The remaining element which determines the cost of remittance—variation in the market rate of interest—has been

If we refer to history, and examine what in fact has been the conduct of the Bank directors, we find that they have acted exactly as persons of their type, character, and position might have been expected to act.

This explanation is borne out by the fact that there is a steady demand for sovereigns from the Government’s reserves during the summer months. And until we have on this point a clear understanding with the Bank of England, both our liability to crises and our terror at crises will always be greater than they would otherwise be.

Too much reserve only means a small loss of profit, but too small a reserve may mean ‘ruin. Up to 1844 bank notes showed a tendency to become a formidable rival to gold as the actual medium of exchange.

But those who keep immense sums with a banker gain a convenience at the expense of a danger. The peculiar essence of our banking system is an unprecedented trust between man and man: and when that trust is much weakened by hidden causes, a small accident may greatly hurt it, and a great accident for a moment may almost destroy it. A powerful body of opinion, led by the United States, favours the immediate introduction of a gold standard on the Indian model.

On the other hand, the objections to a policy, which divided the country up for the purposes of paper currency, are also plain. For obvious reasons of convenience and of economy the greater part of the Indian circulation must continue in any case to consist of rupees. A further amount might be held, as at present, permanently invested in Government of India securities.

Of course if the Act of 1844 really were, as is commonly thought, the _primum mobile_ of the English Money Market, the source of all good according to some, and the source of all harm according to others, the extreme irritation excited by an opinion on it would be no reason for not giving a free opinion. But it is of great importance to point out that our industrial organisation is liable not only to irregular external accidents, but likewise to regular internal changes; that these changes make our credit system much more delicate at some times than at others; and that it is the recurrence of these periodical seasons of delicacy which has given rise to the notion that panics come according to a fixed rule, that every ten years or so we must have one of them. This policy may not save the Bank; but if it do not, nothing will save it. In Germany the policy of 1876 has been deliberately reversed by a recent revision of the Bank Act, and 20–mark notes are now issued with the deliberate object of keeping as much gold as possible in the bank and wasting as little as possible in circulation. . A precise diagnosis of the causes of the unwillingness on the part of the Banks to buy Council Bills is not necessary, however, to the lesson I seek to enforce. The mode in which the Bank of England meets this great responsibility is very curious. ‘ To our modern ears these words seem to mean more than they did.

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