§ Mr. GILLETTI beg to move, in page 3, line 13, after the word "department," to insert the words "commercial bills, bills of exchange on foreign firms, or."
The subject to which I want to draw the attention of the Committee is in relation to the cover that is to be held 1345 against the fiduciary issue. The question of securities seems to have something rather mysterious about it, and I discovered, on making inquiries, that there is no public list of securities that are held against the present notes. I do not wish, in raising this point, to press the right hon. Gentleman to give any information which, I can well see, it might not be desirable should be given to the House. Recently a question was asked, and the Financial Secretary to the Treasury replied to it, in regard to the point whether bills could be held as cover against these notes. The answer was in the affirmative. I should like to ask the hon. Gentleman whether, when he said that, he meant that bills ever had been held? I should also have liked to ask him whether Treasury bills were included in the answer that he gave.
The point I had in mind, when I put down the first words in my Amendment dealing with hills, was the point I mentioned earlier in the Debate, that of having an issue that would be rather more elastic than the one suggested by the Government, and that could be covered by the bills. The principle has been decided virtually in the last vote, and about that part of the Amendment I do not propose to say any more. When I come to the second part, which deals with the question of the cover being partly in exchange on foreign firms, would ask if it is intended to adopt any of the practices carried out by other central banks in attempting to control the exchanges by some of the cover that they hold against their note issue? There have been several instances of banks that have recently come into existence. The bank in Austria, which was started under the control of the League of Nations, holds a certain amount of its cover for its notes in stable foreign currency. The Bank of Chile holds part of its cover in deposits in London and New York, so as to have a hold on the currencies of these two important centres. In Germany the cheques which are in foreign currencies are also recognised as part of the cover for notes and the bills of exchange on foreign firms of first-class standing recognised by the Minister of Finance for Italy, is included in the Italian 1346 system of dealing with the cover for notes.
The answer which may be given to me is that this side of the problem has already been dealt with as part of the functions of the Bank of England. Of course, if that were the answer it would to a certain extent, so far as I am concerned, meet the argument which I am bringing forward; but on the other hand this custom has grown up in connection with central banks. I know another answer which may be given to me. It may be said that it is not a part of the functions of the Bank of England, and that the Bank of England and the Central Bank of New York are the two banks which cannot carry out what is being done by the other banking systems of the world, because the whole foundation of the idea of linking the central banks together, which is the holding of foreign currency by one bank so as to have a claim upon London and New York, is quite a different policy from the policy which would be followed out by either London itself or by New York; hut I cannot see any reason why we in London should not use part of this cover for the purpose at any rate of having some hold upon the currency of New York. That, of course, is a crucial position.
Another critical position, of course, is the French position, but having regard to the uncertainty with regard to the whole position of the franc, I am not prepared to say that it is at all possible, as things are at present in relation to French currency, to try to guard against unexpected claims upon our gold. But it seems to me a supremely important question, intimately connected with the idea of trying to prevent a needless rise in the bank rate. That is the object which I want to bring forward before the Committee this evening, and on those grounds I move my Amendment. Possibly I may be allowed to have some information which may satisfy us that this matter is at any rate before the Bank, or that the Government have satisfied themselves on the point which I have raised.
§ Sir L. WORTHINGTON-EVANSThis Amendment is really unnecessary. I am not out of sympathy with the desire of the hon. Member for Finsbury (Mr. Gillett); but the term "securities" is sufficiently wide to cover commercial bills 1347 in the way that he desires. I do not want to accept the Amendment, because I do not want to limit the nature of the securities to be held; I want to leave that entirely to the discretion of the Bank of England, unfettered by legislation so far as is possible. There is only one limitation in this Clause, and that is the limitation that £5,500,000 worth of silver can be treated as part of the securities for this issue; and the other provision is that the Bank shall inform the Treasury of the securities held. The actual words are in Sub-section (3):
The Bank shall from time to time give to the Treasury such information as the Treasury may require with respect to the securities held in the issue department.It is most desirable, and is consonant with the terms of the Genoa Resolution, that the Government of the day should not dictate in this matter to the Bank as to the duty of providing securities against the fiduciary note issue, subject only to informing the Bank from time to time of the nature of those securities.
§ Mr. GILLETTMay I ask one question by way of explanation? As I understand, the right hon. Gentleman the Secretary of State for War says that bills can be held, but the second part of my Amendment is an attempt to ensure that bills may be held in foreign currencies. Does the right hon. Gentleman mean that that can also be done?
§ Sir L. WORTHINGTON - EVANSCertainly. They are both covered by the term "securities."
§ Major HILLSI quite agree with what my right hon. Friend the Secretary of State for War has said; the term "securities" would, under the legal interpretation of the word, cover bills of exchange. But he and I started life in the same profession, and in that profession the word "securities" used in a trust deed has been interpreted by the Court, and I do not think that any interpretation of the legal meaning of "securities" has been given which would be wide enough to cover bills of exchange. I quite agree with the hon. Gentleman opposite, that this power ought to be given, and I also think that if it is included, words which expressly mention bills might be held to exclude something 1348 else. I think it is the case that the Federal Reserve Banks of America all have power to hold bills as part of their reserve; but I hope that my right hon. Friend is quite clear that "securities" would include it, because it is quite possible that the financial construction of "securities" may be rather different from the lawyer's construction. My right hon. Friend left the law perhaps just about as long ago as I did, but if he will carry his mind back I think he will remember that the Courts have always interpreted "securities" rather on the narrow line, as meaning money secured upon something, and upon something rather tangible. Perhaps he will look into the matter between now and the Report stage?
§ 10.0 p.m.
§ Sir L. WORTHINGTON-EVANSI am advised, and quite definitely advised, that "securities" does cover bills of exchange, but as my hon. and gallant Friend the Member for Ripon (Major Hills) has raised the question, I will certainly endeavour to be fortified in that matter. I will not say before the Report stage, but there is always another stage when it is possible to make any Amendment, that may be required.
Mr. RUNCIMANIs the right hon. Gentleman quite right in thinking that another place can insert Amendments of this kind, except by the consent of this House? It is quite obvious, I think, what the intention of the Government is: They want to include commercial bills, and they have very good reason for it. We have in recent times seen commercial bills maintain their value when Government stocks have gone down, and gone down severely. If that is the intention, I hope that full provision will be made for it.
§ Sir L. WORTHINGTON-EVANSI am also told that it would be quite in order for another place to make an Amendment to this Bill if required.
Mr. RUNCIMANAm I not right in suggesting that another place has no right to interfere in matters of this kind without the consent of the House of Commons? It is the House of Commons that will have to decide.
§ Sir L. WORTHINGTON-EVANSObviously the House of Commons will have to assent.
§ Mr. GILLETTIn view of the promise given, I beg leave to withdraw Amendment.
§ Amendment, by leave, withdrawn.
§ Question proposed, "That the Clause stand part of the Bill."
§ Mr. PETHICK - LAWRENCEUpon that question I should like to ask this. The gold exchange standard was recommended with a view to enabling foreign countries to deal with their trade balances without withdrawing gold from one another to the extent to which they would otherwise require to withdraw it. I should like to know how far, having regard to the form of this Clause, the right hon. Gentleman the Minister for War considers that that provision has in any way been met?
§ Major HILLSBefore my right hon. Friend answers that question, may I ask one more question? Why is any amount of silver coin included, and why is the figure fixed at £5,500,000?
§ Sir L. WORTHINGTON-EVANSThere are two questions. The first question with regard to the Genoa Resolution. The hon. Member for Finsbury (Mr. Gillett) will remember that this Clause deals solely with the fiduciary issue and the securities to be held against the fiduciary issue; it in no sense deals with the other classes of note, which are fully covered by gold. That question does not arise on this Clause. With regard to the other question, which is why £5,500,000 was included, £5,500,000 exists as silver coinage; and that is the residue of the still larger sum—I think a sum of more than £7,000,000—which was taken over by the Government when silver coinage became redundant some time ago. During 1919 and the years of the boom, there was a large demand for silver; the Government of the day was caught short, and silver was created, and created to an extent which is now redundant. The silver will gradually go back into circulation as trade revives and the demand increases, and, meanwhile, it is being held as security for the note issue. It is quite a good security for the fiduciary note issue, for, after all, it is token money for which the Government is responsible. It is a Government security and equally valuable for the purpose.
§ Major HILLSIt will not permanently be there?
§ Sir L. WORTHINGTON-EVANSOh, no.
§ Mr. PETHICK-LAWRENCEI am very much obliged for the explanation. I gather from it that the proposals at Genoa with regard to the gold exchange standard are definitely excluded from this Bill and that an amendment of this Bill will have to be made in order to implement those proposals should we wish to implement them at any time?
§ Sir L. WORTHINGTON-EVANSThat is not quite right. It really is not strictly in order to discuss that point here, because we are now dealing with the fiduciary part of the note issue and not with that part of the note issue which will be secured by gold.
Sir H. YOUNGI think the opinion ought to be recorded on this occasion, and I do not understand that the Secretary for War will disagree with it, that this is an undesirable form of security against the fiduciary portion of the note issue. Silver is not legal tender in large quantities, and it is looked upon not as a security but as a commodity. I think this Bill ought to have included provisions for the regular and enforced reduction of this holding against the fiduciary issue; but as the Secretary of State has implied in his observations that the silver holding is to be reduced as and when occasion serves, I think the provision should be allowed to pass.
§ Sir L. WORTHINGTON-EVANSI have not the least objection to repeating that that is the intention.
§ Question, "That the Clause stand part of the Bill," put, and agreed to.