The Treasurer has asked a number of questions relating to the constitutional powers of the Commonwealth, in time of peace, with respect to banking and certain other cognate financial matters. To answer these questions has required extensive investigations, not only into some more or less uncharted fields of Australian constitutional law, but also into some branches of the constitutional law of the United States and Canada. It will be necessary to state my opinion at some length. I shall first formulate the questions involved in the Treasurer’s inquiries and, after making some preliminary general observations on the banking power in the Commonwealth Constitution, answer each question in turn.

2. The questions asked by the Treasurer relate to the Commonwealth’s powers, in time of peace, to regulate four main matters:
   
   1. Interest rates
   2. Credit policy
   3. Overseas exchange and investment
   4. Trading bank reserves
3. The particular questions raised by the Treasurer may, I think, be stated thus:
   
   1. Interest rates—
      1. How far does the banking power enable the Commonwealth to control
         
         the interest rates:
         1. paid on deposits,
         2. charged on advances, by banks strictly so called, by other financial institutions, or generally?
      2. How far can the banking power be supplemented, as regards the control of interest rates, by other constitutional powers?
      3. If the Commonwealth purported to extend its control to institutions or transactions that are held by the Courts to be outside the area of the Commonwealth’s authority, would the validity of the legislation as a whole be imperilled?
   2. Credit policy:
      
      4. How far does the banking power enable the Commonwealth to control the general policy to be followed by trading banks in making advances?
      5. How far can other constitutional powers be used to supplement the banking power, in relation to the credit policy followed by other financial institutions?
   3. Exchange control:
      
      6. How far can the Commonwealth continue in time of peace the measures of control now included in the National Security (Exchange Control) Regulations? In particular, how far can the Commonwealth continue in time of peace the following list of measures, deemed necessary for a complete control of overseas exchange:
         
         1. control of exports, including not only goods but securities;
         2. control of both the sale and the export of gold;
         3. control of the purchase, sale, borrowing, lending or exchanging of foreign currency by banks, by financial and trading institutions, and by other members of the community, including control of the exchange rate;
         4. control of contracts (for the purchase of goods or otherwise) whereby a right to receive payment is established in favour to a non-resident of Australia;
         5. control of the despatch of currency (Australian and foreign) from Australia;
         6. control of payments by residents not included in (c) above, in connexion with the receipt of payments or the acquisition of property abroad;
         7. control of dealings in Australia with the assets of non-residents;
         8. control of dealings in, and power to acquire, foreign currency accruing abroad to residents of Australia;
            
            1. similar control with regard to other assets held abroad by other
               
               residents of Australia?
   4. Trading bank reserves:
      
      7. Can the Commonwealth require trading banks to deposit with the Commonwealth Bank their surplus investible funds, as is now done under the ‘special account’ system established by the National Security (War-time Banking Control) Regulations?
      8. Does the exercise of this power involve an acquisition of property within the meaning of paragraph (xxxi) of section 51 of the Constitution?
      9. If so, are the terms provided by the War-time Banking Control Regulations ‘just terms’ within the meaning of paragraph (xxxi)?
      10. Would the same considerations apply to a requirement that the trading banks should maintain a prescribed minimum reserve at the Commonwealth Bank?

General observation on the banking power

4. The Commonwealth’s power with respect to banking is contained in paragraph (xiii) of section 51 of the Constitution, as follows:
   

   (xiii) banking, other than State banking; also State banking extending beyond the limits of the
   
   State concerned, the incorporation of banks, and the issue of paper money …

   Apart from the express references to State banking, this paragraph is a verbatim copy of paragraph (15) of section 91 of the Canadian Constitution (British North America Act 1867). It may be noted that in the Canadian Constitution paragraph (15) is supplemented by paragraph (16)—‘Savings Banks’—and paragraph (19)—‘Interest’. Neither of these latter provisions found a place in the Commonwealth Constitution. In the United States, Congress has no express powers with respect to banking. In the United States, therefore, the network of national trading banks and of Federal Reserve Banks rests upon the general powers such as those relating to currency, taxation, and commerce.

5. In some respects, the banking power may perhaps be aided and supplemented by resort to some of the other powers in relation to financial matters. Among these are the following paragraphs of section 51:
   

   (ii) taxation;
   
   (iv) borrowing money on the public credit of the Commonwealth;
   
   (xii) currency and coinage;
   
   (xx) foreign corporations, and trading of financial corporations formed within the
   
   limits of the Commonwealth.

In every case there must also be considered the ancillary or incidental powers, whether implied on ordinary common law principles or regarded as expressly contained in paragraph (xxxix).

6. The meaning of the terms used in the Constitution is to be ascertained by reference to their signification in 1900. This does not mean that the Commonwealth’s banking power is limited in all respects to those practices with were ordinarily carried on by banks in 1900. Applying to ‘banking’ what O’Conner J. said of ‘trade marks’ in the Union Label case in 1908 (6 C.L.R. 457, 534–5), the scope of the power is to be found by ascertaining what were the essential characteristics of banking in Australia at the time when the Constitution was passed, disregarding all conditions, qualifications and attributes which were not of its very nature and essence. The power will thus include any business that possesses those characteristics, and all the activities incidental to it, whether known in 1900 or not.
7. ‘Banking’ is admittedly a vague word. There has been no significant judicial interpretation of section 91(15) of the Canadian Constitution. Varying definitions of ‘banking’, or of the related words ‘bank’ and ‘banker’, are to be found in numerous statutes, but they all have to be used with extreme caution, in the light of the context and objects of the particular Act concerned. In the Australian Constitution, the word is presumably used in its ordinary modern popular sense. This, according to the Oxford English Dictionary, is ‘the business of a banker; the keeping or management of a bank’. A ‘bank’ is defined as follows:
   

   An establishment for the custody of money received from or on behalf of its customers. Its essential duty is the payment of the orders given on it by the customers. Its profits arise mainly from the investment of the money left unused by them.

8. The clearest judicial indication of the scope of the word ‘banking’ in section 51(xiii) of the Constitution is, I think, to be found in the judgment of Isaacs J. (concurred in by a majority of the High Court) in State Savings Bank of Victoria v. Permewan Wright & Co Ltd (1914) 19 C.L.R. 457, at pp. 470–471. The question, in that case, it is true, was whether the State Savings Bank as entitled to the protection given by the Bills of Exchange Act to a ‘banker’ who in good faith and without negligence receives payment of a crossed cheque for a customer. The extent of the banking power was not expressly involved at all. Nevertheless, I think the reasoning of Isaacs J. is precisely applicable to the interpretation of section 51(xiii). Asking himself what constitutes ‘the business of a banker’ or ‘the business of banking’, Isaacs J. said:
   

   The fundamental meaning of the term is not, and never has been, different in Australia from that obtaining in England. Various writers attempt various definitions, more or less discordant, and many of them referring to functions that are now very common and convenient, and even prominent, as if they were indispensable attributes. The essential characteristics of the business of banking are, however, all that are necessary to bring the appellants within the scope of the enactments; and these may be described as the collection of money by receiving deposits upon loan, repayable when and as expressly or impliedly agreed upon, and the utilisation of the money so collected by lending it again in such sums as are required. These are the essential functions of a bank as an instrument of society. It is, in effect, a financial reservoir receiving streams of currency in every direction, and from which there issue outflowing streams where and as required to sustain and fructify or assist commercial, industrial or other enterprises or adventures.

   If that be the real and substantial business of a body of persons, and not merely an ancillary or incidental branch of another business, they do carry on the business of banking. The methods by which the functions of a bank are effected—as by current account, deposit account at call, fixed deposit account, orders, cheques, secured loans, discounting bills, note issue, letters of credit, telegraphic transfers, and any other modes that may be developed by the necessities of business—are merely accidental and auxiliary circumstances, any of which may or may not exist in any particular case. I agree as to this with what was said by Fitzgibbon L.J. in In re Shields’ Estate (1901) 1 I.R., 172, at p. 198.

   Bankers are not bound by law to open current accounts. They may confine themselves, if they wish, to what are known as deposit accounts, and make those deposits repayable at call or at stipulated times, and withdrawable as a whole or in part as may be agreed on. The method of withdrawal may be conditioned to be by personal application, or by written order. It is all a matter of contract.

9. I emphasise the two main points made by Isaacs J. in this exposition of what is meant by ‘the business of a banker’:
   

   (i) The primary and essential characteristic of the business of a banker is that he trades in the money of depositors. Both etymologically and historically, a ‘bank’ is first and foremost a place for the deposit of money by the public.
   
   (ii) A banker is a trader in money. An institution whose main or substantial business
   
   is not that of a dealer in money is not carrying on the business of a banker merely because
   
   it performs one or more functions that are ordinarily carried on by banks.

10. Halsbury’s Laws of England (2nd Edition Vol. i, pp. 783, 793–4 note (f)), while admitting that it is not clear what precisely constitutes banking business, adopts a narrower test than that propounded by Isaacs J. The view taken in Halsbury is that ‘probably the real test is the receiving of money to be withdrawn by cheque’. In this view an ordinary savings bank would not be held to be carrying on ‘the business of a banker’. The definition in Halsbury was adopted by Griffith C.J. in Savings Bank of Victoria v. Permewan Wright (1914) 19 C.L.R. 457, 466. But this was a dissenting view, and was expressly rejected by
    
    the majority of the Court. In my opinion, therefore, the Commonwealth’s banking power should not be regarded as limited to what may be called cheque-paying banks.
11. Modern banks ordinarily carry on a number of activities which are conveniently associated with the business of banking, as thus described, but which strictly speaking do not form part of it. Thus in Halsbury’s Laws of England (2nd Edition Vol. i, p. 789 note (c)) it is said that ‘numerous other functions undertaken by modern bankers, such as payment of domiciled bills, custody of valuable discounting bills, stockbroking, executor and trustee business, trust corporation work, do not come within the strict definition of banking business’. No doubt the Commonwealth’s banking power would enable it to regulate these and other like activities, but only when carried on by banks, and also to decide what functions, incidental to banking business strictly so called, a bank may be permitted to carry on: First National Bank v. Fellows (1917) 244 U.S. 416.
12. In my opinion the word ‘banking’, as used in the Constitution, denotes a nexus of financial transactions, based upon deposits of money by the public. The scope of the power cannot be ascertained by breaking up or analysing out what banks ordinarily do into a series of individual transactions, and assuming that the power attaches to each of those transactions, by whomever entered into. Lending money on security, for example, is an ordinary incident in the business of a banker. Many other institutions and persons are also engaged in the business of lending money on security. But that will not, of itself, show that they are carrying on the business of a banker, or are engaged in ‘banking’.
13. A moneylender, in some jurisdictions, is expressly forbidden to hold himself out in any way as carrying on the business of banking: see Moneylenders Act 1927 (UK), section 4(3); Money Lenders Act 1938 (Vic), section 14(2). Similarly in New South Wales societies registered under the Co-operation Act 1923–1937, which include building societies, rural credit societies, and other organisations whose primary function is the making of loans to members, are expressly forbidden by section 67 of the Act to carry on the business of banking. The section adds a proviso expressly permitting a society to receive deposits if authorised by its rules. This section clearly implies that whereas to receive deposits of money from the public is to carry on banking business, to lend money on security is not. The statutes I have referred to are all later in date than 1900. But I do not think there is any ground whatever for suggesting that the legal concept of ‘banking’ is any narrower today than it was in 1900.
14. I turn next to the specific matters on which my opinion is sought.

Interest rates

15. Question (1): How far does the banking power enable the Commonwealth to
    
    control the interest rates:
    1. paid on deposits,
    2. charged on advances,

    by banks strictly so called, by other financial institutions, or generally?

16. A comprehensive control of interest rates would imply power to prescribe maximum rates of interest in relation to a wide range of transactions. I have been supplied with the following list:
    1. Deposits with:
       
       Trading banks (including State banks)
       
       Savings banks (including State banks)
       
       Life assurance companies
       
       Building societies
       
       Pastoral finance companies
       
       Retail companies
       
       Public utility companies
       
       Co-operative societies
       
       Hire-purchase or cash orders companies
       
       Other companies, partnerships or individuals
       
       Superannuation funds and the like
       
       Government instrumentalities
       
       Semi-governmental bodies and local authorities
    2. Loans by means of:
       
       Debentures, bonds, preference shares etc issued by companies or firms
       
       Debentures, bonds etc, issued by semi-governmental bodies and local authorities
       
       Overdrafts or advances, from banks, pastoral finance companies, life assurance
       
       companies, and other companies, individuals or bodies
       
       M ortgages, from building societies, trustee companies, banks or savings banks, and
       
       other companies, individuals or bodies
       
       Balance of purchase money on real estate or other property
       
       Bill of sale, pledge or other charge over property
       
       Hire-purchase or time payment agreements
       
       Cash orders and the like
       
       Bills of exchange, promissory notes and the like
       
       Discounting or re-discounting of any bill, mortgage or other instrument
       
       Other loans or advances of money or goods, with or without security, by any company,
       
       individual or body.
17. So far as concerns banks strictly so called, except State banks, there is full and undoubted power in the Commonwealth to control their interest rates, both on deposits and on advances. The receipt of deposits and the making of advances are alike integral parts of the business of a banker. The banking power clearly authorises the Commonwealth to regulate the terms on which a bank other than a State bank may carry out either transaction.
18. Trading or financial institutions other than banks would not in my opinion fall within the banking power except in so far as they can be said to be carrying on the business of a banker. An institution cannot secure exemption from the banking power merely by giving itself another name. On the other hand, the Commonwealth cannot bring an institution within the banking power merely by reason of the fact that it engages in some transaction which bankers also engage in. It is necessary to show that the business of the person or institution concerned possesses the essential characteristics of banking.
19. Having regard to the history of banking, I think a distinction may, and indeed must, be drawn between the receipt of deposits and the making of advances. In an Irish case of 1901, quoted by Isaacs J. in the High Court in the Victorian Savings Bank case, Fitzgibbon L.J. made this point very clearly (In re Shields’ Estate (1901) 1 I.R. 172, 198):
    

    What is the essence of banking? The business of banking, from the banker’s point of view, is to traffic with the money of others, for the purpose of making profit. But from the customer’s point of view, he is a banker ab initio from the moment of receiving the money into his bank; and, in my opinion, the essence of the trade, business or calling of a banker, is not primarily or essentially to be found in the mode in which he disposes of the money which is deposited with him, but in the mode in which he receives the money of others. If he keeps open shop for the receipt of money from all who choose to deposit it with him; if his business is to trade for profit in money deposited with him for that purpose, he answers the description of a ‘banker’; and neither he, nor anyone who deals with him under that name, can deny that he is a ‘banker’.

20. In my opinion, it follows that any institution which holds itself out as willing to receive deposits of money from the public, withdrawable and carrying interest on terms stated, is to that extent carrying on the business of a banker, and should be held within the banking power. If this view is correct, the use to which the institution puts the depositor’s money is not decisive. It may lend it to members, as a building society does, or engage in trade or industry, as some co-operative societies do. Whether the matter is regarded historically and etymologically, or from the point of view of the protection of depositors, a business of this kind should fall within a power over banking.
21. Not all the decided cases are easily reconcilable with this view. But it is expressly in accord with the decision of a Divisional Court in 1891 In re Bottomgate Industrial Co-operative Society (65 L.T. 712). The society was incorporated under an Act which permitted registered societies to carry on trading or industrial activities ‘except the business of banking’. Smith J. said (p. 714):
    

    The business embarked on by the society when it took loans on deposit was in reality a banking business prohibited by the statute. It is not necessary, in our judgment, in order to constitute a banking business prohibited by the statute, that the society should carry on every part of a business carried on by some bankers; it is sufficient to bring the business within the prohibition, if the society carried on what is a principal part of the business of a banker, viz., receiving money on deposit allowing the sums to be drawn against as and when the depositor desires, and paying interest on the amount standing on deposit.

22. Not all the deposits mentioned in the list quoted in paragraph 15 would in my opinion fall within the banking power. The question would have to be determined in the light of the facts of each particular case. Thus I do not think that an insurance company which allowed an insured person to leave the proceeds of a matured policy on deposit with the company until required should be held to be carrying on banking, in that regard. Nor do I think that deposits received as part of the consideration for the purchase of property (as under a hire-purchase agreement) would fall under the heading of banking.
23. In my opinion the implied or incidental powers would not bring within the banking power such deposits as those mentioned in paragraph 22. Even if it could be shown that, without the power to control every kind of deposit carrying interest, the power to control interest rates could not be effectively exercised, that would still, I think, be insufficient. In short, the constitutional power is one over banking, not over interest rates as such. Compare Australian Boot Trade Employees’ Federation v. Whybrow & Co (1910) 11 C.L.R. 311.
24. I turn next to the question whether the banking power extends to loans or advances made by institutions that are not banks strictly so called—building societies, pastoral companies, and the like—or to loans by way of debentures, bonds, mortgages and the like. Here it is necessary to keep clearly in mind the central proposition that ‘banking’ is the business of trading or trafficking in money. I have given reasons above for thinking that to carry on the business of receiving deposits from the public is, pro tanto, to trade or deal in money, no matter to what use the depositors’ money is put. But I do not think it can equally be said that every person or institution that lends money is a trader or dealer in money.
25. The task in each case is to ascertain the real and substantial nature of the business carried on. The question may turn, for instance, on whether a person holds himself out publicly as making loans on security; on the source of the funds lent; on the objects for which an institution was established. The real and substantial business of a building society, for example, is that of promoting the building and owning of houses by the members. The real and substantial business of a pastoral company is (in general) the marketing of produce. The real and substantial business of a firm of solicitors is to carry out professional transactions for its clients. Loans made or arranged by such organisations as these will not bring them, therefore, within the banking power, because in making the loans they are not in substance carrying on the business of a banker. There may be cases,
    
    however, in which advances are made by some of these organisations which would fall within the banking power. A pastoral company, for example, which for the convenience of its clients allowed them to keep current accounts and granted overdrafts on ordinary banking terms would, I think, so far as those transactions are concerned, fall within the banking power. Generally speaking, however, I do not think that the banking power does enable the Commonwealth to regulate directly the interest charged on advances by financial institutions that are not banks strictly so called. It follows also that the banking power would not be available for regulating interest rates on private loans generally, whether secured or unsecured. The observations in paragraph 23 as to the implied or incidental powers apply, I think, equally here.
26. Question (2): How far can the banking power be supplemented, as regards the control of interest rates, by other constitutional powers? The other powers that require consideration in this connexion are those with respect to taxation, with respect to borrowing on the public credit of the Commonwealth, with respect to currency, and with respect to foreign corporations and trading and financial corporations formed within the limits of the Commonwealth (paragraphs (ii), (iv), (xii) and (xx) respectively of section 51).
27. The taxation power could, I think, be used to give a very considerable degree of control over interest rates. Interest could certainly be selected as a distinct subject of taxation, and a graduated tax could be imposed, rising so steeply as to make high interest rates unprofitable. The simplest plan would no doubt be to impose a tax of 100 per cent on all interest in excess of a prescribed rate. But care must be taken, in using the taxation power, not to convert the legislation from a scheme for raising revenue into a scheme for penalising specified conduct: see The King v. Barger (1908) 6 C.L.R 41. I do not think that an Act imposing a tax of 100 per cent on all interest in excess of a specified rate would be upheld. But that still leaves open a large area of control.
28. The scope of the borrowing and currency powers in Australia has not been judicially determined. Even assuming, however, that they enable the Commonwealth to take any measures necessary for the protection of the public credit of the Commonwealth and the national currency, I do not think that these powers would enable the Commonwealth to regulate interest rates generally. The connexion with the objects of the powers would, in my opinion, be held too remote, in normal times at any rate.
29. The scope of the Commonwealth’s power with respect to ‘foreign corporations’ and ‘trading or financial corporations formed within the limits of the Commonwealth’ has likewise not been judicially determined, though it was discussed by the High Court
    
    in Huddart Parker v. Moorehead (1909) 8 C.L.R. 330. Where the Constitution confers power with respect to specified classes of persons, whether natural or juristic (eg aliens, certain corporations, the people of any race for whom it is deemed necessary to make special laws) there is much to be said for the view that any law in the form ‘no alien (or as the case may be) shall’, or ‘every alien shall’ would properly be described as a law ‘with respect to’ the class of persons concerned. In this view, a very substantial degree of control over interest rates generally could be assured merely by prescribing the maximum rates of interest to be paid or received by any corporation—paragraph (xx) of section 51.
30. The matter is by no means free from doubt. The High Court held, by majority, in Huddart Parker v. Moorehead, invalid the provisions in the Australian Industries Preservation Act 1907 which forbade foreign corporations and trading or financial
    
    corporations formed within the Commonwealth to enter into any contract with intent to restrain trade or commerce or to injure Australian industry by unfair competition. Some of the grounds on which this decision rested would not be adopted by the Court today. It may well be that paragraph (xx) would today be given a wider operation than it was in 1909.
31. In a memorandum prepared by direction of the Attorney-General for the Constitutional Conference of 1934, Sir Robert Garran summed up as follows the reasoning in the Huddart Parker case:
    

    The High Court (Mr. Justice Isaacs dissenting) held that the Federal Parliament could not under the corporation power control the behaviour of the companies. The real basis of the decision is that such a law is not really a law relating to companies but a law relating to the subject matter under which the behaviour comes. That is to say in this particular instance, the law purported to control the behaviour of the company in respect of trade. The law was, therefore, not a law in respect of companies but a law in respect of trade, and, not being limited to external and interstate trade, it was held to be beyond the power of the Federal Parliament.

    I think that this is a correct statement of the views of the majority, and that on this point the decision would be followed today. The point was fully discussed by Higgins J. (8 C.L.R. pp. 406–412) in a passage which may, I think, be regarded as indicating the proper approach to the problem. I may add that the reasoning of Higgins J. is in accordance with a number of cases under the Canadian Constitution, where similar problems have arisen: see e.g. Re Insurance Contracts (1926) 2 D.L.R. 204; In re The Insurance Act of Canada (1932) A.C. 41; Quirt v. The Queen (1891) 19 S.C.R. (Can) 510, 522 (Patterson J.).

32. In fine, I do not think the Commonwealth’s existing powers with respect to foreign corporations and trading or financial corporations would enable the Commonwealth to regulate interest rates on loans made to or by corporations of the kinds specified. In my opinion, it is to the taxation power that the Commonwealth must look, in order to supplement the control given by the banking power over the interest charged by institutions that carry on the business of banking.
33. Question (3): If the Commonwealth purported to extend its control to institutions or transactions that are held by the Courts to be outside the area of the Commonwealth’s authority, would the validity of the legislation as a whole be imperilled?

Section 15A of the Acts Interpretation Act is expressly aimed at preserving the validity of so much of an Act as is within the constitutional power of Parliament, when the courts hold that it is so expressed as to include persons or things or transactions which are beyond power. See e.g. Huddart Parker v. Commonwealth (1931) 44 C.L.R. 492. The effect of this section has recently been narrowed by judicial interpretation. Thus in Pidoto v. State of Victoria (1943) 68 C.L.R. 87, the High Court held wholly invalid, despite the Acts Interpretation Act, certain holiday regulations which in terms applied to all workers. The Court agreed that the regulations could validly have been applied to some categories of workers. But it held that the regulations did not supply any means of deciding which of several possible alternative limited meanings the regulations should bear, and it refused to perform itself the essentially legislative function of making this decision. See also Victorian Chamber of Manufactures v. Commonwealth (The Industrial Lighting case) (1943) 67 C.L.R. 413.

34. In principle, therefore, it is clear that the Parliament can apply an Act to institutions or transactions which are held to be beyond power, without imperilling the validity of the Act as a whole. In practice, however, it is not very safe to rely on this rule in the case of merely general expressions, unless the Act can be so drafted as to supply, in the context, some criterion by reference to which the general words may be restricted. The safest rule is to enumerate in separate expressions the matters to be regulated, so that the task of severing the valid from the invalid becomes as nearly as possibly mechanical. The problem is essentially one of draftsmanship, in the light of the particular requirements of each individual case.

Credit policy

35. Question (4): How far does the banking power enable the Commonwealth to control the general policy to be followed by trading banks in making advances?

Control of the general policy to be followed by trading banks in making advances falls in my opinion plainly within the banking power. Contemporary discussions on banking give greater prominence than the older definitions did to the position of the banks as ‘dealers in credit’ (e.g. Hawtrey, Currency and Credit).² But the importance of this aspect of banking was of course fully recognised in 1900: see e.g. H.D. Macleod, The Elements of Banking, 7th Edn. 1904, pp. 146 sqq. In any case, the Commonwealth’s power, as I have explained in paragraph 6 above, is applicable to ‘banking’, without qualification, and is not in any way necessarily restricted to those aspects of banking business which were prominent or were thought to require control in 1900.

36. I understand that the proposal is to require trading banks to act, in making advances, in accordance with general directions given from time to time by the Commonwealth Bank. Whether this requirement is set out in the Act itself or is left to be inserted as a condition in a licence to carry on the business of a banker is, I think, entirely a matter of policy and draftsmanship. The Commonwealth’s power permits either course.
37. Question (5): How far can other constitutional powers be used to supplement the banking power, in relation to the credit policy followed by other financial institutions?

In the present state of business organisation in Australia, I imagine that control of bank credit will probably suffice for all practical purposes. If any further control is needed—as for instance in an emergency period either of deflation or of inflation—I am inclined to think that support for the necessary action could be found in the currency power— paragraph (xii) of section 51. In the long run, the regulation of a modern currency resolves itself largely into the regulation of credit. Though the scope of the currency power has not yet been judicially determined in Australia, I think it may be assumed to include power to deal with factors so closely and directly connected with the circulation of currency as the volume and direction of credit.

Exchange control

38. Question (6): How far can the Commonwealth continue in time of peace the measures of control now included in the National Security (Exchange Control) Regulations? In particular, how far can the Commonwealth continue in time of peace the following list of measures, deemed necessary for a complete overseas exchange:
    
    1. control of exports, including not only goods but securities;
    2. control of both the sale and the export of gold;
    3. control of the purchase, sale, borrowing, lending or exchanging of foreign currency by banks, by financial and trading institutions, and by other members of the community, including control of the exchange rate;
    4. control of contracts (for the purchase of goods or otherwise) whereby a right to receive payment is established in favour of a non-resident of Australia;
    5. control of the despatch of currency (Australian and foreign) from Australia;
    6. control of payments by residents not included in (c) above, in connexion with the receipt of payments of the requisition of property abroad;
    7. control of dealings in Australia with the assets of non-residents;
    8. control of dealings in, and power to acquire, foreign currency accruing abroad to residents of Australia;
    9. similar control with regard to other assets held abroad by residents of Australia?
39. Exchange control, as such, is not one of the Commonwealth’s enumerated legislative powers. The transactions concerned are of many different types, and no single power would suffice, in my opinion, to include them all. Several different powers, however, are available for the purpose. The inclusion of exchange control measures in a Banking Act, for instance, does not mean that only the banking power can be relied upon to support the validity of the measure: Ex p. Walsh and Johnson (1925) 37 C.L.R. 36. For present purposes, the following powers seem to be relevant, in addition, of course, to the banking power: trade and commerce with other countries (paragraph (i) of section 51); borrowing on the public credit of the Commonwealth (paragraph iv); currency and coinage (paragraph (xii)); bills of exchange and promissory notes (paragraph (xvi)); and external affairs (paragraph (xxix)). The Australian economy is so closely linked with the British, the Australian currency is so closely linked with sterling, the maintenance of adequate funds at the disposal of the Commonwealth for servicing the overseas debt is so important an element in Australian policy, that I should expect the experts to take a broad view of the powers necessary for securing exchange control and stability.
40. I do not think it is necessary to deal seriatim with each of the transactions listed in paragraph 38. It is perhaps sufficient to say that, with certain exceptions which seem to me of a minor character, they are all, in my opinion, probably within power.
41. In my opinion, the Commonwealth’s power would not normally extend to control the transactions mentioned in paragraphs (h) and (i) of this question, and would not extend to all of the transactions covered by paragraph (d).
42. As I understand the matter, paragraphs (h) and (i) contemplate the possibility of controlling any dealings by Australian residents with foreign currency or any other assets accruing to them abroad otherwise than as the proceeds of exports from Australia—e.g. by way of legacies, or of dividends in overseas companies. I do not think that either the banking or the overseas trade or the currency power would normally authorise the Commonwealth to control transactions of this kind. But I understand that the power proposed would not be used except in an emergency, and then as part of an attempt to mobilise all the overseas funds available to the Australian people, in order to ensure the service of Australia’s overseas debt, and the stability of Australia’s monetary system in relation to the other systems. It may well be that, in an emergency, the Commonwealth could establish a direct and substantial relationship between control of this kind of foreign asset on the one hand and the objects, on the other hand, contemplated by such powers as those with respect to currency, borrowing on the public credit of the Commonwealth, and even external affairs. The decisions of the Supreme Court of the United States upon the scope of the commerce power have shown that the validity of law may well depend on matters of degree and questions of fact. It may well be therefore that power to control the transactions mentioned in paragraphs (h) and (i) of this question could validly be conferred if their exercise was limited to conditions of financial emergency. But the matter is by no means free from doubt.
43. Paragraph (d) of this question runs as follows:
    

    (d) control of contracts (for the purchase of goods or otherwise) whereby a right to receive
    
    payment is established in favour of a non-resident of Australia …

This paragraph includes some transactions which would unquestionably be within power—e.g. the control of contracts for the purchase of goods for importation. The overseas trade and commerce power would cover such agreements as these: McArthur v. Queensland (1920) 28 C.L.R. 530 (later overruled by the Privy Council but on this point unaffected). But the paragraph would also include such transactions as the purchase from a non-resident of a right to manufacture goods in Australia, with consequent payment of royalties. I do not think that any of the Commonwealth’s powers would extend to the control of the agreement itself in a case like this—though of course the necessary payments under a such an agreement could only be made in accordance with the relevant Commonwealth Law.

44. The Commonwealth’s power with respect to aliens, with respect to foreign corporations, and with respect to trading or financial corporations formed within the Commonwealth should perhaps be mentioned. I have given reasons, however, in paragraphs 29–32 above, for the view that for such purposes as those under discussion these powers are of little avail.

Trading bank reserves

45. Question (7): Can the Commonwealth require trading banks to deposit with the Commonwealth Bank their surplus investible funds, as is now done under the ‘special account’ system established by the National Security (War-time Banking Control)
    
    Regulations?

In my opinion the answer to this question is ‘Yes’. To require trading banks to maintain minimum reserves at a central bank is a recognised feature of central banking practice. The power to impose such a requirement is, therefore, to be found in paragraph (xiii) of section 51. The practice required under the National Security (War-time Banking Control) Regulations differs in form, but not I think in substance, from the deposit of minimum reserves at a central bank. The difference raises questions of policy, but not of constitutional power.

46. Question (8): Does the exercise of this power involve an acquisition of property within the meaning of paragraph (xxxi) of section 51 of the Constitution?

In my opinion the answer is ‘No’. I think that under the ‘special account’ system the Commonwealth Bank probably does acquire property, just as a banker does when he receives an ordinary deposit. I think also that an acquisition by the Commonwealth Bank should probably be regarded as an acquisition by the Commonwealth itself. I do not think, however, that a law providing for a ‘special account’ of this kind is in substance a law ‘with respect to the acquisition of property’. In my opinion, paragraph (xxxi) of section 51 does not apply to such a law, any more that it does to provisions such as those of the Customs Act or the Crimes Act which declare that certain property in relation to which an offence has been committed shall be forfeited to the Crown. As I understand it, the substance of the requirement is not to provide for the Commonwealth Bank assets from which it can itself derive commercial advantages, but to sterilize, in the interests of a stable monetary system generally, a proportion of the assets of trading banks. It is in the nature of a requirement to give security for the proper conduct of banking business. This legislation is, I think, on all fours with section 10 of the Insurances Act 1932, requiring all persons carrying on life insurance business in the Commonwealth to deposit with the Treasurer money or approved securities to a prescribed value.

47. Similar questions have arisen under the Constitution of the United States, which goes even further than does the Australian Constitution in establishing safeguards in the interests of the owners of private property. The Fifth Amendment enacts that no person shall be deprived of life, liberty or property without due process of law, nor shall private property be taken for public use without just compensation. The Supreme Court of the United States has held that laws under which restrictions were placed upon an owner’s use of property, or even under which property passed to the Government, for the purposes of promoting the public health or welfare or of suppressing a social evil, were in substance an exercise not of the power to ‘eminent domain’ but of the ‘police power’, and therefore did not contravene the Fifth Amendment. See e.g. Penne. Coal. Co. v. Mahon (1922) 260 U.S. 393; Samuels v. McCurdy (1924) 267 U.S. 188; Springer v. Phillippine Islands (1927) 277 U.S. 189, 209–10 (Holmes and Brandeis J.J.); Leonard & Leonard v. Earle (1928) 279 U.S. 392; notes on the I (USA) in 47 Harvard Law Review 479 sqq; Willis, Constitutional Law, p. 406, a. 179.³ A similar line of reasoning under our own Constitution should, I think, sustain legislation continuing the ‘special account’ system in time of peace.
48. Question (9): If the law providing for the ‘special account’ system does involve an acquisition of property within the meaning of section 51(xxxi), are the terms provided by the War-time Banking Control Regulations ‘just terms’ within the meaning of that paragraph?

In the view I have taken of the preceding question, this question does not really arise. If, however, paragraph (xxxi) were held to apply to law for continuing the ‘special account’ system, I do not think the High Court would uphold a provision enabling the Commonwealth itself to be the sole judge of what the compensation shall be.

49. Question (10): Would the same consideration apply to a requirement that the trading banks should maintain a prescribed minimum reserve at the Commonwealth Bank?

I think the answer is ‘Yes’. There seems to me to be no difference whatever from the point of view of constitutional power.

I am fortified in the conclusion I have reached as to the legal position of the ‘special account’ system by the fact that in the United States, under the Federal Reserve system, member banks have for 30 years been required to maintain at the Federal Reserve Bank a prescribed minimum reserve. So far as my investigations have gone no member bank has ever challenged this requirement as an infringement of the Fifth Amendment—i.e. as depriving banks of their property without just compensation. This absence of challenge is the more significant since, prior to the establishment of the Federal Reserve system, the banks were in the habit of maintaining minimum reserves with other private banks and depriving interest therefrom, while under the Federal Reserve system no interest is payable by the Federal Reserve Bank.

50. In the foregoing paragraphs, I have of course confined myself exclusively, as the Treasurer’s questions required, to the normal peace-time powers of the Commonwealth. In time of war, the position is entirely different. So long as the war lasts, and no doubt for a period afterwards, the duration of which it is impossible to foresee or state exactly, the defence power will give to the Commonwealth a virtually plenary authority over Australia’s financial resources. ⁴

[Vol. 36, p. 344]

1. This date is attributed. See footnote 4 below.
2. Hawtrey, RG 1919, Currency and credit, Longmans, Green and Co, London.
3. Willis, HE 1936, Constitutional law of the United States, The Principia press, Bloomington.
4. This opinion is unsigned in the Opinion Book and is annotated with a hand-written note as follows: ‘This opinion was not signed. A copy was sent by the A.G. to the Treasurer on 8/2/45, marked “Confidential. For the Treasurer.”’