But beyond withdrawing from the market he took no further steps for the support of exchange. It is not astonishing that the centre of power in these matters has tended to gravitate to the India Office and the India Council in London. ” No special security was taken from the Banks for the sums thus lent to them. The peculiarity, indeed, of the effects of the one reserve is indeed even greater in this respect. The bankers are pretty sure to keep them there, just because they must keep a reserve, and they consider it one of the best places in which to keep it. Hankey, one of the most careful and most experienced of them, says in his book on the Bank of England, the best account of the practice and working of the Bank which anywhere exists–‘I do not intend here to enter at any length on the subject of the general management of the Bank, meaning the Banking Department, as the principle upon which the business is conducted does not differ, as far as I am aware, from that of any well-conducted bank in London.
In the new world of Joint Stock Banks outside the Bank of England, we see much the same phenomenon. What is the underlying significance of this growing tendency on the part of European State Banks to hold a part of their reserves in foreign bills or foreign credits? We saw above that the bank–rate policy of the Bank of England is successful because by indirect means it causes the Money Market to reduce its short–period loans to foreign countries, and thus to turn the balance of immediate indebtedness in our favour.
This point is important, for it is often assumed in controversy regarding the currency and its relation to prices that the issue of rupees into circulation depends in some way upon the amount of Council Bills sold by the Government, and can, therefore, be expanded or contracted by them at will, according to the policy of the moment. ‘Are not both sets of bills by this means under discount?–No, the bills received from one part of the country are sent down to another part for discount.