FROM THE ARCHIVES:The government agency charged with protecting the Irish pound suddenly started buying gold in September 1938, prompting speculation that the reason behind the move was the Sudeten crisis as Europe seemed headed for imminent war.
A great deal of interest was created in political and financial circles in Dublin yesterday, by the information that the Currency Commission had purchased gold bullion to the value of £1,998,368. The news was contained in Iris Oifigiuil of Tuesday’s date, in the statement showing the position of the legal tender note fund.
The balance sheet of that fund showed that at 17th September the notes outstanding totalled £9,918,814, against which there were assets consisting of almost £2,000,000 of gold bullion; £7,000,000, in round figures, of British Government securities, and over £900,000 sterling balances on current or deposit accounts. The balance sheet of the previous week showed £9,414,401 in British Government securities, and less than £200,000 in sterling balances.
Read in conjunction, the two weeks’ balance sheets suggest that £2,396,647 worth of securities has been realised, the major part of the proceeds being invested in bullion.
The Currency Act of 1927 provides that the Irish note issue shall be backed by securities or gold, but this is the first time that the power to buy gold has been used. It was natural to find the question being asked, “What does it mean?”, and there was a great deal of speculation as to the exact significance of the purchase.
Officials of the Currency Commission were not permitted to discuss the matter but others spoke to The Irish Times representative of the reasons which might have prompted this departure from precedent . . .
Probably, said one of the persons interviewed, the purchase has been made as a result of the present insecurity, due to the unsettled state of financial affairs.
While the investment of £2,000,000 in gold means the loss of the interest that would accrue from its investment in securities, there are occasions when it would be judged wise to hold gold instead of securities which might depreciate in value.
The suggestion the purchase had been made in anticipation of a rise in the value of gold and, therefore, as a speculation, was not treated seriously. Neither was the theory that this purchase might mark a step in the direction of independence from British currency fluctuations in the event of war.
A member of the Oireachtas suggested that the matter will be raised by a question when the Dail re-assembles . . .
There might be two reasons for it – psychological and practical. The psychological reason was one common to all countries, the universal belief in the value of gold and the feeling that it represented a sounder security than anything else. On the practical side it was probably thought that in the event of war, it might be the most convenient medium for the payment of goods bought outside the sterling area.