Fine Gael and the Just Society, 1965
Worldbystorm of Cedarlounge has just put up a post on The Just Society. I want to focus on a particular aspect of that document, one which ties in with the present banking crisis.
On pages 10 to 12 of the document, the authors concern themselves with Irish banking and monetary policy.
They noted that ‘neither the government nor the Central Bank have any control over domestic credit policy at the present time.’ Instead, it was left to the state’s private banks, acting in the interests of their shareholders, to decide how much credit should be supplied to the Irish economy. ‘This situation must be altered’, stated The Just Society. ‘The government has a duty to provide a suitable framework by means of which the level of credit can be rationally determined by the responsible monetary authorities, not by the exigencies of the Balance of Payments.’
This is something that I talk about in Sins of the Father - the fact that, essentially, in Ireland a national currency was being run in the interests of the shareholders of the private banks within the jurisdiction.
The same basic point was made by The Just Society:
… the institutional framework in which the banks operate make it difficult for them to have regard both to the public interest and the interest of depositors and shareholders and it is anomalous that the Central Bank should have power to influence an expansion of domestic credit (a power which it has under the Central Bank Act 1942) but has no express statutory power to influence a contraction of credit, if it deemed it desirable.
… One of the unusual features of our banking system is the fact that the foreign receipts of our commercial banks are retained by them instead of being passed to the Central Bank. In other countries the Central Bank maintains the foreign reserves of the banking system and grants to the commercial banks deposits in exchange for the foreign reserves it obtains. Under this system it is the Central Bank and not the commercial banks which has to decide, in the event of a depletion of its external reserves, when credit should be restricted. We believe that it is desirable to adopt this system in Ireland so that eventually the country’s external reserves will be centred in the Central Bank.
It is important to recognise that the power of the banks in Ireland to dictate economic and social policy did not develop overnight. It goes back to the formation of the Free State itself in the 1920s. They’ve had their hands in our pockets for decades.
The document can be downloaded as a PDF here.
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