which was restricted arbitrarily, without any regard for the changing needs of this country, and which created unemployment, distress and decay. But we are no longer in normal times; we are no longer in the position in which we were from 1914 to 1918. For good or ill, we were then part and parcel of the British Empire, sharing her privations and with all the advantages of big expenditure and unrestricted currency. We are now a neutral country and, so far as the British are concerned, we are a market from which they may get all the goods they require at the lowest possible price.

One thing, in my opinion, is certain —the British currency will be manipulated to meet the problems of international exchange which confront that country, and unless our fiscal policy is radically modified, our currency will join in all the gyrations without the smallest influence on our economic life. It is inevitable, and it must be the general consensus of thinking and responsible men now, that there will be an inflation of the currency of the belligerents, and if there is an inflation there is always the possibility that after this war you might have the same condition of things operating as happened after the last war when French currency was de-valued so greatly.

Our peculiar position seems to be that the limitations of our currency will preclude and prevent us from enjoying the privileges and advantages of inflated currency if it should happen, whereas if there is a de-valuation after the war, with our inflated currency, it will have disastrous results in this country. If our connection with English currency is to continue, any measure of inflation in that country ought to be accompanied, pari passu, by an inflation of our currency. Would it not be absurd, if we have to buy from England on a currency basis on 100 per cent. gold, that, because of our limitations of currency, England should buy from us our cattle and agricultural exports and goods on a currency based, perhaps, on 10 per cent. gold?

Would the Senator explain what he means when he speaks of our limitation of currency? It is rather technical.

Our limitation is that we have not the inflation they had in England in the last war.

The Senator talked about our present limitations.

Finally, let me say that I would appeal to the Minister and the Government to get the best brains of all the Parties to join issue so as to avoid what appears to me to be a danger to this country because of the upheaval and crash resulting from the European War.

Unless the Minister should speak now, Sir, or unless some of the Labour members should like to take part in the debate now, I propose to move the adjournment of the debate.

I am afraid it would not be practicable for the Minister to come here tomorrow. As already announced, he will be engaged in the Dáil.

Well, if the Minister speaks now, I propose to move the adjournment of the debate when he concludes.

I do not want to impose myself on the Seanad at all.

As a matter of fact, the House wants to hear the Minister.

My attention had been called to the fact that there was a motion put down that the Seanad would welcome a statement by the Government on this matter, and I am quite prepared to address some words to the Seanad in connection with it. I was not quite sure whether I should wait until the motion would be passed or put to the House, and I asked the Leas-Chathaoirleach a short while ago about it, and he said that it was a matter for myself. If the Seanad is agreeable, therefore, I shall address to them now whatever I have to say in the matter, and I should like to do so now, particularly as it is probable that I shall be engaged all day tomorrow in the Dáil, and could not attend here for that reason.

The last speaker, Senator Madden, started his address by suggesting that the Government should set up a commission to inquire into and examine— I think he said, in camera—this abstruse question. I presume that the question of currency and credit is what the Senator had in mind. I think the Senator is aware, and I am sure that the Seanad as a whole is aware, that we had sitting here for a period of three years a commission composed of very representative men, and some experts from different parts of Europe to assist and advise the other members of the commission who might not be regarded as experts on the matter of finance or credit. That commission went very fully into all aspects of the problem that is under discussion here to-night. We also had another commission, which was set up in 1926, and which reported in 1927, and that commission went into the matter at that time, probably fully also. Its report was not as voluminous and it did not hold as many sessions as the later Banking Commission, but it went fully into the matter at that time. Accordingly, we are not, at any rate, without advice of recent date on matters of this kind, and I doubt, with all respect to the members of the Dáil and Seanad, whether if the members of the Dáil and Seanad were to pick the best people that could be picked by them, it could be said afterwards that the advice was better or more trustworthy than the advice that has already been addressed to the Government and the country through the medium of the Banking Commission reports.

This question of currency is one, as Senator MacDermot said, that is of very great interest, particularly in these days. There is a campaign going on. Perhaps it is a fairly widespread campaign. I do not know how widespread it is, but it is fairly evident, at any rate in the daily and weekly Press in advocating a change in our currency system and advocating views of various kinds of credit reform, and sometimes social reforms of a very extensive, not to say revolutionary, character. I read these papers and keep in touch with them. I do not regard myself as being in any sense an expert. In my capacity as Minister for Finance, however, I have expert advisers in whose advice I place great confidence and trust. As an ordinary intelligent man, however, I take an interest in these questions that are raised, and I must say that I have given some time to studying questions of credit and credit reform. Innumerable books have been written about that subject during the last 10 or 15 years, and especially since the end of the European War, and I must say that I have not yet been convinced that any of the reforms of credit that are most widely advertised in these days would be successful. Conviction has not been brought to my mind that it would be of advantage in this country if these systems were adopted and put into operation in place of the system of credit and currency control that is operating in Ireland at the present time.

I think that the position in this country is comparable to what has been said by Senator MacDermot, and perhaps by Senator Sir John Keane, about Portugal. I think we can claim here that we also are living within our means. I know that there are people who dispute that, but I think we are living within our means and balancing our Budgets so far. I hope we will be able to continue to do so. I hope that the Government will try always to live within its resources. It would not be a good thing for the country if it did not try seriously to do that.

With regard to the question of currency in general, we have had advice, as I have said, from very reliable quarters on this matter in recent times. It is within everybody's recollection that for, I suppose, a century at any rate, if not longer, our currency—the currency circulating here in Ireland—was identical with that of Great Britain. Up to 1927 we used the British currency; it was in that year that the Currency Act was passed, and provided that our own Irish pound be maintained at par with sterling. Other Senators have stated—and it is true— that the Government at that time—in 1927, when the Currency Act was passed—was free to choose that course or any other course that would be of advantage to the country. The choice was made without any dictation from anybody, whether inside or outside the country, and without any suspicion of pressure of any kind from any corporation or body—banking, financial, political, or any other—outside this country. The choice made then was a choice freely made by the Dáil in the name of the people and at the recommendation of the Government. That choice has continued to operate ever since; the choice then freely adopted can be as freely changed at any time it suits. The decision was actuated solely by the interests of this country, and if any other course seemed to be more advantageous to the country, I am sure it would have been adopted.

The Banking Commission of 1926 advised that the link and the parity should be adopted. Senator Sir John Keane reminded us of the fact that the chairman of that commission on banking and currency was an American, a man of distinction, Professor Parker Willis who, I think, has since died. I agree with Senator Sir John Keane's suggestion that, perhaps, as an American, he would probably favour getting any country, Ireland included, to tie up with the dollar rather than with the pound, if he had a personal choice; but his advice at the time was that the wisest thing for this country was to tie up with sterling and to adopt parity. He spoke as a man presumably of independent mind and judgment, and as one who had wide knowledge and experience in these matters. If any other course had been more advantageous, as I have already said, or more profitable, I am sure it would have been selected and put into operation by the Government of that time.

Then we have the Banking Commission which was set up in 1934 and which reported some time in 1938. The majority of that commission—16 out of 21—recommended the maintenance of the link with sterling. They gave reasons for that. Probably most Senators have read, if not all of the report, the principal parts of it and the reasons given will be within their recollection. I summarise some of them here:—

"The maintenance of the link ensures to this country the advantage of exchange stability with the British market, which is of the greatest importance for our foreign trade, and in which the bulk of our foreign investments is held;

the link has the further advantage of possessing the confidence of the Irish public and, conversely, any suggestion for relaxation of it would meet with distrust."

That is a summary of some of the outstanding reasons they gave for recommending that we maintain our present relation with sterling. They also advised that we should maintain the present parity, that it would be unwise to change it, and they said, in backing up their opinion:—

"Such a change would introduce an element of uncertainty for the future, as it would be impossible to prevent the anticipation of further changes, and this uncertainty would be a grave deterrent to enterprise and would prejudice the maintenance of low interest rates; further, the effect of an increase in the value of the Irish pound in terms of the British pound would be a fall in the payments that Irish producers receive for their exports in their own currency, while the effect of a reduction in the value of the Irish pound would be a rise in the cost of all imports and an accentuation of the present tendency to a rise in the cost of living."

These are very important and, I think, convincing, reasons why there should be no change—at any rate, under present circumstances.

Up to the outbreak of the war, none of the advocates of the severance of the link with sterling proposed that course with the aim of increasing the value of the Irish £. The Minority Report No. 1 of the Banking Commission told us that it was overvalued at the present parity. Those who signed Minority Report No. 1—I think Senator Campbell was one of them—desired, even if they did not say it clearly, to depreciate the value of the £: perhaps, they realised that depreciation would be an inevitable result of the policy which they were recommending in other fields. I hold strongly to the view that, however one may disguise the depreciation, whatever name one may give it, you could not long disguise, and no exchange control could mitigate, the evils that would result from depreciation of our currency in terms of the currency to which long experience has made the people accustomed as their standard of value. Any such depreciation would seriously shake public confidence in Irish currency, in the solvency of the State and in the banking system. It would, consequently, have the effect of raising rates of interest on Government borrowings and on advances for industrial and commercial enterprises, thus placing new difficulties in the way of the Government's housing and public works policy and adversely affecting business activity and employment. There may be an initial advantage to exporters, but that initial advantage would be short-lived and would be more than counterbalanced by an immediate increase in the cost of all imports. All these factors would accentuate the upward trend in prices, with resulting social unrest and demands for higher wages, accompanied by a fall in the standard of living of persons with fixed incomes.

If the Government were to fix a new legal parity with sterling, the natural tendency to discount the possibility of further measures of depreciation would lead to an increase in prices of imports out of proportion to the decline in the legal value of the Irish £. In the view of the signatories of the First and Third Minority Reports—if that view were accepted—no new parity would be fixed, but a so-called Exchange Equalisation Fund would be established to render as gradual as possible any movement of exchange rates which were the result of an active policy of internal development. As the inflationary policies advocated in these reports would cause a consistently downward movement in the value of our currency the operation of this miscalled "equalisation" fund would involve the State in heavy losses. These reports, moreover, give no indication as to the manner in which or the sources from which this "equalisation" fund is to be constituted or its inevitable losses met.

A rate of exchange which is fluctuating or is known to be liable to fluctuate, benefits the speculators, the people who can turn their assets into cash overnight and take advantage of any alteration in the exchange rate which is anticipated or known. It does not assist trade and commerce—it cripples them because every trading transaction becomes a speculation with the dice heavily loaded against the trader.

Senators have mentioned here the effect of the war on our currency. That is a subject that is frequently referred to these days in correspondence and articles in the daily and weekly press. Naturally, it is a subject of vital interest and importance to us in these times and it is one to which I, charged with the control of the finances, have given considerable thought. It is true that since the Banking Commission Reports were presented and published, the international monetary system and the prospects of sterling have radically changed. There may have been reason in March, 1938, for believing, as some people then believed, that our currency was over-valued in terms of sterling. If the war goes on, however, and if we can maintain our neutrality and pursue a reasonably sound general policy, our position vis-a-vis Great Britain is likely to improve to such an extent that the question will not be whether the present parity with sterling is an over-valuation but whether it is an under-valuation of our currency. It may be suggested that in such circumstances it would be in our interest to break with sterling. Unless, however, the British are forced to an extreme of inflation, which the British Government seems determined to do everything in its power to prevent, I believe that the balance of advantage for this country lies in the maintenance of the present parity. An increase in the sterling value of the Irish pound, though its consequences would be less harmful than those of depreciation, would have many serious results. It would mean, in terms of our own currency, lower yields on our investments in Great Britain and lower prices for our exports to that country. The British securities held by the Currency Commission and the Irish banks would presumably have to be revalued, and in a downward direction. This, in the case of the Currency Commission, would cause a deficit in the Legal Tender Note Fund and, in one way or another, that deficiency would have to be made good by the State. For the Joint Stock Banks a serious depreciation in the value of their sterling assets in terms of Irish currency would mean, possibly, bankruptey unless they were enabled to write down their liabilities to depositors—and it requires very little effort of the imagination to visualise the agitation which would arise and the shock to the confidence of the people in our whole financial system and in our banks that such a writing-down would cause. I am convinced that we should not risk these consequences of a higher valuation of our currency unless and until it becomes clear that inflation in Great Britain cannot be kept within moderate limits.

Exchange rates and exchange mechanism exist to facilitate trade, and it is of the utmost advantage to be linked with the currency of the country with which we do the bulk of our business. There is the kernel of the whole situation. We do the vast bulk of our business with the United Kingdom, and it is of advantage to us to have parity with sterling for that purpose. The relative importance of our export trade with the United Kingdom in agricultural goods has been increased and not diminished by the war. The market for such goods in the United Kingdom has become wider and is less well supplied from other sources, and on the other hand we are unable, by reason of transport and currency difficulties, to take advantage of such Continental markets as were opened since about 1932. They were of some advantage to us, particularly in times of economic stress and trouble, but there is nobody who will suggest that they could be substituted for the market where we have for so long been able to find a place to sell the greater part of our agricultural produce. Again, considerable increase in the price of imported goods has been caused by the war. Scarcity, unlimited armament demand, increased transport charges and enormously increased insurance charges are contributing factors. As the price of imported commodities rises, we will become more dependent on our exports to maintain our imports and so maintain our standard of living and avoid serious economic and social dislocation at home.

It has been suggested frequently in the past—and Senators here this evening have referred to the fact—that many people in this country, long months before the war started, thought and think still, that it would have been advantageous to us to have left sterling and joined our currency with the United States dollar currency. Some people seem to think that if we had done that 10 or 12 years ago it would have been a wise step for this Government to take and that we would have profited by it. I think if there are any Senators who have gone into that matter and have studied the rise and fall of financial affairs in the United States over the last 10 or 15 years, they will believe with me that we would have lost rather than gained by such a change.

However attractive monetary association with the United States of America may appear, we must realise, first, that we have no considerable amount of trade with that country, and, second, that even the limited amount we have is likely to diminish as the war continues. If the pound sterling remains stable in terms of the dollar, there would be no difficulty for us in linking with the dollar later and we might as well stay where we are. If the pound sterling depreciates in terms of the dollar and our currency is linked to the latter, then we are appreciating in terms of the pound sterling and all the difficulties of trading under a fluctuating exchange arise. It is desirable that, subject to what I have already said, we should remain linked to the currency with which we have the overwhelming bulk of our trade.

In this country the ordinary man with goods to sell, whether it be cattle or any other kind of produce, does not know or realise anything of the difficulty that arises where there is a fluctuating exchange. Here in our own time, and in our father's and grandfather's time—in all our time, in fact— we have been used to a stabilised currency. We have known every day when we got up to go to the market, and looked at the newspapers, what the value of our currency was and the value of the goods we sold for export in terms of our own currency and of English currency, and we knew what to expect and what we should get.

If we had a rate of exchange and a currency subject to the fluctuations of that rate of exchange from day to day, and sometimes from hour to hour as in many countries, the difficulties for our traders, and particularly for our exporters, would be multiplied. Sometimes it might be to our advantage and sometimes to our disadvantage, but at any rate it would be a sort of gamble. We would not be sure any day when we sent our goods to the market what exact value we were going to get in return for them.

Since the outbreak of war a number of countries have broken the link with sterling, and have associated their currency with the United States dollar. It has been suggested here and in different parts of the country, and in the Press, that similar action should be taken with regard to the Irish pound. All those countries that have changed from sterling have had, however, special reasons for acting as they did. The most common reason given was that they had important trade relations with countries other than the United Kingdom, and they did not want to be paid on a sterling basis for their exports. There were also difficulties caused by the operations of the British war-time currency control which in some cases ran counter to their special interests. It was a war measure designed to meet the situation, and we have it to a certain extent here, and naturally England uses her control of the currency to her own advantage and where it suits her she facilitates other countries. Where it suits her better, she refuses facilities to other countries. Therefore, countries which had some of their trade with Great Britain and some with other countries, did not want to be tied up by the English regulations with regard to the control of currency, and, perhaps, did not wish to be paid in sterling, as they believed that sterling was falling in value relative to the other currencies. They changed, and what they did we are free to do, when we are satisfied and convinced that it is to the advantage of this country that we should change. If we are convinced that a change would be for the good of this country and its trade, we can make the change. I wish just to mention the fact that some countries had difficulties since the war began. Where they were formerly associated with sterling and had broken away, they have had difficulties about currency and financial matters with Great Britain, but we here have not experienced any such difficulties since the war began.

A Senator

We are quite free to change if we wish?

Absolutely. The law that tied us to British sterling was passed by the Dáil and it can be repealed at any time. It is a matter for the will and wish of the Oireachtas at any period, to continue or to make any other arrangement they please. It is a matter entirely for the Irish people, acting through the Oireachtas and the Government. As I said, we in this country have received favourable treatment from the British currency control as regards meeting our requirements of foreign exchange for the purchase of essential imports from countries other than Great Britain. We have to import, as you know, great quantities of foodstuffs of different kinds—maize, wheat and other things—and for these we have to pay in foreign currency. Up to the present we have not failed to get the currency necessary to pay for anything we have imported.

As it was previously urged that on the breakdown of the gold standard in Great Britain in 1931 we should have severed the link with sterling and tied our currency to gold or to the United States dollar, it is of interest to examine what the consequences would have been if we had followed such advice. If, prior to September, 1931, a large block of our sterling funds had been shifted to the New York stock exchange and the Irish pound linked with the dollar, it is true that we would have escaped the depreciation of sterling which reached a low level of 3.18? dollars to the £ on December 3rd, 1932, at which level, in the popular phrase the £ had declined to 13/1d. On the other hand, our investment in American Bonds would have declined in the ratio of 90.9 to 69.5 as between 1931 and 1932 on the average while an investment in a selection of 420 American common stocks would have shown a depreciation as between the same years in the ratio of 94.7 to 48.6. Furthermore, from November, 1933, until the September crisis of 1938, we would have been in a worse position than that which we tried to avoid as during that entire period of nearly five years the pound sterling was at a premium in relation to the dollar as compared with the old gold parity, the rate having touched as high as 5.43 on November 22nd, 1933, as against the parity of 4.86?. Thus, even if we had the foresight to provide against the break-down of the gold standard in Great Britain in 1931 we would have lost, on balance, and created new problems for ourselves into the bargain.

There is one other argument I think I could use with advantage on this question and it is also an argument that bears on one of our great problems, perhaps the greatest political problem of to-day, and that is the matter of Partition. The severance of the link with sterling and the break with the existing parity would involve the creation of different standards of monetary values as between the 26 Counties and the Six Counties. The first result would be to present a whole new series of problems for the banks that now operate on both sides of the Border. Furthermore, the inter-trading, great and small, that goes on between both sides of the Border would be further impeded. Such an event would lessen still more the relationships between the 26 and the Six Counties and it would serve to reinforce Partition.

That is a view that at any rate appeals to me, and I think it is a fact that it would make dealings more difficult between ourselves here and our people across the Border, and possibly it might have an additional influence in reinforcing Partition. Nobody would like to take any step, such as a break with sterling, without having all these facts in mind and seeing what the consequences would be internally and externally from the political as well as the financial point of view.

Having regard to these arguments, which are only briefly outlined here, against any departure in present circumstances from the existing parity with sterling, I am of opinion that the continuance of the present statutory relationship between the two currencies is in harmony with the interests of this country. The Government would only consider proposing an amendment of it if a change of circumstances were to occur of such a nature as to render the preservation of the present parity between our currency and the British clearly disadvantageous to Ireland.

Again, I would like to stress that we are free to take any step we like in this direction. There is no power outside this State that can interfere with us in doing anything we please with regard to our currency. We can tie our currency to the American dollar, the Canadian dollar or other currencies if there are any other more stable currencies. I do not know if I can refer to the American dollar as so stable either, but if there is any more stable currency besides the British, and if we think it is an advantage to the country to tie our currency to it, we can do so. It is a matter entirely for our own consideration, our own discretion and our own action. The question relating to currency is one that is under constant observation, and if, at any time, it would appear to the Government that greater advantage to our country, to our trade, to our economic and financial position could be achieved by a change in any direction, we are always prepared to consider that change and to make it, so long as we are convinced that Ireland will benefit.

I should like to say that I am entirely satisfied with the Minister's statement. As one reason for bringing forward this motion was to give certain members of the House who might have unorthodox views on the monetary question, an opportunity of expressing these views where they could be met in public debate and where the Minister could define his attitude to them, I am quite prepared, as seconder of the motion, to move at this juncture that the debate be adjourned. Any Senator who would like to ventilate his views will have an opportunity of ventilating them on a later occasion. So far as the Minister is concerned, I, personally, am quite satisfied with his statement and with the soundness of his attitude on the monetary question. I am glad to have his statement on record.


The debate, therefore, will stand adjourned until Wednesday next.

An fiu é an cheist seo a chur ar ath-ló? Ní h-iarradh sa rún ach go ndéanfadh an Rialtas leir-mheas ar an gceist. Dubhairt an tAire go rinne an Rialtas léir-mheas sin ar an gceist. Mar sin, ní cheart dúinn an cheist a phlé níos fuide.

It might be impossible for the Minister to be present next Wednesday.


The Minister has made a statement, and it will not be necessary for him to be present.

We have no need for the Minister any more.

Can we play Hamlet without the Prince of Denmark?

The part of the Prince of Denmark will be played by a member of the Labour Party the next time.

Mr. Lynch

The Labour Party is well able to look after itself.


I take it that the debate is being adjourned until Wednesday next?

Some Senators may not have understood the question raised by Senator McGinley in the Irish language.

Oh, they did.

He pointed out that the motion asked for a statement from the Government, and that that has been given by the Minister, and that therefore there is no necessity to adjourn this question any further.


The position is that the seconder of the motion has moved that the debate be adjourned. If that be not agreed to, it is open to the seconder of the resolution to carry on his remarks until 9 o'clock, and then move the adjournment. I do not think anything would be gained from that, and it might be as well to adjourn now.

Debate accordingly adjourned.

The Seanad adjourned at 8.45 p.m. until Wednesday, 13th March, at 3 p.m.