Fiscal and monetary independence was ceded to the Irish Free State by the Anglo-Irish Treaty of December 1921. Despite such autonomy there was no radical departure from established monetary arrangements. The existing historiography suggests a real ambivalence among Irish decision makers regarding the establishment of a central bank in the 1920s (Ó Gráda Reference Ó Gráda1994, p. 425; Bielenberg and Ryan Reference Bielenberg and Ryan2013, pp. 9–16). The legacy of British administration was reflected in a commercial banking system dominated by joint-stock banks rather than the investment banking model of much of continental Europe (Lee Reference Lee1989, p. 89).
However, the decision not to immediately establish a central bank resulted not from any ideological bias, but rather from the reality of the ‘exceptionally confused’ currency arrangements then existing in the Irish Free State (Meenan Reference Meenan1970, p. 216). British coin, British Treasury notes, Bank of England notes and Irish bank notes all circulated freely in the Irish Free State in 1922. However, neither the Bank of England nor Irish bank notes were recognised as legal tender, while Treasury notes issued before 1921, although legal tender, bore no date of issue and could not be recognised (Meenan Reference Meenan1970, pp. 216–17).
This was a situation exacerbated by the reality of partition and the fact that over 96 per cent of Irish commercial banking investments were held in London in the mid 1920s.Footnote 1 Official advice to the fledgling Irish administration favoured retention of the pound sterling as a ‘financial safety valve’ against possible devaluation.Footnote 2 Irish policy viewed the practical benefits associated with existing banking and currency arrangements as far outweighing any theoretical concerns (Moynihan Reference Moynihan1975, p. 21).
I
The role of the Bank of England in the development of Anglo-Irish monetary relations needs to be framed in the wider context of the internationalisation of Bank of England policy. Key to understanding this position is the role of Montagu Norman. Norman placed the Bank of England at the forefront of central bank co-operation and development. The ‘novel habit’ of corresponding with other central bankers may have begun under the governorship of Walter Cunliffe over the course of 1917, but it was under Norman that the principle of international co-operation was to become a key pillar of Threadneedle Street policy (Sayers Reference Sayers1976, p. 120).
By 1922 the Bank of England had already established a set of principles guiding its relationships with other monetary authorities. In 1921 Norman – with the input of Governor Benjamin Strong of the New York Federal Reserve – circulated ‘General Principles of Central Banking’. This provided a potential framework for future central banking relationships (Clay Reference Clay1957, pp. 283–4).
Although the Genoa Conference of 1922 has traditionally been viewed as a failure, the Bank of England had, by this time, distilled the key principles of its relationships with other central banks as: Co-operation, Exclusiveness, Balances and Autonomy (Eichengreen Reference Eichengreen1992, p. 153). Bank of England policy provided that ‘Central Banks should accept the principle that autonomy, and especially freedom from political control, is desirable.’Footnote 3
London, Norman assumed, would remain the core financial centre of an expanding network of monetary authorities. As early as 1921 the Bank of England envisaged:
A chain of central banks in our various Dominions and their co-operation with each other and our own Central institution and those of other countries is of the greatest importance to the smooth work of the world's financial machinery. But while advocating progress in this direction, it cannot be too strongly urged that every development must be free from all suspicion of aggression.Footnote 4
In successfully recommending W. H. Clegg (Chief Accountant, Bank of England) to General Smuts (Prime Minister of South Africa) as the first Governor of the South African Reserve Bank in 1921, Norman set out his hopes that South Africa would act as a template for other dominions:
I believe the lines upon which you are working to be the right and only sound ones – the establishment of a Central Bank within each economic unit of the Empire for the transaction of central banking business within that unit – and I hope that the example act by South Africa may be followed by the establishment, in other Dominions, of Central Banks on similar lines.Footnote 5
Once monetary independence was ceded to the newly established Irish Free State, the role of the Bank of England became subject to the national and international dynamics sketched above. Ireland, by virtue of its geographical and economic proximity to Britain, was a more embedded element of British financial structures than any other dominion.
Yet the early 1920s was a time of great change for the Bank of England. Although committed to a return to the gold standard, the Bank sought, at least partially, to evolve in response to the prevailing financial environment. The reintroduction of a tender system for Treasury Bills in April 1922 also facilitated the development of coherent open-market operations (Moggridge Reference Moggridge1972, pp. 25–6). The accession of Norman to the governorship in 1920 and his internationalisation of central banking concepts created a wider role for the Bank impossible to imagine under the preceding governorships of Cunliffe or Cokayne.
II
Cormac Ó Gráda (Reference Ó Gráda1994, p. 373) has argued that Threadneedle Street regarded the Bank of Ireland as a ‘kind of satellite central bank’ in the 1920s and 1930s. Bank of England correspondence from 1923–4 indicates that Threadneedle Street viewed College Green (headquarters of Bank of Ireland) as the de facto Central Bank of the Irish Free State in the period immediately following Irish monetary independence.
As a result of the current consolidation in the Irish banking system, the archives of the Bank of Ireland and the Central Bank of Ireland are no longer available for consultation. However, the limited access granted to the Transactions of the Court of Directors in the Bank of Ireland provides clear evidence of the Bank of England's view of College Green as the central banking institution of the Irish Free State. In April 1924, the Bank of Ireland agreed to participate in a consortium of banks providing Germany with £5 million credit on the basis that ‘the Bank of England want the Bank of Ireland as a Central Bank to accept participation in the loan’.Footnote 6
In informing College Green of a visit to Threadneedle Street by Joseph Brennan (Secretary of the Irish Department of Finance and formerly a British civil servant based in Dublin Castle) in June 1923, Norman provides a synopsis of Bank of England attitudes towards the Irish Free State at this time. This included the need to postpone action on a national loan until after elections, the preference for an internal loan or at least the establishment of a Loan Commission to raise an external loan, promoting the concept of savings certificates as a revenue-raising measure and the requirement to fully ascertain the current statistical position in relation to the Free State economy.Footnote 7
The Bank of Ireland was keen to stress that it was wholly in agreement with the advice proffered. In addition, it acknowledged that it had already given such advice to Ernest Blythe (Minister for Finance 1923–32) and Brennan. The unease of the Bank of Ireland reflected the initial concerns of all the Irish commercial banks that the new Irish government would seek to alter existing banking arrangements or involve non-Irish banks in the financing of government operations.
Compared to other Irish commercial banks, the Bank of Ireland was fully aware of the implications of monetary independence (Ó Gráda Reference Ó Gráda1994, p. 373). However, the explicit Protestant, Unionist ethos of the Irish commercial bankers was reflected in Ulster Bank's dismissal of J. J. McElligott (Brennan's successor in the Irish Department of Finance in 1927, who was dismissed from the British civil service in 1916 due to his role in the Easter Rising) as an ‘extremist of the worst type’ who could ‘persuade the Minister of Finance to do almost whatever he liked’.Footnote 8
The refusal of the Bank of England and British Treasury to intervene in Irish affairs forced the hand of the Irish commercial banks, including Bank of Ireland (Fanning Reference Fanning and Lyons1983, pp. 73–4). Norman's advice that the Irish commercial banks should directly finance the Irish Free administration was also consistent with the opinion of Sir Otto Niemeyer in the British Treasury (Fanning Reference Fanning and Lyons1983, p. 77).
The Bank of Ireland viewed itself as part of the wider imperial banking structure dominated by the Bank of England. Threadneedle Street's urgings to come to terms with the new Irish Free State administration, allied to similar advice from the Treasury, encouraged College Green – and the other Irish commercial banks – to coalesce reluctantly, and rather loudly, with Irish monetary independence.
III
The Coinage Act 1926 and the Reports of the Banking Commission 1926 (1926 Commission) reasserted Ireland's close association with the sterling area, albeit in the form of Irish Free State currency notes at parity with sterling and a Currency Commission. Irish notes and coins were introduced even if the banking establishment doubted the actual demand for distinctive coinage.Footnote 9
It is important to highlight that the Currency Commission established by the Currency Act 1927 – following the recommendations of the 1926 Commission – was not a central bank. The primary role of the Currency Commission was to ‘manage and control’ the issue and redemption of legal tender currency notes.Footnote 10 It was correctly identified as carrying out the operations normally associated with the note-issuing department of a central bank.Footnote 11
The additional monetary management functions normally associated with a central bank, such as providing credit to and regulating the banking system, undertaking government business and undertaking open market operations, were not part of the Currency Commission's mandate. The absence of active currency management capabilities resulted in the Currency Commission being a ‘purely passive agent’ in monetary terms (Colbert Reference Colbert1931, p. 14).
In an institutional context, the Currency Commission fulfilled the definition of a currency board as issuing ‘local coin and notes at a fixed exchange rate with a foreign money’ (Schwartz Reference Schwartz1992, p. 9). The absence of discretion in a currency board arrangement – the Currency Commission had a statutory obligation to exchange British legal tender for local currency – increased credibility and provided exchange rate stability (Honohan Reference Honohan1997, p. 39). Considered within the context of the 1920s monetary environment, a currency board or exchange standard was viewed as a stable monetary arrangement for smaller nation states (Moynihan Reference Moynihan1975, p. 109).
The 1926 Commission dismissed the case for establishing a central bank in the Irish Free State on the basis of the lack of a short-term money market and its well-established commercial banking system (Moynihan Reference Moynihan1975, pp. 67–71). This finding reflected the dominance of the commercial banks on the 1926 Commission – five bankers out of a total membership of eight and the orthodox McElligott. However, its findings did run counter to Norman's consistent support for the establishment of central banks in the emerging dominions (Ó Gráda Reference Ó Gráda1994, pp. 425–6). Overall, the work of the 1926 Commission was correctly viewed by the British financial press as ensuring no breach would occur between the Irish and British currency, trade and banking systems.Footnote 12
The ‘anguished correspondence’ between Andrew Jameson (Irish Free State Senator and former Governor of the Bank of Ireland) and Threadneedle Street during the course of the 1926 Commission has been identified (Ó Gráda Reference Ó Gráda1994, p. 427). The Bank of Ireland was eager to protect its position and limit any change in existing banking arrangements. Jameson went as far as to seek a Threadneedle Street witness to appear before the 1926 Commission.Footnote 13
The response of the Bank of England to these entreaties was measured. It did not allow its historical relationship with College Green to compromise its key principle of autonomy for monetary institutions in the dominions. Threadneedle Street refused to supply a witness to the 1926 Commission due to the likely effect on public opinion in the Irish Free State.Footnote 14 The Bank of England's analysis of Jameson's Minority Report noted, without irony, that ‘if a Central Bank had been created instead of a Currency Commission doubtless Mr Jameson's objections would have been met to a large extent’.Footnote 15
As early as May 1926 Norman wrote favourably to Jameson on the provisions of the First Interim Report that ‘the only part of the Report which I could clearly get into my head was that about the Gold Exchange Standard (Free State notes secured on British Treasury Bills). This I thought was very good.’Footnote 16
The Bank of England, in addition to Jameson's continued correspondence, possessed other official sources of information on the 1926 Commission. Professor Henry Parker-Willis (Chairman of the Banking Commission and formerly of the US Federal Reserve and Columbia University) personally secured the ‘co-operation’ of both Norman and the British Treasury for his Currency Commission plans in two ‘unofficial and private’ meetings recorded only in Norman's diary.Footnote 17
The Bank of England consistently urged the Bank of Ireland to accommodate the monetary arrangements proposed by the 1926 Commission. Norman sought to place the Bank of Ireland's position in the Irish Free State in the context of their historic relationship. In March 1927, Norman counselled Jameson:
Although I am a champion of the Bank of Ireland and would have had some things different, I thought the scheme could be made to work. Anyway, your Government seemingly mean soon to pass an Act and give it a trial. So my view is that we should all try and make it work.Footnote 18
IV
From its establishment in September 1927 the Currency Commission leaned more towards continuity than change, both physically and operationally (Moynihan Reference Moynihan1975, pp. 114–18). As with the 1926 Commission, the commercial banks were granted the predominant role – three direct banking representatives and the dependable Brennan as chairman – thus gaining a de facto majority on the Currency Commission's seven-member board (Moynihan Reference Moynihan1975, p. 110).
However, notwithstanding the bankers' effective control of the Currency Commission, its founding did mark the first tentative step towards central banking in Southern Ireland (Bielenberg and Ryan Reference Bielenberg and Ryan2013, p. 9). The principle of an independent monetary institution having been established, it was now up to the commercial banks to minimise any change to their traditional position in the Irish economy. This position included little, if any, government knowledge of their deposit or lending base.
Parker-Willis played an important – but currently acknowledged role – during the 1926 Commission in pressurising Brennan and Blythe to seek greater statistical information from the commercial banks.Footnote 19 Brennan's response – ‘further information … will be required but I thought it well not to make too big a demand at the outset’ – demonstrated his reluctance to pursue policies likely to be opposed by the commercial banks.Footnote 20 The subsequent questionnaire prepared by Parker-Willis sought further information on deposits, investments, quantum of loans across market sectors, profiles of borrowers and the duration of all loans and bills.Footnote 21
The caustic response of individual banks – that to provide any information ‘would be a violation of the principles of Irish banking’ – represented the classic banking tactic of refusing to countenance any change to the existing status quo.Footnote 22 However, while the response of all the commercial banks – including the Bank of Ireland – may have been limited to disaggregated data on deposits, investments and advances, Parker-Willis's questionnaire did mark the hesitant beginnings of state supervision of commercial banking in Southern Ireland.Footnote 23
The absence of issues relating to the Currency Commission in the Court of Directors of the Bank of Ireland highlights its operational consistency with the policies of the Irish commercial banks. Similarly, the minutes of Irish Bank Standing Committee (IBSC) meetings up to the 1940s highlight a clear focus on intra-bank operational matters.Footnote 24 The IBSC was the representative committee established by the Irish commercial banks in 1920 to set deposit and loan rates based on prevailing Bank of England rates (Bielenberg and Ryan Reference Bielenberg and Ryan2013, p. 9). This supports Maurice Moynihan's (Reference Moynihan1975, p. 144) more measured assessment that the commercial banks' confidence in the Currency Commission increased on the basis that ‘there was little danger of harmful interference with the business of the commercial banks’.
The drafting of the Currency Act also crystallised the breakdown in the relationship between Brennan and Blythe. Brennan had asked Blythe for permission to retire from the civil service in January 1927 (O'Broin Reference O'Broin1982, p. 137). The deterioration of their relationship had begun as early as 1925 and partially reflected Brennan's aversion to Blythe's enthusiasm for Irish-language projects in addition to broader differences over the role of the Department of Finance in monitoring government expenditure (Fanning Reference Fanning1978, pp. 189–90). Brennan's key role in completing the Currency Act and its creation of the wholly independent Currency Commission thus enabled him to neatly sidestep his lingering hostility towards Blythe.
The relative absence of Blythe from the central historiography of this period reflects both the dominance of Brennan and McElligott and the reality of the Department of Finance as the ultimate arbiter of government expenditure (Maguire Reference Maguire2008, p. 175). Blythe's personal papers reveal a conservative, though non-dogmatic financial traditionalist whose love of the Irish language did, on occasion, override the tight budgetary constraints patrolled by the Department of Finance.Footnote 25
V
Apart from Norman, the revised Irish monetary arrangements gained the immediate support of Niemeyer who had moved from the Treasury to the Bank of England over the course of 1927. Niemeyer's move to Threadneedle Street coincided with Brennan's resignation from the Department of Finance and his acceptance of the role of Chairman of the Currency Commission.Footnote 26 Brennan's relationship with Niemeyer was underpinned by the latter's consistent policy of non-intervention in Irish monetary affairs (Fanning Reference Fanning and Lyons1983, pp. 73–4).
Niemeyer actively encouraged British assistance in supporting the development of Irish monetary structures. Writing to Sir Richard Hopkins in the Treasury in October 1927, Niemeyer viewed the setting up of the Currency Commission as:
Quite sound and, from our point of view, satisfactory, but it requires a good deal of technical handling for which they are extremely ill equipped. They will, therefore, require a good deal of bottle holding; mainly I think from here rather than from you, if they are to conduct their operations without being a nuisance both to themselves and to us.Footnote 27
It was within this context – the Irish as bungling monetary amateurs – that the Bank of England sought to apply Norman's key central banking principles. Yet Niemeyer's assessment of the Irish as lacking the required technical skills was correct. Across a spectrum of operational issues, ranging from the printing of Irish currency notes to the League of Nations Convention on Counterfeiting, the Irish authorities sought constant advice and guidance from Threadneedle Street.Footnote 28
To varying degrees, Norman's central banking principles were reflected in the approach to the issue of the Currency Commission's London Agents. This approach involved continual support, but no undue pressure was placed on the Currency Commission to offer the Agency to the Bank of England. As early as March 1927 the Bank of Ireland gained the impression from Blythe that the National Bank would most likely be appointed London agents. In December of that year, Brennan had come out firmly against the appointment of a commercial bank with Currency Board representation, by then viewing the Bank of England as the ideal choice.Footnote 29 Norman kept College Green fully briefed on developments.Footnote 30
At this point the private bank of Guinness Mahon & Company made an audacious play for the Currency Commission business.Footnote 31 This, however, represented a direct threat to Norman's key principle of exclusiveness, in addition to being more than a little impractical. The Bank of Ireland quickly dispelled any notion of the private bankers having the support of the Currency Commission.Footnote 32 The Bank of England was subsequently appointed London agents in June 1928.Footnote 33 As noted, the Currency Commission may have been far removed from a central bank, but in the Bank of England's eyes the same principle of exclusiveness still applied.
VI
The lack of central banking powers associated with the Currency Commission did not result in any significant change in approach from Threadneedle Street. In its view the same key principles still applied. On a broader scale, Norman's plan to increase global monetary co-operation was aided by the establishment of the Bank for International Settlements (BIS) in February 1930 (Cassis Reference Cassis2011, p. 118). While the Irish commercial banks operated as before and exerted considerable influence within the Currency Commission, their direct role in Anglo-Irish monetary affairs was increasingly replaced by the official Bank of England/Currency Commission relationship. Brennan – as chair of the Currency Commission – gained a new, elevated status in public affairs (O'Broin Reference O'Broin1982, p. 138).
The collapse of the Gold Standard in September 1931 forced the Bank of England to re-focus on two specific strands of central banking co-operation: first, the development of a global network of central banking contacts within the framework of the BIS; second, a concentration on the development of suitable monetary institutions in nations whose economic centre of gravity remained in London. It was to be in the dominions, including in Southern Ireland, where the role of the Bank of England was to be most pronounced in the period to 1939.
Yet the approach of Threadneedle Street to individual dominions was not consistent. It reflected the incomplete policy formulation mechanisms in the Bank of England. It also reflected how key policy makers – such as Niemeyer and Sir Henry Clay (both advisors to the Governors of the Bank of England in the 1930s) – viewed the economic behaviour of individual dominions in light of their own prejudices.
Niemeyer visited both Australia and New Zealand in 1930 to provide advice and offer proposals on future monetary arrangements (Wright Reference Wright2006, p. 11). Niemeyer's view of the abilities of the dominions differed markedly, his view of the Australian situation highlighting the deficiencies he thought evident: ‘The personnel all round, political, administrative and banking – is, with rare exceptions lamentable, a circumstance which is accentuated by marooning the Commonwealth Government and administration on a sheep station two hundred miles from anywhere’ (cited in Kirkby Reference Kirkby2009, p. 6). Conversely, he regarded New Zealand as a ‘very different story to Australia’ primarily due to the absence of any Irish in key positions of responsibility: ‘it (New Zealand) makes a general appearance of solidity – almost in fact stodginess – and is full of sane people who inspire confidence, perhaps because the leading race are the Scotch and not, as in Australia, the Irish’.Footnote 34
Niemeyer's remedy for New Zealand's monetary ills was consistent with Norman's core central banking principles. Any future central bank should be wholly independent, non-political and engage in an exclusive relationship with the Bank of England.Footnote 35 The primary objective for Threadneedle Street was the immediate separation of New Zealand and Australian finances.Footnote 36 Increased colonial autonomy could not yet replace the dominant influence of the Bank of England. Norman could still operate a traditional colonial policy of ‘divide and rule’.
Southern Ireland, notwithstanding Niemeyer's personal prejudices, possessed no such threat to the orthodox policies of the Bank of England. A myriad of other complications, however, were only too obvious. Geographical proximity, a shared commercial banking heritage and recent military conflict all clouded thinking regarding Irish monetary development. The election of the populist-nationalist Fianna Fáil to power in 1932 raised further questions about Ireland's continued adherence to Bank of England orthodoxy.
Prior to assuming power in 1932, Fianna Fáil sought to link the Irish commercial banks, the Bank of England and the Irish Department of Finance as impediments to the further development of the Irish economy. In 1931, Seán MacEntee (Minister for Finance 1932–9) bemoaned the role of the Irish banks in ‘crushing Irish industry’ (Cronin Reference Cronin, Cronin and Regan2000, p. 154). Similarly, he viewed senior finance civil servants as ‘unalterably and fanatically attached to the English interest’ (Maguire Reference Maguire2008, p. 207).
Fianna Fáil explicitly called for ‘the establishment of an Irish central bank in Dublin and the creation of a currency on an independent basis’.Footnote 37 For Eamon de Valera (founder and leader of Fianna Fáil since its establishment in 1926) it was a simple case of repealing the Currency Act once elected to government.Footnote 38
The response of the commercial banks to the coming to power of Fianna Fáil in 1932 reflected their inherent fear of losing their privileged position in the Irish economy. The Belfast-based Ulster Bank transferred over £250,000 of bearer bonds from Dublin branches to Belfast in July 1932 as a means of safeguarding the bank's interests.Footnote 39 By December 1934, over £1.2m of Ulster Bank deposits had migrated from the Irish Free State to Head Office in Belfast.Footnote 40 The level of deposit withdrawals so worried the Court of Directors in the Bank of Ireland that they sought Eamon de Valera's aid – as President of the Executive Council – to stem the flow.Footnote 41
Yet, for all their economic rhetoric prior to coming to power, Fianna Fáil and De Valera were quick to acknowledge the inadvisability of a ‘sudden change in monetary policy’.Footnote 42 Fianna Fáil had pledged to immediately review banking and currency structures on assuming power (Moynihan Reference Moynihan1975, p. 180). However, no serious attempt was made to reform existing arrangements. MacEntee, in particular, sought to preserve the institutional conservatism of the Department of Finance regardless of his abrasive reform proposals pre-1932 (Dunphy Reference Dunphy1995, pp. 146–7).Footnote 43
The role of the Bank of England in Irish monetary development in the 1930s was less deeply embedded than Fianna Fáil assumed. The politicisation of Anglo-Irish financial relations in the 1930s ensured the subservience of financial decision makers to political forces (Fanning Reference Fanning1978, pp. 278–80). Consistent with Norman's key principles of independence and political autonomy, the Bank of England was largely uninvolved in the protracted Anglo-Irish trade dispute of 1932–8. However, there remained in circulation a populist view – facilitated by more radical elements in Fianna Fáil – that the Irish commercial banks and the Bank of England were working together to oppose Ireland's nationalist aspirations.Footnote 44
VII
Fianna Fáil did proceed with the Commission of Inquiry into Banking, Currency and Credit in 1934 (Banking Commission) despite the combined opposition of the IBSC, Currency Commission and the Department of Finance (Moynihan Reference Moynihan1975, pp. 202–4). Chaired and dominated by Brennan and his allies, the Banking Commission eventually provided – in 1938 – an orthodox defence of existing monetary arrangements and a thinly veiled attack on the policies of Fianna Fáil (Ó Gráda Reference Ó Gráda and Feinstein1995, p. 427).
The Banking Commission did, however, also recommend the expansion of the Currency Commission's powers to equate more readily to that of a central banking institution (Ó Gráda Reference Ó Gráda1994, p. 429). The conservative nature of the Central Bank of Ireland established in 1943 was assured given Brennan's role as governor, three further banking representatives and McElligott on its nine-person board of directors (Moynihan Reference Moynihan1975, p. 311).
The debate surrounding an Irish central bank in the 1930s also provides a framework for assessing the nature of Bank of England policy in this period. Although avoiding all political issues, Threadneedle Street policy remained subject to personal opinion. The development of policies for dealing with other monetary institutions was neither coherent nor consistent. In H. A. Siepmann's (advisor to the Governors of the Bank of England from 1926) opinion, other monetary authorities could feel justified in expressing dismay at the Bank of England's ‘mysterious, perhaps quixotic relationship policy’.Footnote 45
Niemeyer, as early as September 1931, directly advised Brennan as to his personal preference for the establishment of a central bank in Ireland.Footnote 46 Conversely, Clay was equally firm in his rejection of such a policy. Clay's preferred option was to see the Bank of Ireland converted into a central bank with College Green acting as independent advisor to the government.Footnote 47
College Green was desperate for information to bolster its case against the central bank proposals which circulated around Dublin in 1934.Footnote 48 It was even willing ‘as a last resort, [to] criticise the adopting of a Central Bank in such a country as, say, New Zealand, on the ground that it is merely another “imperialistic” fetter under a thin disguise’.Footnote 49 Coming from the highly conservative Bank of Ireland, this starkly reveals perceptions that British intentions with regard to central banking were not entirely altruistic; or that, at the very least, the establishment of a central bank in Dublin would be detrimental to the operations of the Bank of Ireland.
The Bank of England may have struggled to define a coherent policy on whether a central bank was required in Ireland, but that did not negate the requirement for adherence to the core principles of co-operation and autonomy. The Swedish economist Per Jacobsson (then with the BIS and later Managing Director of the International Monetary Fund) was appointed as an ‘outside expert’ to the Banking Commission at the suggestion of the Bank of England (Ó Gráda Reference Ó Gráda1994, p. 430).
The Bank of England never sought to influence Jacobsson with regard to his work on the Banking Commission. Norman did not even mention Ireland to Jacobsson on their first two encounters after Jacobsson had accepted the work in Dublin.Footnote 50 Norman's internationalist preferences were again evident in his opinion that associating the BIS with Irish financial system redevelopment was important.Footnote 51 For Norman, Ireland was only a stepping stone in the BIS emerging as a key player in global financial reconstruction. Jacobsson's role in Ireland seemingly educated Norman as to the underlying causes of Ireland's large sterling reserves.Footnote 52
Jacobsson did, however, seek the facts of the Anglo-Irish trade dispute from the Bank of England. The handwritten instruction from Niemeyer showed that, even in the midst of the Anglo-Irish trade dispute and the absence of a central bank, Threadneedle Streets's non-interventionist principles still applied to Ireland: ‘Please do a short plain statement of facts – with quotations from De Valera & Thomas where necessary. No bias and on paper which cannot easily be recognised as Bank of England’Footnote 53 (original emphasis).
However, Niemeyer's overall view of the Irish still resonated with his unique blend of imperial disdain and mistrust notwithstanding the conservative and orthodox nature of the Irish commercial banks: ‘I also imagine the trouble with the Irish is that they have the vaguest ideas as to what banking means, though very practical ideas on the subject of getting tick.’Footnote 54
VIII
The move towards establishing a Central Bank of Ireland in late 1939 – prompted by the outbreak of war – did prompt a questioning in Threadneedle Street as to the type of relationship which should, or could, be aimed at. For the entire 1922–43 period the monetary regimes of Britain and Southern Ireland fell disproportionately on just two men – Norman and Brennan. In noting that ‘the precise nature of our relationship seems to depend to a very comparable extent on personalities’, R. N. Kershaw (advisor to the Governors of the Bank of England from 1929) was acknowledging the overriding dominance of these two personalities in Anglo-Irish monetary relations.Footnote 55
Kershaw further acknowledged the desirability of Threadneedle Street having a relationship to the Central Bank of Ireland reflecting Ireland's ‘massive reserves invested in sterling’,Footnote 56 noting that the Bank of England should ‘try to establish a good and intimate relationship with them’. These proposals gained the handwritten approval of Norman, whose only doubt was the involvement of ‘awkward political points’.Footnote 57
Notwithstanding the dislocation caused by the Anglo-Irish trade dispute of the 1930s and broader political issues relating to Southern Ireland's constitutional relationship to the British Crown, the close working relationship between the Currency Commission and the Bank of England would continue with the establishment of the Central Bank of Ireland. This relationship was based directly on the close working contacts enjoyed by the Department of Finance with the British Treasury from 1922 on. Relationships initially facilitated by the ‘lending’ of Treasury staff to Finance in the 1922–4 period (Fanning Reference Fanning1978, p. 43).
Norman's doubts, however, were pushed aside on writing to Brennan to congratulate him on becoming Governor of the Central Bank of Ireland in February 1943. Lacking the imperial sentimentality of a Niemeyer or Clay, Norman viewed Threadneedle Street's relationship to Dublin in the context of his core internationalist principle of co-operation:
I look forward to a confident and useful co-operation between the Bank of England and the Central Bank of Ireland, believing, as I do, that such co-operation cannot fail to be in the best interests of both countries. You may be sure that any services which we can render to your bank will be willingly performed.Footnote 58
Brennan's response highlighted the continuity of the relationship developed between the Currency Commission and the Bank of England since 1927:
I appreciate very much the kind message of congratulations that you have sent me on entering on my new office and wish to thank also my many other friends in the Bank of England who have joined in it … As far as I am concerned I shall do everything I can to continue the tradition of prized relationship which has permitted in the past between your bank and the Currency Commission.Footnote 59
The formal relationship of co-operation, commenced with the establishment of the Currency Commission in 1927, could now continue on the basis of greater equality and certainty. For the Currency Commission/Central Bank of Ireland, the 1939–43 period did not mark any break in its relationship with the Bank of England nor did it dilute the core central banking principles observed by Norman towards Southern Ireland since the early 1920s. Rather, it forced the Irish commercial banks to accept that the Bank of England would not, even in times of crisis, act as a lender of last resort. A position made clear by Norman to the Bank of Ireland in September 1939 (Ó Gráda Reference Ó Gráda1994, pp. 374–5). The direct corollary was the establishment of a state-controlled central banking institution and the gradual decline in the privileged position of the Bank of Ireland and the other Irish commercial banks.
IX
Anglo-Irish monetary relations in the 1922–43 period were based primarily on Norman's key central banking principle of co-operation. Notwithstanding the large degree of control exerted by the Irish commercial banks – aided by Brennan – the establishment of the Currency Commission marked the first step in the development of an independent state monetary institution in Southern Ireland.
The sterling crisis of 1931, the Anglo-Irish trade dispute and even the outbreak of war in 1939 failed to fundamentally alter the relationship of the Bank of England with the Currency Commission. Norman's principles may have been subsumed into wider political manoeuvrings for much of the 1930s, but the importance of those principles for Anglo-Irish monetary relations remained constant.
By late 1940, even Norman was bemoaning that ‘we are really a department of the Treasury but we are still called the Bank of England’.Footnote 60 However, for Irish decision makers such as Brennan and McElligott, the Bank of England remained the pivot of their entire global monetary outlook. Contemporary historiography may view central bankers as the ‘apostles of a discredited religion’ in the 1930s, but in Ireland at least, the very concept of central banking was still defined almost exclusively in the context of the Bank of England (Singleton Reference Singleton2011, p. 109).
Considered from a Bank of England viewpoint, the infamous meeting of the Bank of Ireland and Norman in 1939 marked less the end of a ‘special relationship’, and more the explicit acknowledgement by Norman that Ireland should have its own central bank. A bank capable of acting as a lender of last resort to the Irish commercial banks, including the Bank of Ireland. It took the settling of the trade dispute in 1938, the realisation of Ireland's potential to disrupt the British economy (due to its large sterling reserves) and the imminent threat of war to force Norman's hand. The explicit call for an autonomous Irish Central Bank was the logical conclusion of Norman's adherence to his core central banking principles of co-operation, independence and autonomy.
The characteristic of co-operation developed by Norman in the 1922–43 period remained at the core of Anglo-Irish monetary relations until the late 1970s. Ireland remained firmly under the sterling umbrella long after Norman and Brennan had departed the scene. This was a level of ‘anglocentricity' underpinned by the reality of economic co-dependence (Pratschke Reference Pratschke1985, pp. 150–3). A Central Bank of Ireland may have been established in 1943, but apart from a failed experiment in the mid 1950s, it continued to operate as a quasi-currency board right up to the end of the sterling link in 1979 (Honohan Reference Honohan1997, p. 48). With large sterling balances, the Irish commercial banks had no need of a Dublin-based lender of last resort (Honohan Reference Honohan1997, p. 46). The overall assets of the Currency Board/Central Bank may have increased from £20.0m in 1935 to £93.4m in 1960 but its holdings of domestic government securities and bills continued to be negligible until the early 1960s (Moynihan Reference Moynihan1975, pp. 514–18).
Table 1 identifies that the Currency Commission's marginal holdings of Irish government securities were actually liquidated on the establishment of the Central Bank of Ireland in 1943. Table 1 also illustrates that as late as 1960 its holdings of Irish government securities (£1.5m) accounted for just 1.6 per cent of total Irish central bank assets (£93.4m). This compared to £85.3m of ‘external assets’ – practically all in sterling – and gold assets of £5.6m (Moynihan Reference Moynihan1975, p. 518).
Table 1. Assets of the Irish Currency Commission/Central Bank of Ireland, 1935–60* (rounded to nearest £'000)
Note:
* All years ended 31 March.
Sources: Moynihan(Reference Moynihan1975, pp. 514–18); Statement of Accounts of the Irish Currency Commission 1928–42; Annual Reports of the Central Bank of Ireland 1943–60.
The key principles of monetary co-operation and autonomy developed by Norman outlasted Ireland's membership of both Empire and Commonwealth. Those principles – and their adherence by both British and Irish policy makers – facilitated a level of continuity in Anglo-Irish monetary relations which was remarkable in the context of the development of independent monetary institutions, the traditional prerogatives of the Irish commercial banks and broader Anglo-Irish political conflicts. In a monetary context, at least, Southern Ireland was far removed from a ‘restless dominion’.Footnote 61
