asked the Minister for Finance if he will use the powers available to him, or if these be insufficient will seek such powers as may be necessary to direct the governors of the Central Bank to reduce by 50 per cent. the moneys at present held by them in low interest bearing securities elsewhere than in the Republic, and to re-invest the sums thereby made available in the form of similar low interest bearing loans to our farmers in Ireland for the purpose of rehabilitating our agricultural industry.
Ceisteanna—Questions. Oral Answers. - Central Bank Investments.
Under the Actsgoverning its establishment the general functions of the Central Bank are in the main threefold—to act as the provider of Irish currency, to safeguard the integrity of that currency and to act as lender of last resort. As a provider of currency, the Central Bank issues legal tender notes in accordance with the terms of the Currency Act, 1927, under which our separate Irish currency was established. As in general all transactions relating to the payment of money in this country must be executed and fulfilled here by payment in our own currency, it is obvious that the issue of this currency in the form of legal tender notes must be strictly regulated by law, so that it may not be subject to debasement and its purchasing power in terms of other currencies be diminished. Accordingly, the mandatory provisions of the Currency Act, 1927, regulate the issue of the currency and concurrently impose on the Central Bank the unlimited obligation of maintaining the free inter-convertibility, on the basis of parity, of Irish currency and sterling. The procedure whereby this inter-convertibility is secured is established by Sections 47 and 49 of the Act. Respectively, these sections regulate the issue of legal tender notes and provide for their redemption. Thus Section 47 obliges the Central Bank to issue legal tender notes in exchange for an equivalent amount of money which is legal tender in Great Britain or for gold bullion— in actual fact, however, gold bullion is never offered. Conversely, Section 49 obliges the Central Bank to redeem Irish legal tender by payment on demand of an equivalent amount of British legal tender. It will be seen, therefore, that against such legal tender notes as are issued by the Central Bank, there has been delivered to it an equivalent amount of British legal tender money and that all or any of our legal tender notes are redeemable and the corresponding sterling amounts repayable by the Central Bank on demand. Clearly, therefore, the issue of legal tender notes is a transaction to which a rigid obligation attaches and the Central Bank must at all times stand ready to honour it. To enable it to do so, it is essential forthe bank to hold the resources which it has secured in the manner I have described in a readily realisable form.
Some central banks hold their note fund assets in the form of gold, which, as we all know, is, in the present state of the world, the most readily realisable asset. But gold so held earns no current income and is an expensive treasure to guard. Therefore, other central banks place their resources in short-dated securities for which there is a ready market and which are more or less safeguarded against serious capital depreciation. By this policy they endeavour to safeguard the capital value of their assets and to maintain that degree of liquidity which their obligations require, while at the same time securing an income to cover their expenses and, incidentally, making a modest contribution to the public revenue and in relief of the taxpayer. The policy which the Central Bank of Ireland has adopted is intended to enable it not only to fulfil its obligations to the holders of all its notes, to redeem them on demand, but to function as lender of last resort to the commercial banking system should the latter ever find itself in difficulties.
From what I have said it will be realised that the Central Bank must avoid any involvement in commercial banking business or long-term credit transactions which would immobilise its resources and thereby impair its ability to carry out its statutory obligations and to intervene, if necessary, to protect the currency and to stabilise the credit structure. It would not be desirable, therefore, for the Central Bank to be empowered to engage in the type of banking business suggested in the question; for apart from the fact that other institutions exist which could more properly undertake it, loans to farmers are essentially long-term loans and are in the main not liquid. At a time when the general exchange reserves of the country are falling it is all the more necessary for the Central Bank to conserve the liquid resources on which its ability to discharge its functions depends.
Will the Ministerstate what is the percentage degree of liquidity to which he referred and will he also state what sum has been advanced by the Central Bank as a bank of last resort, also in the terms of his reply?
It has never been necessary for the bank to make any advance as a lender of last resort because heretofore our banking system has been financially sound but neither the Deputy nor I can predict the future.
What about the degree of liquidity? Will the Minister answer that part of the question?
It is as high as is practicable in present circumstances.
Will the Minister give the percentage figure?
It is not possible to give the percentage figure in regard to the degree of liquidity. It all depends on the volume of securities which you place on the market and on the ability of the market to absorb it.
I will ask two supplementary questions. First of all, may the House take it that the Minister approves of the policy of the Central Bank in not investing any of the legal tender note fund in Ireland? That is number one. Number two—will the Minister state whether any other country in the world backs its currency 100 per cent. by the securities of a foreign Government?
First of all, Sir, I should point out—and if the Deputy has studied the legislation governing and regulating our currency it should not be necessary for me to answer the question—the Government has no responsibility for the policy of the Central Bank. The obligation of the Central Bank has been determined by legislation passed by the Oireachtas of this country. This lays it down that the primary function of the bank is to protect the integrity of our currency and the responsibility for doing that is placed upon the board of the Central Bank.
That is not the question I asked.
The Deputy may wait. The Central Bank is not an institution which is subject to the political exigencies of the moment.
That is not the question I asked the Minister.
It is an institution which has been set up to serve the interests of the whole people of this country and not those of any political Party, particularly the political Party which may happen to be in power for the moment.
The Minister is not answering the question asked. He is making a speech about something else.
The Deputy, quite obviously, has asked a question which he does not want answered.
I want an answer to the question, not a speech from the Minister. Will the Minister answer the first question?
I want to make this point quite clear—that the Government has no responsibility for the policy pursued by the Central Bank.
That is not what I asked.
This House, the Oireachtas, the Parliament of this State, has placed definite responsibilities on the board of the Central Bank and, so far as this Government is concerned, the board of the Central Bank is going to be permitted to pursue and fulfil those responsibilities according to its best judgment. We are not going to bring upon the board of the Central Bank political pressure to follow policies which we think are going to secure political gain and political kudos for ourselves.
What about the second part of the question?
He cannot answer. It is quite obvious.
Question No. 29.
On a point of order. I asked the Minister two supplementary questions which you permitted me to ask. He has not answered either of them.
That is not a point of order.
May I ask the Chair to give him an opportunity now to reply?
He has been given an opportunity to reply.
And did not reply.
On that point may I remind you that the Deputy would not allow me to continue my speech in which I was going to deal with the questions?
A most ignorant speech it was.
If by that the Deputy means discourtesy, the Deputy is a good judge of discourtesy.
I have called Question No. 29 and having called Question No. 29 I cannot allow any further discussion at this moment.