It is necessary for the Banks to hold a considerable proportion of these in cash at the branches in question, and this arrangement makes the cash held against the private deposits appear in a somewhat more favourable light than it should. A more distinct view of abstract principle must be taken before we can fix on the amount of the reserve which the Bank of England ought to keep. For many years no attempt at note issue or deposit banking was possible in France. We have often insisted in these columns that the Bank of England does keep the sole real reserve–the sole considerable unoccupied mass of cash in the country; but there has been no universal agreement about it. Thus the annual income, derivable from the interest on the sums set free by the use of cheap forms of currency, amounts already to about £1,000,000.
From the profits of rupee coinage a reserve has been built up expressly for the purpose of supporting exchange. This question is further discussed in Chapters VI. Various suggestions have been made as to what restrictions would be proper. But Charles II. In consequence, the one skilled counsellor would in fact rule the Bank. In old times this was impossible; the Bank of England had a monopoly in banking of the principle of association. All which a banker wants to pay his creditors is a sufficient supply of the legal tender of the country, no matter what that legal tender may be. _Rupee Reserves_ are held partly in the Currency Reserve, partly in the Gold Standard Reserve. But the currency of a small state, such as Genoa or Hamburgh, can seldom consist altogether in its own coin, but must be made up, in a great measure, of the coins of all the neighbouring states with which its inhabitants have a continual intercourse.
The Government, therefore, did what it could to make the notes useful and popular for purposes other than those of remittance; and it facilitated remittance so far as the proceeds of taxation, accumulating in its treasuries, permitted it to do this without expense. The fear is that if one of these mushroom growths fails, others will follow, and the timid depositor, unable to discriminate between the sound and the unsound concerns, will make haste to get his money back from whatever Bank it is in, and his confidence in banking institutions thus rudely checked will take years to win back. Before leaving this topic I wish to emphasise, in close connexion with it, a special reason why it is so important to develop the use of notes in India at the present time. These are the relevant considerations.
And lastly, the Paper Currency Act of 1910 bound the Government to issue notes against the tender of British gold coin. The fever of excitement which passed over the nation was strongest in the classes to whom banks lent most, and consequently the losses of even the most careful banks (save of those in rural and sheltered situations) were probably greater than usual.
Partly from this cause, and partly from others, there are whole districts in England which cannot and do not employ their own money.