Wednesday, 28 November 1951
Dáil Éireann Debate
Mr. MacBride: asked the Minister for Finance whether the governor and directors of the Central Bank have taken any steps pursuant to the provisions of Section 3 of the Currency (Amendment) Act, 1930, and Section 64 of the Central Bank Act, 1942, to secure his approval and the approval of the Oireachtas for the investment in Ireland of at least a portion of the sterling assets lent by them on short-term and long-term loans to the British Government.
In regard to the latter part of the question, many foreign central banks as well as foreign commercial banks keep large balances in London where funds can be held in liquid form and can at the same time earn some interest. The amount so held by foreign banks, currency boards, etc., is in the region of £4,000,000,000.
Further in reply to the Deputy's  question, I may say that he does not appear to appreciate the difference between Irish £s and foreign currency, that is between claims upon Irish goods and services and claims upon foreign goods and services. Increased investment in Ireland by Irishmen and by Irish institutions is not impeded in any way by Irish holdings of foreign exchange reserves, any more than it would be if these reserves were altogether held at home in the form of gold or other internationally acceptable commodity. Indeed, I may point out that the possession of foreign reserves enables our community to sustain a capital investment programme necessitating the importation of goods and machinery for capital purposes.
A little reflection, coupled with a knowledge of finance, will enable it to be seen that some Irish residents, or Irish institutions, must hold the foreign exchange reserves of the Irish community, so long as they are fortunate enough to have any. When one Irish holder transforms his holdings of foreign assets, i.e., claims upon foreign goods or services, into Irish currency or bank deposits within Ireland the first effect is to increase by an equal amount the holdings of other Irish institutions or individuals. If Irish commercial banks, for instance, transformed all their foreign holdings into Irish currency, the foreign holdings of the Central Bank would be increased accordingly. If the Central Bank were compelled by law to hold part of its funds in the form of Irish securities the external holdings of the commercial banks would be increased to an equal amount. If an Irish individual translated his personal holdings of foreign assets into Irish £s or a deposit in an Irish bank the foreign holdings of the Central Bank and/or the commercial banks would be increased by the same amount. In short, we can only repatriate or liquidate the holdings of foreign assets in the hands of Irish citizens and institutions by using them to claim foreign goods and services, that is, by importing foreign goods and services in excess of our current foreign earnings from exports of goods and services.
 Let me emphasise that it is not necessary for us—as a first step, at any rate—to liquidate a single £ of our external assets in order to make Irish currency or credit available for internal capital development or domestic consumption. For these purposes we could to-morrow, should the Oireachtas so decide, issue Irish currency or create Irish bank deposits or obtain Central Bank credits to the extent of £1,000,000 or £1,000,000,000. The only consideration that prevents many Governments and central banks from creating additional spending power by an expansion of currency, credit or debt is that they have the wit to realise that if the total amount of active purchasing power is greatly in excess of national production it disorganises the economic and social life of the people and imperils the productive development upon which an improved standard of living must be based if it is to be permanent.
Mr. MacBride: Do I take it that the Minister's speech in reply to a simple question was intended to indicate that the Government approves of the policy of the Central Bank in investing all its money in England instead of investing it in Ireland?
Mr. Aiken: It is quite obvious that the Deputy does not even now understand the reply. If the Dáil so decides, to-morrow, we can pass a law prohibiting the Central Bank from holding one single £ of foreign assets, but then somebody else must hold them. If the Central Bank does not hold them, some individuals must hold them, or the commercial banks must hold them. I do not know whether the Deputy wants us to compel the Central Bank to hand over the holdings of external assets to the commercial banks, but the effect of his suggestion would be exactly that.
Mr. Dillon: May I put a supplementary question to the Minister? I understood him to say that it was open to Oireachtas Éireann to legislate to compel the Central Bank to hold all its currency in reserve in Ireland. While that is undoubtedly true, is it not a fact that Oireachtas Éireann has legislated to the effect that, if the Board of the Central Bank should apply for leave to invest a part of the currency in Reserve in Ireland, it may do so on the Oireachtas signifying its assent and, if that has been legislated by Oireachtas Éireann, surely the legislation was made for some purpose and to meet some possible contingency or does the Minister for Finance suggest that it was legislated for no purpose?
Mr. Aiken: Deputy Dillon asked a question the other day across the House. He said he had tried to find out from the Department of Finance what was the technique of the Treasury deposit receipt over in England. But an official of the Department of Finance  had already published a book about it. It is a standard book of reference in every Treasury throughout the world.
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