These deposits are received both in India and in London; but it is a principal object of Exchange Banks to obtain as much as they can in London, and they seek to attract such deposits by offering better terms than an English Bank will allow. So long, therefore, as the gold is freely available either in India or in London for the support of exchange, it is unlikely that it can be withheld from the London Money Market if this Market really wants it. The board of directors would almost certainly be demoralised by having to choose a sovereign, and there is no certainty, nor any great likelihood, indeed, that they would choose a good one. The Private Banks. The magnitude of this reserve is within the discretion of the Indian Government. If, however, the stock of rupees in the reserves is running low (for a considerable quantity of rupees must always be kept there in order to ensure the ready convertibility of the notes in terms of rupees), and more Council Bills are sold in London than can be conveniently cashed in Calcutta in the above ways, more rupees must be issued from the Mint. These were cashed in London from the proceeds of selling securities from the Gold Standard Reserve. 3–29/32d. ) Cash, etc. This is not an expectation upon which it would be prudent to act.
But now the London bankers have another relation to the Bank which did not then exist, and was not then imagined. And there is this excuse for the Bank. The holders of the Bank reserve ought to lend at once and most freely in an incipient panic, because they fear destruction in the panic. Nothing but their immense misfortunes, nothing but a vast loan in their own securities, could have extracted the hoards of France from the custody of the French people. When in 1900 the accumulations reached £5,000,000, attempts were made, in accordance with the recommendations of the Fowler Committee, to force it into circulation.
, the model instance of all evil in business, is a most alarming example of this evil. The matter would come shortly to this: a great number of brokers and dealers are under obligations to pay immense sums, and in common times they obtain these sums by the transfer of certain securities. I am inclined to think that the second of these two policies is the better—though it is plainly a matter on which it is not possible at present to see one’s way clearly. And in March the Post Offices in the Presidency towns began to give gold in payment of money orders, and the Presidency Banks were requested to issue sovereigns in making payments on Government account. In these circumstances, a low rate of interest, long protracted, is equivalent to a total depreciation of the precious metals. 100,000 L. Thus the second provision prevents the sterling value of the rupee from rising above 1s. And the history of banking has been the same.
But this reduction would not be permanent.
It will be useful to know in what way this method has grown up. Hankey should have observed that we know by the published figures that the joint stock banks of London do not keep one-third, or anything like one-third, of their liabilities in ‘cash’ even meaning by ‘cash’ a deposit at the Bank of England.