The Royal Commission Into the Monetary and Banking Systems in Australia, 1935–1937

ABSTRACT Australian governments of the 1930s were less inclined to establish royal commissions than their predecessors in the 1920s, and few of the 1930s inquiries were of great moment. The exception was the royal commission appointed by the Lyons Government to inquire into the monetary and banking systems in Australia in 1935. Prime Minister Joseph Lyons's decision to have a banking inquiry was made reluctantly in response to political pressure from the Labor and Country parties, and he probably hoped that the apparently cautious commissioners would generally endorse the status quo in the banking system. The result, however, of the commissioners' painstaking and conscientious examination of officers of the Commonwealth Bank, private bankers and economists was one of the most important of Australian royal commissions. This was because the evidence and the report laid out a compelling case for enabling the Commonwealth Bank of Australia to conduct monetary policy through the Special Deposits system. This article traces the reasons for the establishment of the inquiry, the value of its proceedings and report and the struggle of non‐Labor and Labor governments to implement its main recommendation. The historical importance of the commission was the critical role it played in devising the instrument by which the central bank could conduct monetary policy in Australia from the 1940s to the 1980s.