Clause 19.—(EXEMPTION FOR DIVIDENDS ON GOVERNMENT SECURITIES HELD BY CERTAIN CENTRAL BANKS.) (Hansard, 30 May 1957)

I should like to ask a question and to raise, briefly, one or two points on the Clause.

The question concerns the effect of subsection (2), which, as drafted, applies to any bank as long as it is not resident in the United Kingdom and is entrusted by the government of the country concerned with the custody of the principal foreign exchange reserves of that territory. If the Treasury wishes to apply those terms to it, the subsection applies to any central bank in the world. Is it the intention to limit it to countries which have become independent within the Commonwealth or is it the intention to apply the provisions at large? if the first, would it not be wiser to say so? If necessary, we could do that on Report. As drafted, the subsection is very wide. I understood from what the Chancellor said in his Budget speech that he was dealing with such countries as Ghana, which are setting up central banks, and to that extent we support the Clause.

This coming into being of new central banks in territories which used to be Colonies is one portent amongst a number of changes which are taking place in the organisation of the sterling area. I do not think that the Government are adapting themselves sufficiently to those changes. One consequence of the coming into being of central banks in other parts of the Commonwealth is that they will begin to hold gold reserves of their own, at any rate to some extent, and not rely wholly upon the gold and dollar reserves held in this country. This has happened in Australia, and it will presumably happen in such countries as Ghana and Malaya when they set up central banks, because if they have central banks they will want to keep some 757 of their own gold reserves in their own country.

This point was made inBarclays Bank Reviewof May. 1957, which commented: As more territories acquire Dominion status and establish central banks this move towards greater decentralisation of the sterling area's gold reserve must be expected to continue ". As it happens, it will have an increasing effect upon the present structure of the sterling area.

The Economic Secretary will have noticed that South Africa has set up its own short-term money market, which apparently has been working for about a year with considerable success. There was a note about it in theFinancial Timesyesterday. If it is successful in South Africa, it will spread elsewhere and there will be less and less dependence upon London for raising short-term money. This will, of course, have an effect upon our own balance of payments.

I was interested and disturbed to read inThe Timesyesterday that India has established a special rupee account for trading with Egypt. This is a grave departure, in line with the rising of central banks, because I believe that this is the first time that a non-convertible sterling has been created within the sterling area. The rupee is a sterling currency and it is in this case sterling which can be used only by Egypt and cannot be used by the United Kingdom. If this spreads it will be an extremely grave development in the sterling area.

All these changes are, of course, bound to happen. They correspond to the general trend of economic nationalism in the Commonwealth. I feel that the Government are altogether too complacent about these changes. They are acting as if nothing is happening at all when, in fact, important changes, including that which I mentioned, are taking place. The Government continue to talk about London being the banker of the sterling area and to run the area as if none of these things were happening, whereas if the sterling area is to survive it has to be run much more as a cooperative bank, not just as a centralised hank with London running it and everybody else being a customer. The effect of the Clause is that the other central banks of the sterling area are now not 758 just customers of London as the banker of the sterling area, but are beginning to he co-bankers of the sterling area. We must, therefore, have a far closer association of all the central banks in the sterling area if we are to run it properly in future.

This is not yet an urgent need in the sense that, if it were not done, disaster would follow; but if changes are not made in this direction a very grave consequence will gradually begin to flow. I hope that the Radcliffe Commission looks into this aspect of monetary policy. The change in the status of the Bank of England as the banker of the sterling area is extremely important. I hope that the Government will be rather less complacent about the consequences of the sort of thing provided for in the Clause. We are not against the Clause, but we are worried that the Government are not taking full account of the changes of which this is one of the symptoms.

§ Mr. Birch

The right hon. Gentleman the Member for Smethwick (Mr. Gordon Walker) is quite right in saying that the Clause as drafted does apply, or could be made to apply, to any central bank, and not only central banks, in the Commonwealth. He is also right in thinking that it is primarily intended for countries like Ghana which are setting up central banks and transferring the assets of their currency boards to this central bank. It is also intended for other countries in the sterling area which are setting up central banks—Libya, for example, or the central hank of any other country which chose to join the sterling area.

It is fairly widely drawn because the sterling area is not necessarily something which is completely closed. The control of Parliament is fully secured, because, as the right hon. Gentleman will have noticed, no Order can be made here without an affirmative Resolution of the House.

The right hon. Gentleman made some comments which raised, as he knows. very wide issues indeed about the capital account of the sterling area in general and matters to which the right hon. Gentleman the Leader of the Opposition adverted in his speech in the Budget debate. I do not think that he will expect 759 me to follow him in detail on them, except to say that the sterling area is viable in so far as all the members of it stand together. "Upon every link in the cable dependeth the strength of the chain." That is the doctrine which the Government have always endeavoured to uphold.