Its course would be very simple, and be analogous to that of other public bodies in

That instrument is the elevation of the rate of interest. The greatest stress is commonly placed on the first of them—the trade balance. In this matter of the use of cheques Great Britain has been followed by the rest of the English–speaking world—Canada, Australia, South Africa, and the United States of America. The largest account at the Bank of England is that of the English Government; and probably there has never been any account of which it was so easy in time of peace to calculate the course. 4d. 4d. These illustrations show that what seems a very small fluctuation in exchange can account for a very wide difference in the rate of discount; and, apart from questions of unequal knowledge and unequal security, it is this possibility of fluctuation that makes distinct markets of the two centres. And we must at once see whether this opinion is true or false, for it is absurd to attempt to estimate the conduct of the Bank of England during panics before we know what the precise position of the Bank in a panic really is. 3–31/32d.

A machinery ought to be set up, therefore, by which further funds, accumulating in the hands of Government through the increased use of notes, may be used in India to afford the needed elasticity in the seasonal supply of currency. Gold was the sole standard of value; it circulated freely from hand to hand; and it was freely available for export. In our common speculations we do not enough remember that interest on money is a refined idea, and not a universal one. In two matters only does the Government use a discretionary power. What was the effect on the Government Balances in India? The ordinary method, by which the rupees accumulating in the Reserve Treasuries from the proceeds of taxation are quickly released and given back to the Money Market, the encashment, namely, of large volumes of Council Bills, had failed. But there is a presumption, I think, that, in the absence of a State Bank, they must be made, mainly if not entirely, through the Presidency Banks.

The easiness of the internal money market at that time and the total absence of banking trouble have produced the impression that there will be plenty of rupee funds available at a crisis, and that the only question will be as to whether the Government can turn these into sterling. The following quotations from the reports (collected in 1911–12 by the Comptroller of Currency from districts in the Punjab), referred to above, illustrate the point that gold is preferred to silver because it is more convenient to carry, and that notes are distrusted because there is no universally spread assurance of their ready convertibility. The custom and convenience of the people justify this, so far as concerns payment in small sums. Under such circumstances, the London and Indian Money Markets would become practically one market, and the large differences which can now exist between rates current in the two centres for loans on similar security would become impossible.

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