Amendments 1, 2 and 3 are interdependent—that is to say, Amendments 1 and 3 are consequential on Amendment 2. It would be, therefore, convenient to consider them together, although they may have to be separately put from the Chair.
Public Business. - Currency (Amendment) Bill, 1930—Committee Stage.
The Seanad went into Committee.
Section 1 put, and agreed to.
SECTION 2.
Sub-section (3) of Section 61 of the Principal Act is hereby amended as follows and that sub-section shall be construed and have effect accordingly, that is to say:—
(a) by the deletion from paragraph (d) thereof of the words "maturing within twelve months"; and
(b) by the addition at the end thereof of a paragraph as follows, that is to say:—
"(f) securities of the Government of the United States of America."
Amendment 1.—Section 2. To delete all from the words "as follows" in line 25 to the letter "(a)" in line 27, and also to delete lines 29 to 32 inclusive and to substitute for the lines so deleted the words "that sub-section shall have effect accordingly."
Amendment 2.—New section. Before Section 3 to insert a new section as follows:—
"3.—(1) If and whenever the Commission shall unanimously request the Minister to add any particular security or class of securities, currency, balance, or other form of assets to the forms in which the legal tender note fund or the note reserve fund or both those funds may be held under the Principal Act, the Minister may make an order declaring in accordance with such request that the particular form or forms of assets specified in such request shall be and is or are thereby added (as the case may require) to the list of forms contained in sub-section (3) of Section 61 of the Principal Act or to the list of forms contained in sub-section (2) of Section 62 of the Principal Act or to both those lists.
(2) The Minister may at any time upon the unanimous request of the Commission by order rescind, vary, or amend in accordance with such request an order made by him under the foregoing sub-section of this section.
(3) No order made under either of the foregoing sub-sections shall be of any force or effect unless or until it has been laid before each House of the Oireachtas and has been approved by resolution of each such House.
(4) Whenever an order is made by the Minister under sub-section (1) of this section, the Principal Act and in particular Section 61 or Section 62 thereof or both those sections (as the case may be) shall, so long as such order is in force, but subject to any variation or amendment thereof, under this section, be construed and have effect as if the Principal Act were amended in accordance with such order."
Amendment 3.—Section 3. To delete the section.
Cathaoirleach
I think the House is agreeable to that course.
These three amendments which, as I have explained, are really one amendment, seek to amend Section 2 of the present Bill. Section 2 of the Bill extends the forms of investment in which the Currency Commission may hold the Legal Tender Note Fund, which is the backing for the legal tender notes in this country. Section 61 of the Currency Act of 1927 sets out and limits very strictly the forms of investment in which the Legal Tender Note Fund may be held by the Currency Commission. Sub-section (3) of that section states:
The capital of the Legal Tender Note Fund shall be held by the Commission or at its disposal in such one or more of the following forms as the Commission in its absolute discretion shall think proper and in no other form, that is to say:—
(a) gold bullion;
(b) gold coins which are for the time being legal tender in Saorstát Eireann for unlimited amounts;
(c) money in any form which is for the time being legal tender in Great Britain for unlimited amounts;
(d) British Government securities maturing within twelve months;
(e) sterling balances on current or deposit account at the London Agency or any bank in Great Britain or Northern Ireland.
Sub-section (d) is the important one for our present purpose. The reason for the limitation in the case of British Government securities to these which will mature within twelve months is this: in addition to its being necessary that the forms of investment in which the Legal Tender Note Fund and, indeed, the Note Reserve Fund are held should be perfectly safe and, if possible, steady in value, it is also necessary that they should, to a very large extent, be easily and quickly A time might come when a very large number of these notes would be presented for redemption, and it would be necessary that a very large proportion of the Note Reserve Fund and the Legal Tender Note Fund should be in a form of investment which could be quickly realised. That was why Section 61 of the Act of 1927 limited the British securities in which the Currency Commission might invest to securities maturing within twelve months. The Currency Commission have had three years' experience, and after these three years they have come to the conclusion that this limitation to British securities maturing within twelve months is unnecessary. They desire to be permitted to invest to a safe extent—the question of safety can be left to themselves—in long-term British Government securities, as well as in British securities which will mature within twelve months.
That power to invest in British long-term securities is given them by Section 2 (a) of the Bill. The amendments which I have put down do not interfere with that power at all. If you look at Section 2 (a) of the Bill, you will find that it deletes from Section 61 (d) of the Act of 1927, the words "maturing within twelve months." Section 61 of the Act will, therefore, read, if this section be passed, as if these words were not contained in it. But Section 2 (b) of the Bill further enlarges the forms of investment for the Legal Tender Note Fund by adding thereto the words "securities of the Government of the United States of America."
I do not wish for a moment to disparage the securities of the Government of the United States. I am sure there are no more excellent securities than the securities of that great and rich country. If the Currency Commission had a general power of investment and desired to go outside British Government securities, I do not suppose there is any Government security they would prefer to the security of the Government of the United States, provided it would give them such a rate of interest as would be an inducement to invest. At present, I am afraid there would be no such inducement. Although I do not for a moment wish to disparage or to exclude the Government securities of the United States from the power of investment of the Currency Commission, there are several objections to Section 2 (b) as it stands. In the first place, it is rather invidious to confine this enlarged power of the Currency Commission to the Government securities of a single country. It is rather a slur on other countries which, perhaps, are very proud of their national solvency. Then the clause is too rigid. This increased power which the Bill gives to the Currency Commission is confined absolutely to this one class of security. It should be more flexible. If they are to get increased power as regards investment of their funds, they ought to have power to invest in other forms than this. There is a recommendation of the Banking Commission which states that the Currency Commission should, from time to time, look very carefully into their forms of investment, consider them and see whether or not it would be advisable to alter them. For that reason, if we are going to add to the power of investment of the Currency Commission, it would be right that there should be such a power as would give them opportunity of choice.
There is a third objection to the power of increased investment as it stands in the Bill. If the Currency Commission desire an enlarged power of investment for their funds, the initiative should come from themselves and not from the Minister or the Oireachtas. The Currency Commission was described by the Minister, when explaining the Bill to us on this day week, as a "semi-independent body." Strictly speaking, that is absolutely right so far as the constitution of the Commission is concerned. But in its control of the currency, in the working out of the problems of its own department, the Currency Commission ought to be absolutely independent. It should be completely independent of all Government and political interference. These amendments are designed to secure that if the Currency Commission desire to extend their powers of investment, the request for an extension shall come from themselves. On the other hand, the Currency Commission ought not to be at liberty to enlarge their forms of investment without the assent of the Minister or without the approval of the Oireachtas. That is provided for in the amendments which I am moving. Amendment No. 1 is a consequential amendment. Amendment No. 2 is the important amendment, and it is the amendment which I have been trying to explain to the House. It provides what, I think, ought to commend itself to the House as the best form in which we can extend the power of investment of the Currency Commission. (Amendment 2 quoted). I should explain that Section 62 of the Act is the section which deals with the Note Reserve Fund as distinguished from the Legal Tender Note Fund, which is dealt with by Section 61. That amendment will delete that part of Section 2 which gives the Currency Commission power to invest in American Government securities, and it provides that they may invest in any security—including, of course, American Government securities—which they unanimously request the Minister to give them an Order to do. That Order is not to have effect until approved by resolution of each House. That does in another way, and in a much more flexible way, what the Minister desires to do by the section which I seek to delete. It gives the Currency Commission this enlarged power, provided they are unanimous, provided the Minister makes an Order and provided the two Houses are satisfied that it should be made. Accordingly, I move these three amendments.
I want to raise one or two points in connection not only with the Bill, but also with the amendments. As Senator Brown has discussed the Bill and his amendments more or less in general terms, I should like to be advised, since the Minister is here, as to the real position as regards our security. Are we on a gold basis or are we not? If we are on a gold basis, is there any security unless we have gold bullion, gold coins or coin available within our own reserves? What security have we that the Note Issue will always be what it is, as far as currency in Great Britain is concerned, any more than we have as regards the position of the dollar standard? I am quite prepared to agree that, in the main, United States securities, of the gilt-edged or Government type, and British Government securities are quite good enough. But if we are on a gold basis, what is the purpose of being on that basis when, as a matter of fact, we have no gold bullion or gold reserves in this country? I am not in favour of working on a gold basis. My belief is that the gold basis has outlived its usefulness. But that is another question. That is concerned with the whole question not only of currency but of credit, which we have already discussed here. We are only pretending we have any security as regards note value, if we have not a gold reserve within our own territory. Let us make no mistake about that. I should like to know, now that the Minister is here, why we have no gold reserve; why we are dependent entirely on the gold reserves kept by the Bank of England. That is the position that the Currency Commission occupies at present. I do not see any objection to going to the United States for our reserve of credit any more than going to Great Britain. I think they are both in exactly the same position. That position is reasonably good to-day, in spite of all the adverse factors that are working out in what one might call the higher economic scheme of thought. But that position may not be all right for an indefinite period. Another point arises on that; it is an economic point. There seems to be an instinctive dislike to trusting to your own securities within your own country, though these securities might, in the last analysis, be quite as good as British Government or United States Government securities. It is difficult to explain clearly what I desire to convey.
We have here an issue of £6,000,000. That is issued to the banks at one and a-half per cent. That currency is handled and becomes a credit available for the banks, which are able to use it at a profit of 4 per cent. or thereabouts, assuming that they are getting the 5½ per cent. rate on overdrafts. If we are not working on a gold basis, why should we not try and operate this currency within ourselves? I admit that there is an instinctive feeling—I share it myself—against keeping house by taking money out of one pocket and putting it into another. There is nothing wrong with Irish securities as compared with British securities. The Minister for Finance will remember that when we were discussing other financial matters here, I, at the request of the Ministry, withheld a certain motion. It was argued that debate on that motion might injure the National Loan at the time. As I explained, my argument would rather have been a boost to the National Loan. I pointed out at that time that the Minister was giving money away. He was issuing the Loan at 93½ per cent., which was an absurd price to anyone who understood the condition of the money market at the time. I said that in a very short time that Loan would be at a premium. To-day the quotation is from 98½ to 99.
We are operating this Currency Commission at a profit to the State of 1½ per cent. We are discussing seriously whether we are going to have our basis of security under the British administrations or under the U.S.A. I agree with Senator Brown that if we are going to invest for security in foreign countries, we should not be tied down to any one country. But I should be interested to know if that point occurred to Senator Brown on the original occasion when the proposal was made to invest in British Government securities. Is it only when American securities are concerned that the Senator wakens up to a realisation of the facts he has mentioned? I should like to know from the Minister where exactly we stand. Are we on a gold basis or are we not? If we are working on a gold basis, I hold that we should have a gold reserve here and the word or bond of no other Government should have effect on our operations. A crisis may arise. Financial crises will arise. I should like to know from the Minister where we stand as regards that.
As regards the Currency Commission being completely independent, that is a very debatable matter. That would be all right if you had a Currency Commission that was going to be not only absolutely and completely reliable—as no doubt we will always have—but a Commission that understood the importance of the monetary and currency question from the point of view of this country, not only the financial basis, of the working, of the traditional economic arguments, but that would he conscious of the importance of getting the best value for such notes as we would be putting on the market for the banks and of getting the best return for the State. I should like to have the guidance of the Minister as to our present position. We are supposed to be operating on a gold basis and we are paying very stiffly for holding grimly to that gold basis. I hold that that is a fallacy, that we are not working on a gold basis but that we are working on the security of the British Government at present, whether that be good or bad.
This Bill has been delayed from before the Recess until now. I reckon that that delay has cost the reserve fund of the Currency Commission approximately £60,000. I trust that there will not be any further delay in getting this measure through. I am in general agreement with the amendments proposed by Senator Brown. I think they are more flexible than the provisions of the Bill, as introduced, and they give a wider range of choice of investments. The Currency Commission, under the amendments, would be entitled to invest in any funds which, in their judgment— which I believe is very sound—give full security and an adequate rate of interest. Whatever may have been the case when the original Currency Bill was going through, the rate of interest on short-dated British Government securities has so depreciated as to be practically worthless from the remunerative point of view. Therefore, I welcome the extension which this Bill gives.
I am not in agreement with Senator Brown as to the mechanism by which he seeks to attain his object. I think it is cumbersome and will cause undue delay if it be necessary that the recommendation of the Commission should be unanimous. I think that if the majority of the members of the Currency Commission are of opinion that the proposed security is a right and proper one in which to invest portion of the reserve fund that that should go forward as the decision of the Commission to the Minister and that it should be for him to act upon it. I am not moving an amendment but I hope that when this Bill goes back to the Dáil an amendment will be moved deleting the provision as regards unanimity.
I would like to point out, particularly to the Senator who spoke last, that as the Bill stands if any changes were necessary, and if the Currency Commission wished to propose a change a new Bill would have to be introduced, which would have to go through all stages in the Dáil and here. That would take a very considerable time. One of the great merits of the amendment proposed by Senator Brown is that if it becomes necessary to make a change, that change can be done by order. Two simple resolutions will be sufficient to give effect to it, which is a much quicker method than at present. I think if it were to be made simpler, there would be one great danger. We are all of opinion that the Oireachtas should have the final say. I agree with Senator Brown that under the present Bill the Currency Commission must take the initiative, must use their judgment, but I think that even at the danger of a certain amount of delay it would not be wise to do anything which would prevent actual control by the two Houses. If you accept that as a principle, I think this is as simple a way as you could get to deal with the matter—an order of the Minister can be made in a day or two, and that can be followed by two resolutions of the Oireachtas.
I would like to know if Senator Brown would be willing to leave out the word "unanimous." Why does the Senator want the unanimous approval of the Board in a matter of this sort? If he omitted that word perhaps it would enable us to vote.
I think what Senator Wilson has said touches the kernel of this question. If it is the desire of Senator Brown to have flexibility in investments, as undoubtedly he would have under his amendment, if the word "unanimous" was taken out, I am sure he would have no objection to the deletion of the word in sub-section (1) and also in sub-section (2) of his amendment. If the Senator is not willing that the word "unanimous" shall be deleted, I draw my own conclusion, and it is this: The investments are at present in British securities. It will not be possible to take them out of British securities and put them into other securities unless the Commission is unanimous about it. Therefore, there can be no change as there will be a watchdog for the British securities, and he can stop any change in investments. The Minister is powerless unless the Currency Commission is unanimous—that is, unless the watch-dog is willing. Supposing a change is made there cannot be any alteration unless the Currency Commission is unanimous. In stating the case, Senator Brown did not deceive the House or attempt to deceive it. I could gather, following him closely, that his speech clearly indicated what is meant by these amendments, and I am therefore opposed to them.
Another matter has been mentioned. What is the security for our paper? Is it gold? Indeed, it is not. The security is British currency and, as I said once before in this House, there is a stringency of money in this country at present, and it arises from the fact that we have not our proper circulation of money even in the form of paper. How can we have a gold basis with gold costing £4 15s. an ounce? Senators will remember that it used to be £3 17s. 10½d. an ounce. It is now going at £4 5s. an ounce in London, and the Australian Government is offering £4 15s. an ounce. We are not on a gold basis, but we are tied, not to British gold but to British currency. Where is the gold he had from 1914? It was gathered the banks and by every other channel and transferred to London, and during the war we sold our cattle and our goods for paper. As that is the position here, I hope the Seanad will examine these amendments very carefully. If they are passed here, I am quite certain that the Dáil will not allow them to go through without full discussion.
I have no objection to Senator Brown's amendments. I cannot foresee at present a time when any other securities than British securities and the securities of the Government of the United States would be purchased by the Currency Commission. Nevertheless, world circumstances might change, and it might happen that there would be other countries whose financial position would be so strong that it would be regarded as advisable to purchase their securities. Consequently I have no objection to making this power somewhat more flexible. As regards the point of unanimity, I do not regard that as very important. There are several sections in the Currency Act that require unanimity on the part of the Currency Commission, but I have not heard yet that there has been any disposition on the part of members of the Currency Commission to block the work of that body. I do not anticipate that in future any great difficulties will occur. No member of the Currency Commission is there representing his own individual interests. Two members were selected from amongst the commercial community by the Minister for Finance, and, of course, they are quite independent during their term of office, and will, I hope, always be reasonable men, who will look at the public interest and not take up a merely cranky or prejudiced attitude.
Another person is a representative of the Department of Finance who will be more or less representative of the Government's attitude. There are three other members appointed by the banks. They are not there in an individual capacity although they are independent during their term of office. It may be taken that you are not going to have any one of them standing out as a crank to block something which the Commission has generally come to regard as desirable and necessary. On the other hand, supposing, for the sake of argument, it were to happen that the three members representing the banks were opposed to investment in securities other than British securities, which the Currency Commission may already invest in, I think any Minister for Finance would hesitate about making an order. He would hesitate because it would mean that there was a substantial body of opinion against making the order, and that a certain amount of apprehension would arise if the order were made.
I am afraid some Senators think that for political reasons you would have a group of members of the Currency Commission standing out against the purchase of the securities of the United States. I have seen nothing in the attitude of bankers here, as I have had to deal with them, to indicate that they were going to take any such attitude. As a matter of fact, when one loan which we issued was raised partly in the United States, not only had we the co-operation of the representatives of the Irish banks in making arrangements for the United States' part of the issue but I think, in fact, the first suggestion that part of the loan should be raised in the United States actually came from Irish bankers. I have no reason at all to believe that we would have representatives of the banks holding out here for British securities and nothing but British securities, no matter how plainly the facts might indicate that the time had come when it would be desirable to purchase the securities of the United States or the securities of some other country whose position would be such as to make it prudent to purchase. I do not object to unanimity. I admit that it might happen that some little delay would be caused by keeping the word "unanimity" in the amendment, but in currency it is so easy to create panic, so easy to have money rushed out of the country, because false rumours have been put afloat, that it would be in the general interests in many cases to wait a little until the opposition had time to die down rather than to rush ahead. I do not think it will in practice make any difference whether "unanimity" is left in or not. If it did happen by accident that some individual did take an individual line and simply set out to obstruct he would not be there for ever; he could be got rid of. Generally, I cannot see that it makes any difference.
In a sense the remarks of Senator Connolly and other Senators to-day indicate that it is desirable there should be wider powers vested in the Currency Commission to purchase securities outside British securities. We have not a gold standard here; we have a gold exchange standard. We have funds that can be turned into gold. If anything were to happen to cause us to believe that, say, Great Britain was going to depart from the gold standard, we could amend the Currency Act. It would not mean a very big amendment. We could amend that Act if it was thought the best thing to do to meet the position. If there were wider powers of investment vested in the Currency Commission, if it could have its investments scattered over Government securities of more countries than one, the position would be in certain respects much easier. I do not anticipate that that is going to happen.
As for having a gold standard, what I should really do in reference to what Senator Connolly said is to refer him to the report of the Banking Commission, where the matters he raised to-day were dealt with. Personally, I think it would be most uneconomic for us to have gold in cellars here. There is nothing at all to be said for that especially in the case of smaller countries which can get sufficient interest-bearing Government securities of larger and financially stable countries. One of the great countries could not get the amount of securities that it would require, but a country like the Saorstát can get the required securities. They are as good for every purpose as gold and interest is being earned on them. Gold would be lying idle in the cellars and money would be spent keeping and guarding it. Generally, I think that—I do not want to go into the larger question of the gold standard— as long as we have a gold exchange standard for all practical purposes, in our circumstances, it is the same thing as a gold standard.
The Minister has given no explanation of the question he was asked as to where and why the gold that was in the banks before the Treaty was removed. If it was useful to us then why should it not be useful to us now and why do we not try to get it back?
Minister
It would be quite easy to get a great quantity of gold back here, gold value for about ten millions, or as much as we had before, but it would be a useless proceeding. Anybody with British securities can sell them and get gold. The gold could be kept here, but soldiers would have to be employed to guard it and it would not be of much use.
Cathaoirleach
I will put Amendment I now.
Perhaps Senator Brown would like to enlarge on the word "unanimous."
Senator Dowdall has asked me and Senator Wilson if I would object to the deletion of the word "unanimous." I have every objection to its deletion. I can assure the House that I have no brief for British Government securities. My only object in making the request unanimous was to be quite certain that the backing for these notes if the form of investment were changed would be absolutely safe. I might also point out that if the necessity or the advisability of a change in the form of the investment were to arise suddenly, it is absolutely necessary that the request should be unanimous. We ought not to change in a hurry except on an unanimous request. At any other time but a time like that the position will be just as it is at present. The Minister will have power to introduce legislation and the form of investment can be altered as the Oireachtas wishes.
Amendment 1 put and agreed to.
Section 2, as amended, put and agreed to.
Amendment 2 put and agreed to.
Amendment 3 put and agreed to.
Section 4 agreed to.
SECTION 5.
Sub-section 4.—The fact that a consolidated bank note has been the subject of an act which is a contravention of this section shall not (so long as such note remains identifiable as a particular note) prejudice or affect the obligation imposed by the Principal Act on the Shareholding Bank to which such note was issued to pay the amount of such note on presentation nor any right or power which such Bank may have under the Principal Act or regulations made thereunder to retire such note.
I move Amendment 4:—
To delete the words "(so long as such note remains identifiable as a particular note)".
This section provides for the defacement of legal tender notes or the alteration of legal tender and consolidated bank notes, and makes it a criminal offence to do certain acts in the shape of defacing, alteration or tearing these notes. As the sub-section stands the shareholding bank would have the right to refuse to redeem a note which was not identifiable as a particular note. The way a note is identifiable as a particular note is by a series letter and number in two places, one is at the lower left-hand corner and the other on the right-hand corner. It may happen, and it does happen sometimes, that both those series letters and numbers are removed from the note, and are not on it when it is presented to the bank. The note still shows the bank responsible for its payment and its own denomination. It is the universal custom of the banks, although, perhaps, they are not bound to do so, to redeem a note of that kind. An honest holder goes into a bank with a note that is not identifiable as a particular note but which is clearly a note on which the bank is liable, and which shows the amount on the face of it. What the amendments ask the House to do is to delete the words in brackets and to let the banks do what they have been always doing, cash notes of that kind.
I do not know how much change the amendment makes. In fact, I do not know whether or not it would compel a bank to repay a note which could not be identified. I have no particular objection to the amendment. I do not think it would do any harm and, as notice of the Senator's amendment has been given for some time and the banks concerned have not protested, I do not see that I should raise any objection.
As I gather the meaning of the amendment is to protect the holder of the note?
Yes.
[The Leas-Chathaoirleach took the Chair.]
In fact it places the holder of a consolidated bank note in respect to the cashing of that note which had been defaced in the same position as if the holder had a legal tender note. Therefore it is all in favour of the holder of the note and I think the amendment should be accepted.
Amendment put and agreed to.
Question: "That Section 5, as amended, stand part of the Bill"—put and agreed to.
Section 6 and the Title agreed to.
Report Stage ordered for Wednesday, 3rd December.