This is a project I’ve been working on tracing the legislation that has created Australian currency. There is information a colleague and I are uncovering on a 1893 Queensland Notes bill, that was the model used on The Australian Notes act.
The early days of federation money was defined as British or Australian coins – with specified ratios of gold, silver and bronze. The introduction of Australian Note issuance banned private promissory notes and allowed the Australian Government greater spending power by only requiring the government to hold 1/4 of the notes on issue in gold reserves.
There was opposition to the Fischer governments plan to introduce Australian notes with Mr Kelly, the member for Wentworth stating
“It seems to me like breaking a butterfly on a wheel to put the forms of the House to this test in order that we may be able to argue whether we should defray the cost of setting up a printing mill for shinplasters….”
A shinplaster is a banknote or promissory note with little or no value. These are similar arguments used today to demonise public spending. These comments where in relation to the requirement to keep less gold in relation to note issuance – though the subtext is in ending the private banks ability to profit from their unchecked ability to issue bank notes.
I’ve detailed the legislative history through 1909 – just before 1920 when the Commonwealth took over note issuance.
I also hope to write on the history of Treasury Bills – These were issued at interest via the colonies and the newly formed Commonwealth Government and served different purposes throughout history depending on the make up of the legislation. But more on that another time….
This is a draft of the early stages of a larger project where I hope to show an overview of Australian currency history from a Chartalist perspective.
The aim is to demonstrate the history of Australian currency has been ‘tax driven’ looking through various legislation and detailing the history of currency issuance, its link to taxation, the history of banking and credit issuance and the establishment of central banking from an Australian perspective.
While different monetary systems have been in effect from the gold standard, the Bretton-Woods system of fixed exchange rates and now a fiat currency, these have been institutionalised arrangements. Australian currency and credit has always been subject to instruments of the state.
Keynes (p.4 1930) In his treaties on money is influenced by the earlier works of Innes (1913) and Knapp (1924)
“The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contract. But it comes in doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time—when, that is to say, it claims the right to re-edit the dictionary. This right is claimed by all modern States and has been so claimed for some four thousand years at least.”
Lerner (p.313 1947) on gold writes “Its [currency] transformability into gold and the guarantee of this possibility of gold backing are nothing but historical accounts of how acceptability came to be established in certain cases. These were possibly the only ways in which general acceptability could be established prior to the development of the well organised sovereign national states of modern times.”
Australian currency has its origins in the Coinage Act of 1909. Section 5 of the act created legal tender;
Cf. ib. s. 4.
5.—(1.) A tender of payment of money, if made in coins which are British coins or Australian coins of current weight, shall be a legal tender—
While section 6 prohibited other coinage;
Prohibition of other than official coins.
Cf. 33–4 Vic. c. 10 s. 5.
6. No piece of gold, silver, copper, or bronze, or of any metal or mixed metal, of any value whatever (other than a British or Australian coin), shall be made or issued as a coin or as a token for money, or as purporting that the holder thereof is entitled to demand any value denoted thereon.
The schedule within the act specified the dimensions and volumes of metal required in the minting of coins. These schedules were revised in 1936 and 1947 to change the ratio of gold, silver and bronze within the makeup of coins.
In 1910, with hostilities from the opposition the Labor Fischer government passed the Australian Notes Act of 1910. The member for Wentworth, Mr Kelly objected with the following statement.
We ought further to be informed what guarantees the public will have that this particular method is not being adopted for the purpose of raising money without paying interest thereon by a Government which refuses to borrowHouse of Representative Hansard No.#30, 1910 p.690
It was common for states and the newly formed federal government to issue treasury bills in order to obtain gold. This of course meant interest payments.
The Australian notes act provided for note issuance to be linked with gold reserves. Under section 8, disposal of proceeds of issue notes, part 2 reads;
Part of the moneys standing to the credit of the Australian Notes Account shall be held by the Treasurer in gold coin for the purposes of the reserve provided for in section nine of this Act.
While the gold reserve is under section 9 of the act.
9.—(1.) The Treasurer shall hold in gold coin a reserve as follows:—
(a) an amount not less than one-fourth of the amount of Australian Notes issued up to Seven million pounds; and
(b) an amount equal to the amount of Australian Notes issued in excess of Seven million pounds.
(2.) In ascertaining the amount of Australian Notes issued, the amount of Notes which have been redeemed shall not be included.
Notes that had been redeemed (taxed) were no longer necessary to link to the nation’s gold supply effectively deleting the currency from existence. This meant the nation’s note issuance was tied to the quantity the Australian government held in gold. Note issuance below seven million pounds required a quarter to be held in gold reserves while anything over seven million required full gold reserves.
Furthermore the intent of the Notes act limited the supply of note issuance to seven million pounds. The member for Calare Mr. Thomas Brown during the second reading made comment.
The proposal now before us is that the Commonwealth shall issue notes to the amount of £7,000,000,House of Representatives Hansard No. 32, p1464
The responsibility of note issuance now solely rested with the Treasury. Just after a year later the act was amended on 22 December 1911 to remove the requirement to equivalent gold for note issuance above seven million pounds.
Amendment of s. 9.
2. Section nine of the Australian Notes Act 1910 is amended by omitting sub-section (1.) therefrom and by inserting in its stead the following sub-section:—
“(1.) The Treasurer shall hold in gold coin a reserve of not less than one-fourth of the amount of Australian Notes issued.”
During the second reading to the house Mr Fischer the Prime Minister affirmed
The principle of the Bill is practically embodied in the statement that if any person or corporation desires to have Commonwealth notes, application will have to be made at the Treasury, and a deposit made in gold of their face value.House of Representative Hansard No. #32, p.1228
The commentary continues that the act’s intent isn’t to stop private credit issuance of the banks.
It is not intended to prohibit the banks from issuing notes, but a charge is made on all such notes issued, and the money placed to the credit of the community. Heretofore the private banks practically had the unlimited right to issue notes free of charge, and the State was expected or asked to “guarantee these notes in times of crisis. The Government proposal is safeguarded.House of Representative Hansard No. #32, p.1228
Curiously, the Australian Notes Act 1910 prohibited the circulation of State and Bank note issuance
No State Notes to be circulated after a proclaimed date.
4.—(1.) From and after six months after the commencement of this Act—
(a) a bank shall not issue, or circulate as money, any note or instrument for the payment of money issued by a State and payable to bearer on demand; and
(b) a note or instrument for the payment of money issued by a State and payable to bearer on demand shall not be a legal tender..
Quite clearly, the Commonwealth Government was looking to be the sole monopolist of note issuance within the newly formed federation and to stop the issuance of notes from banks. On 10th October 1910, after the passing of the Australian Notes Act on 16th September, the Fischer Government passed the Bank Notes Tax Act 1910
Imposition of bank note tax.
4. A tax at the rate of Ten pounds per centum for each year (including the year in which this Act commences) is imposed in respect of all bank notes issued or re-issued by any bank in the Commonwealth after the commencement of this Act, and not redeemed.
The changes in the legislation from 1920 onwards detail the Commonwealth Bank takeover of note issuance in 1920 with changes to the legislation in 1929 that allowed the government with written notice return holdings of gold to the Commonwealth as well as banning the export of gold.
The changes in 1929 are juxtaposed against the attempts of some within the Labor Party to establish a central bank (that forces financial institutes to hold accounts with the central bank) and the failed Central Reserve Bank Bill in 1929-30 and the Fiduciary Notes Bill of 1930-31. (Fiduciary note isn’t linked to gold)
It appears the 1929 changes as well as changes made to the Commonwealth Bank Act in 1931 and 1932 to allow for a reduction in gold reserves and allow for English Sterling to be used as reserves were concessions to the failed bills.
This the same era when the ALP had their three way split, Lyons formed the United Australia Party, with other fiscally conservative MPs. The result of limiting spending prolonged the depression.
Jack Lang who was dismissed as Premier of NSW, advocated for abandoning the gold standard and replacing it with a ‘goods standard’ went on to form Lang Labor.
I hope to detail the above events in more detail as well as the ascent of the Commonwealth Bank Act 1945 that created it as a central bank, rescinding the Commonwealth Bank Act 1911-1943.
The 1945 Act makes no mention of needing to keep reserves in relation to note issuance and it was the same time as the world established the Breton-Woods system of fixed exchange rates. Australia was officially off a gold standard.
It wasn’t until 1965 that Australia abandoned the final vestiges of the gold standard with its introduction of the Currency Act brought in the Australian dollar and rescinding the coinage act of 1909-1947.