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IViaps, plates, charts, etc., may be filmed at different reduction ratios. Those too large to be entirely included in one exposure are filmed beginning in the upper left hand corner, left to right and top to bottom, as many frames as required. The following diagrams illustrate the method: Les cartes, planches, tableaux, etc., peuvent dtre film6s d des taux de reduction diffdrents. Lorsque le document est trop grand pcur dtre reproduit en un seul cliche, il est filmd d partir de Tangle sup6rieur gauche, de gauche d droite, et da haut en bas, en prenant le nombre d'images nicesssire. Les diagrammes suivants illustrent la mdthode. 1 2 3 1 2 3 4 5 6 THH / BANK OF ENGLAND ANI> THE A.CT OF 1844 Reprinted from the " Canadian Monthly <.i,id National Review^' for March, 1873 /y .^-(^j -vTV.^^--^^ /^-^^ OTTAWA : Printej) by I. B. Taylor, 2y, :^1 & 33 Rideau Stbmt. 1873. THE BANK OF ENGLAND AND THE A^Vrv OF 1844. Reprinted from the " Canadian Monthly and National Remew," for March, 1873. 1. 1 OTTAWA : Printed by I. B. Taylor, 29, 31 & 33 Ridbad Stbikt. XS73. PREFACE. The following reinaiks suggested l)y tlie perusal of a pamphlet entitled " The Bank of England : a statement of its Constitution and " of the principles and results of the Act of 1844, with suggestions " for amendments rendered necessary by altered circumstances," are submitted with great diffidence, by one who labours under the disad- vin%ge of not being lesident in the United Kingdom, and who has had veiy limited opportunities of obtaining statistical information on the interesting subject whicli he has ventured to treat. His firm conviction is that the ft^arful collapses that have occurred in England, and which have been erroneously attributed to tlie Bank Act of 1844, have been owing cliiefly to the inadefjuate reserves of bullion or Bank of England notes held by the Banks of Discount and Deposit in the United Kingdom to meet their liabilities payable on demand. Bankers are always strongly tempted to keep their cash reserves at a minimum, and in England it has become haV)itual, not only with Bankers but with Merchants, to I'ely on the Bank of England. It may be difficult or perhaps impossible to change that system, and it therefore seems indispensable that the bullion reserve of the Bank of Issue should be so htrengthened that it would be enabled, without violating the i)rinciple of the Act of 1844, to assist the Banking department in times of stiingency, and when the rate of discount should have reached 8 per cent. Under proper restrictions such tem- porary loans on Government securities might be sanctioned by law, and this would be the most simple and satisfactory mode of solving the difficulty which, under existing circumstances, seems likely to occur periodically and at not very long intervals. THE BANK OF ENGLAND AND THE ACT OF 1844. It is now ueai'ly 30 years since Paxiiaiuent, oii the iecommemlatioii of the late Sir llobert Peel, detineil the ]!rincii)les on which a uational currency could safely be established. The meaHure vvas an imperfect one, inasmuch as it permitted the continued issue of Bank not(!S by J*]nglish Private and Joint Stock Banks, and by Scotch and Irish Banks,*' though under such restrictions as have prevented the redundant issues of forniei years. The Scotch issues have been recently made the subject; of discussion owing to some important utterances of the Chancellor of the Exche- quer (Mr, Lowe). A memorial was addressed to him \ty the Glasgow Chamber of Commerce, praying far the repeal of the Bank Act of 1845 which confei-s a monopoly in Scotland on certain Banks which were in existence at the period of its enactment. Mr. Lowe availed himself of the opportunity to declare his adherence to the piinciplo of the Bank Act of 1841: in the following words: *'It is genemlly " recognized that the issue of bank notes is the creation of money '' and that the creation of money is the business of the State, not of " any trading association ; hence it follows that the issue of such " notes by private banks is rather an axionialy which we may tolerate, '' than a right which we ought to extend. A mixed currency coni- * posed partly of the precious metals and partly of paper cannot be " in a sound condition unless it complies with the three following ** conditions, first the paper must be convertible into gold on demand, *' second, sufficient security must be held by the issuers to secure the " payment of the rotes, third, mixed currency must be at all times " exactly of the same amount and consequently of the same value as " a p\u-ely nujtallic currency v ould be." These remarks of Mr. Iresent stsite of public opinion ill Scotland and Ireland. Mr. Lowe, when he declared that tho Scotch and Irish issues were " an anomaly, 'v^hich we may tolerate," indicated pretty plainl}'^ that he was not prepared to take the bull by the horns and suppress Bank issues in Scotland and Ireland, giving the Banks enjoying the existing mcmopoly a reasonable compensation for their loss. The second remedy, and which would be foxiud effective, would be to make Bank of England notes a legal tender in Scotland and Ireland, but to require the Bank of England not^to establish Branches in those parts of the United Kingdom. The Banks might be permitted to hold the amount issued in excess of their authoiized circulation in gold or in Bank of England notes, and as those notes ?o\dd only be olitained in exchange for gold, the practical effect would be that the gold now held by the Scotch and Irish banks, and which amounts to sevenil millions, would be sent to where it is really wanted, that is, the Bank of England, and the gold reserve of ' that Bank would be materially increased. It is to \e regretted that the op[)ortunity M'as not takeri when the Act of 1844 was passed to establish a t;!overnment Bank of Issue in nam«, as was done in reality. Had that change been made, the public wotdd have understood more clearly than they ever appear to have done that, at three different periods, > iz :— October, 1847, November, 1857, and May, 1866, the iirincipal English Bank of Discount and Deposit was unaV)le to meet its liabilities "and was only saved from stopping i)iiyment by the intervention of the Government." * That in- tervention no doubt was justifiable muler the circmnstances, but it affords no i»roof whatever tliiit the Act of 1844 was a failure. It never entered the imagination of Sir Kobert Peel or of Lord Overstone tiiat it wx)ul(' l)e i>ossible to secure, by an Act of Parliament, the prudent * "N's"EB8ay. uiHt bo )n that )ngland i-o it is ;ch and I point. ." No>*' ! by the HO niucli opinion a Scotch ndi(!ated orns and enjoying SH. The ke Bank re(jnive e United issued in England gold, tlie and Irish 1 where it reserve of n the Act , L naniH, as lie wotdd lave done bar, 1857, d Deposit ved from ' That in- ;e8, but it dhire. It Overstone lie prudent mnnaj;(oment of a Bank of Discount and Doposit. Tlicir intenil(»n was to secure the con\ irtibility into ^oM of bank notes which had been made a les[al tender by Act of Parliament. Now so far from their Iiaving faihul in their object, the ^oM in tlio Bfink of Issue was, at eacli of the periods referred to, so ample, that the Gov- ernment w»i8 able to autliorize it to make loauj^ to the Bank of Dis- count and Deposit, winch, under similar circumstances, it would pro- bably have made, had it been nominall}' as it was in reality, the issuer of the notes. On the American Continent the GovernmeuL of the United States and the Government of Canada are issuers of notes which, like those of the Bank of England, are legal tenders. Owing to a very erroneous financial policy, the former are at present irre- deemable, but they are nevertheless held by the National Banks of the Union as their reserves. The C'anadian Dominion notes are redeemable in gold, and are issued on much the same princijile as those of the Bank of England. Now if any Bank in the City of Now York or in the City of Montreal were to find itself unable to m«)et the demands of its depositors or noteiiolders, and was compelled to aj>ply for aid to the Government of the United States or the Gov- ernment of the Canadian Dominion, its case would be precisely ana- lagous to that of the Bank of England at tlie different periods to which reference has beom made. The Act of 184:4 has, on the whole, worked so admirably, that it is only after periods of monetary collapse or of anusual stringency, causing a high rate of interest, that efforts are made by its op])onents to influence public opinion to demand its repeal. Notwithstanding the want of success wliich has hitherto attended thoso efforts, a writer of high and acknowleilged i-eputation, whose well known signature "N" should command both attention and respect, has given it as his o]>inion, in an essay offering "suggestions " for amendments in the Act rendered necessary by altert < circura- " stances," that " the reunion of the functions of Banking and Tssu(^ " as they existed prior to the ])iissing of tlie Act is a change which " will happen sooner or later." He adds " a new generation is grow- '* ing lip to whom the currency controversies of thirty years ago are " mattei-s of history or tradition, who will lieyond doubt be guided " by results only." It is for the supporters of the Act of 1844 to grapple with the arguments adduced to prove that '• the results " of that Act have been 8 injurious to the iniV)lic. It may be admitted that the essay undei' consideration contains valuable suggestions for the management of the Discount and DepoRit department of the Bank of England, but it fails to establish the n'xjesiity of entrusting to that department tho duty of issuing the notes which constitute a large portion of the national curi-ency. The term "national currency" is here used to designate that mixed currency of gold coin and Bank of England notes redeemrtble in gold, fluctuating in amount precisely as gold would do, and like gold a legal tender in England to any amount. Such a currency may properly he described as money. It measures the value not only of all commo- dities, but of the various forms of credit, such as ordinary Bank notos, cheques, bills of exchange and promissoiy notes, some or all of winch ai-e termed cui-rency by jcientiric writers. It is not contemplated to discuss here the question so long controverted, whether Bankers' notes payable on demand should be suppressed. That the credit system has great influence on prices cannot l)e denied, though it is contended by some eminent writers tiiat the expansion of credit which precedes a collapse, jnsiderable expan- sion of credit iu the form of cheques^ so that little public inconvenience has resulted from it, although the permission to certain Banks to issue notes while others are prohibited, is an anomaly which is rather to be deplored. It may be feared that notwithstanding the concui-renc^' of opinion between the supporters of the Act of 1844 and those of its opponent ,, who, like "N,"{\ro in favour of securing the convertibility of l)ank notes into gold, there are wide difterences betwetni them as to the objects 9 to be attained by tlic circulation of sncli notes. Theie can be no doubt that the principal objection to the extension of the Act of 184:4 tc Scotland and Ireland was founded on the inconvenience tliat the public would have sustained by the withdrawal of the accommodation which the local Banks had been enabled by their ciiculation to afford to their borrow- iug customers. It is hardly probable that the author of the essay under consideration contemplates the extension of the Scotch and Irish system to England. He would still permit t)ie Brjik of England to furnish the national currency, provided the two departments were reunited. Tiie supporters of the Act of 1844 hold the opinion that a bank note currency is required for the convenience of the public, and that it ruay likewise be made profitable by economizing the use of gold. They maintain that the profit derived from it should accrue to the Nation, This was practically accomplished by the Act of 1844. The Bank of England notes are secured by a Government loan and by gold,, and are not employed in the ordinary bubiuess of Banking as are the Issues of Ouher banks. If the Issue department had been transferred to the Royal Mint, the notes would have been secured in precisely the same way. It may fairly be contended that the nation gets the {nil benefit of the circulation, indirectly, but even, admitting the con- trary, the Act was necessarily one of compromise. In considering the "results" of the Act of 1841, care should be taken not to make the Issue department responsible for any errors committed by the Bank Directors in their management of the Bank of Discount and Deposit. It is not alleged that the Issue department was ever in danger or difficulty, and it would be wholly impossible that it ever could be if the Government debt were represented by negotiable securities. Strong arguments might be adduced in support of the principle on which the Bank issues were regulated by the Act of 1844, and which is thu^ defined in the essay : '•' That to prevent mischief it is necessary that " the amount of papei money (bank notes) must at all times fluc^ " tuati^ in precisely the same way as a circulation purely metallic " would fluctuate under the same circumstances." It may, however, be desirable for the sake of the present argument to admit that there is no absobite necessity that the amount of paper money should fluctuate in precisely the same way that a cii'culation purely metallic would fluctuate. In point of fact, so long as the convertibility of the bank note is secured by law, the inevitable result of a foreign demand for 10 gold must be a i-eduction in the amount of notes in circulation. The term "cii'culation " is hero applied to all notes, which have been de- livered from the Issue department. A considerable amount of this circulation is held by the Banking department, which, as is correctly stated in the essay under consideration — "Has come to discharge a '' national function of the most important kind, namely, aa custodians " and maintainors of the national bullion reserve or fund, and out of " this circumstance there is gradually arising a practical difficulty." It may be that the Bank of England has unwisely -andertaken the discharge of a duty which in other countries is performed by the banking institutions generally. It is not necessary that the Bank of Deposit should be the custodian of the " national bullion reserve or fund;" indeed, that department rarely holds any bullion, and there is no reason why •'* Bank A" instead of maintaining £200,000 at its credit in the Bank of England should not hold the samo amount in its own vaults in gold or in Bank of England notes. It may be instructive to point out the working elsewhere cf a system not materially different from that in operation in Fngland. There ia, as already stated, a note circulation in Canada issued by the Domi- nion Gov^emment and secured by debentures of the Dominion, gold, and bank certificates of deposit. The amount held in debentures is fixed by law, on the same princii)ie as that adopted in the Act of 1844. but the excess over that amount may be in gold or in bank certificates of deposit, piovided 35 per cent, is held in gold. Canada is exposed like other countries " to a demand for bullion to meet an " adverse foreign exchange," and it might be imagined, by those who are accustomed to the English system, that it would be found conve- nient that there should be a single custodian of all the Banking reserves. Not only is this not the case, but the principal Banks hold a large portion of their reserves in gold. All properly conducted I'anks should hold, either in gold or in notes convertible into gold on demand, a sufficient reserve to meet the calls of depositors, and, where they are banks of Issue, to redeem their notes. The capital error in the English system is that the I^ndon Banks and Bill Brokers hold the reserves of the country Banks; that they probably treat these reserves as ordinary deposits, requiring only a proportionate reserve on theii- own part, and a gi-eat portion of that mserve, together with the reserves to meet their liabilicies to their ordiiiAi7 deijositoi-s, instead i I 11 of being held for its legitimate object Ls deposited in the Bank of England. It must be obvious, considering that the bankers' deposits in the Bank of England represent the reserves both of the London and^the country Banks, including a lai'ge portion of those of the Scotch and Irish Banks of Issue and Deposit, that the Bank should hold in gold or Bank of England notes very close on the full amount deposited by the London bankers. That it not only does not do this, but that it holds a very insufficient reserve, is proved by the fact that, in 186G, "the reserve of the Banking department in London ** was little more than half a million, and unless the Act had been " suspended it would have been compelled to stop payment, as cheques " for se 'eral millions were drawn ready to be presented for payment."^ This difficulty obviously arose from the insufficiency of the reserve held by the Banking department, but the system pursued is a most unsafe one. There are no doubt adequate reasons for the country banks keeping their reserves in London, but the very '"act that thej"^ are obliged to do so renders it only the more necessary that the London banks should keep their reserves in their own possession. A strange proposition is made in the Essay luider consideration, viz. : that the Government should pay the Bank 3 per cent per am urn interest on all reserves held beyond a prescribed amount. It may be admitted that it is unreasonable that the Bank of England should hold the reserves of all the London Banks gratuitously, and it is clear that it is unsafe for them to loan such reserves to the public, but the proper remedy would seem to be for the banks to pay the Bank of England a fair commission for its trouble in taking charge of their money. It would be a simple matter of business, aud any Bank objecting to the charge could keep its own money. Reference having been made to the Canadian Banks, it may be worth observing that, according to a recent monthly statement of 22 banks in the Provinces of Ontario and Quebec, the aggregate liabilities payable on demand, deposits requiring notice not l)eing taken into account, were in round figures $60,000,000 or £12,000,000 sterling, of which. $25,000,000 or £5,000,000 consisted of notes in circulation and $32,500,000 or £6,500,000 of deposits payable on demand, while they held in gold and notes $16,626,583, over £3,300,000 sterling, or more than 25 per cent. In addition to these cash reserves they heUl * "N's." Essay. 12 .1 in the hands of foi-eign agents nearly ten 'millions of dollars, or £2,000,000 sterling, and as Bank Exchange can be speedily converted into gnlr , this branch of the bank assets may fairly be considered a cash reserve. In the national banks of the United States, reserves are held in legal tenders to an amount rarher over than under 25 per cent, cf the liabilities i)aya'jle on demand, including the bank notes issued, which amounted in 1866 to about $300,000,000 or £60,000,000 sterling.'"' These notes are not only redeemable in Gov- ernment legal tender notes, but are fui'ther secured by deposits of United States .securities to the extent of $322,000,000. It is to be regretted that so little information can be obtained as to the liabili- les of English Bankers, with the exception of the bank issues. These are a very insignificant portion of the aggregate cash liabilities. In round figures the English, Scotch and Irish private and joint stock banks issue I'ather less than £20,000,000, and the Bank of England about £37,000,000. It seems objectionable to deduct the notes held by the Banking department from the circulation. It is obviously impossible to ascertain the amount of notes really iu honvL fide circulation, but surely the bank notes held by the London and Westminster, and other joint stock and private banks as cash reserves are no more in circulation than the notes held by the Banking de- partment of the Bank "of England. This is a very important consid- eration, because the great argument of the opponents of the Act of 1844, has been that the Issue department has held at the periods of monetary collapse a large amount of gold which should have been availal^le for the Banking department when the note reserves of the latter had beeii exliausted. There is certainly no evidence that a very large amount of Bank of England notes was not held by the London joint stock and i)rivate banks at the very time of the sus- pension of the Act, and it may fui-ther be observed that imless such notes were actually held, the reserves of those banks must have been very inadequate. The notes in circulation including those held by the Banking department may be estimated at about fifty-five millions, and this portion of the liabilities is adequately secured by the re- serves of bullion in the Bank of England, and in the Irish and Scotch banks. The deposits in the United Kingdom were estimated • Report of Comptroller ot Currency for October, 1866. Late aggregate reports not within reiich, but in January, 1873, the New York City Banks had less circula- tion than in i860. 1 ahowt seven yeaw ago as being on an average £400,000,000,+ and those in the City of London about £90,000,000. In 1855, six joint stock banks in London had in deposit £29,000,000, and the Scotch deposits were estimated at £40,000,000. In 1857, Mr. Gilbart gives London joint stock bank deposits at £43,100,000, and is not sure •whether those in the private banks were more or less. In the last edition of McCulloch's Commercial Dictionary (1869) the deposits in Great Britain ai*e estimated at £300,000,000, and those in Scotland alone at £50,000,000.:}: These amounts include deposits on call and those subject to notice, which is, ordinarily, 10 days. If these figures are anything like correct at the present time, then the Bank of Eng- land deposits are about 5 per cent, of the aggregate deposits of the United Kingdom, and yet it is admitted by " N." that " in the event " of a demand for bullion to meet an adverse foreign exchange, or " an internal drain for harvest or other purposes, resort is always " had to the Bank of England ; and resort is had there because '•' all the Loudon Bankers keep large accounts with the Bank of " England, upon which they operate daily for the purposes of their *' business." This is clearly the weak point in the English Banking system, and is in marked contrast to the Banking system in America. If the aggregate deposits are anything aj^proaching to those we have quoted, it must be obvious to every practical banker +hat the reserves are wholly inadequate, and that a demand for bullion consequent on an adverse state of the exchanges must produce the most disastrous consequences. It is necessary to remark here that the term " re- serves" has a different signification in England from what it has in America. In the United States and in Canada the reserves of a bank are understood to l)e goUl, or its equivalent, viz., legal tender notes. If extended beyond these actual cash reserves, to amounts in the hands of banks or agents out of the Dominion, that is in Lon- don :.r the United States, it has been already shewn that such reserves are at all times available at the shortest notice. Now, what is the meaning of "reserves" in England? An eminent authority, Mr. Gilbait, disciisses in his *' Practical Ti'eatise on Banking," the very subject imder consideration. He says : " From the accounts published fBank of England, by author of People's Blue Book, 1866. IJlThis is no doubt Mr. McCulloch's own estimate in the earlier editions, and therefor* too low for the present year. MiiMllMillM msasmemf^tmmmmMntnmtui. u " by some of the London Joint Stock Banks it would appear tliat " tlie * cash in hand ' is equal to about one-eighth or one-tenth of " tiieii' liability. Even this we conjecture is a higlier proportion than " that which is generally kept by London bankers, esi)ecial]y by " those who settle their accounts with each other at the clearing *' house." Again : " The banks of Lancashire usually keep the whole uf " their reserves in Bills of Exdmnge. Their objection to Government " securities is founded, first, ui>on the low rate of interest which they " yield, and secondly, the possibility of loss from fluctuations in pi-ice." Mr. Gilbart gives, as his owji opinion, that a London banker " never " considers as a part of his reserve the bills he has discounted for " his customers," but he adds *' the practice is now more gejieral of " lodging money at call with the l«rge money dealers, and it is in " tliis way that the London bankers make provision for any sudden " demand." It is clear that the bankers of the United Kingdom do not hold in bullion or Bank of England notes, reserves at all in px'oportion to what are held by the bankers in America. It may be admitted tluit tliey do not require to do so, because Government securities and Bills of Exchange at short date are ranch more readily converted into cash in England than the commeroial paper in which the American banks invest their funds. Judging, however, from ex- perience, the banks in the United Kingdom oaght to keep much larger cash reserves than they do at present. Assuming the correct ness of •' N's" statement, tliat in times of stringency the Bank of Eng- land has to meet the demands consequent on an adverse foreign exchange or an internal drain, the London bankers ought to keep in deposit in the Bank of England not less than ten and probably fifteen millions more than they do, and this amount should be held by the Bank chiefly in gold or bank notes, so as to be available when required. To form an idea of the state of things existing in England, it might })e supposed that the Bankers of Ontario and Quebec haviD^; their head oflices at other places than Montreal, should keep accounts with Montreal banks, handing over to them their reserves, that the Montreal banks should keep their reserves in deposit with the Bank of Montreal, which bank would be expected to meet all the demands of the depositors and note holders in the two Provinces. Such a system would be considered most nnsound by every Canadian banker. In a recent work entitled "Papers on 1^ Banking and Finance," by a Bank manager, 1871, it is stated, " If " we take the leading London banks we find in two cases capital " and reserves between one-seventh and one-eighth of their liabilities, " one with capital and reserves equal to one-ninth of its liabilities, " and another with capital and reserves equal to one-eleventh of its " liabilities." He adds, on Mr. Gilbart's authority, that the nile should be to have capital and reserves equal to one- third of the liabilities. It will seem exti*aordinary to a Canadian banker that capital and reserves should be treated together as an oftset to liabilities payable on demand. The real cause of all the English panics has been the insufficiency of the reserves, and the reliance placed on a single bank to sustain the national credit. It is asserted by "N." in the essay under consideration, that " the Banking department — and thei'efore " everything affecting the credit of cheques if not of bank notes — " has been constantly held in peril by the tardy or unwise action of "the Bank Court," but, if this be true, what bearing, it may be asked, has such action on the Issue department, the functions of which have been " aatoniatically confined to the exchange of gold " for notes, and vice versa i " It is stated in the essay that Mr. Tooke ventured to predict that under the operation of the Act of 1844, "the Banking department might be compelled in self-defence to " refuse all advances, and so create intense alarm and distress." The prediction no doubt has been realized, but the remedy which has been successfully applied, viz. : — a permission to the Issue depai'tment to lend its aid to the Banking departmer.t, is one which is indefensi- ble in principle. Before considering whether a remedy can be found for an admitted defect in the management of the Banking department, it may be desii*able to dispose of the bank note question. Had the bank notes been issued dii-ectly by a Government department it would hardly be contended that a Bank of Discount and Deposit would have a right to expect assistance from the Government. The Banking department of the Bank of England should be as well able to meet its liabilities as any joint stock or private bank. The fact that it has on several occasions required assistance only proves that the system is defective, but Sir Kobert Peel never imagined that " Lhere " would be no occasion of extreme panic or inflation " nor can the ** currency school " be held responsible for the mttnag'Muent of the Bank of Discount and Deposit. Sir Kobert Peel did undertake to >■%. ■*:> ttim MMM 16 secure the convertibility of the Bank of England notes, and to guard against undue expansion of the circulation. It is alleged in the essay, that the Act of iSl'i " protects tiio note holder at the expense "of the depositors, or, which is the same thing, sacrifices the cheque *'to the bank note." This is true, but the Act is founded on strict justice. The note is a legal tender everywhere but at the bank counter. The depositor has no claim whatever for protection any more than any other person who gives ci-edit. No one need take checjues, and in jjoint of fact great caution is habitually observed in taking them. The mode by which the lluotuation of bank notes is regulated, has not really been productive of public inconvenience or loss. If it be admitted, for argument's s'ake, that there have been times when the gold reserve was larger than necessary, it was pre- cisely at such times that no inconvenience was felt by the public, because money was abundant ai:d the rate of interest low. The in- convenience was felt precisely at the times when the gold reserve was not more thaa ought in prudence to have been kept to meet a possible demand for gold in exchange for notes. The author of the essay would doub^'sss have protected the depositors at the expense of the note holders. If reference were made to the occurrences of 1797, it Avould probably le found that prior to the suspension of payment by the Bank of England, a large amount of deposits was withdrawn in gold, while the holders of bank notes had to bear the loss conse- quent on their depreciation. Although the opponents of the Bank Act of 1844, have not ceased to ridicule the principle of secui'ing the fluctuation of the paper currency in the same way as if it were purely metallic, it is clear that the issuer of a convertible paper cui'- rency must expect to have to redeem a considerable portion of it whenever there is either an adverse foreign exchange, or an internal drain. Such demands the Bank of Issue, under the Act of 1844, has always been able to meet ; but under the operation of the erroneous system, which has been already pointed out, the Banking department has been repeatedly in danger of suspension. How can it be expected that one institution can be pi'epared to meet the demands of de- positors in all the country banks of England and Wales, Scotland and Ireland, and also in all the joint stock and private banks in the City of London, amounting probably in the aggregate to some Ji400,000y000, exclusive of the largo Savings Bank deposits, for 17 which, in ease of emergoucy, the Bank of England would have to pfovidel Before entering on the consideration of improvements in the management of the Bankino; depaitraent of the Bank of England, it may be convenient to submit the Bank return, cited in the Essay under consideration, and which is that of 23rd June, 1869^ at which time the Bank rate of interest was 3| per cent. Issue Department. £ £ Notes issued 38,412,150 Government debt 11,015,100 Other securities 3,984,900 Gold coin and bullion 18,412,150 £33,412,150 £33,412,150 Banking Department. Proprietors' capital .. 14,553,000 Government securities 14,239,874 Rest 3,147,807 Other securities 16,466,014 Public deposits, in- Notes 10,731,710 eluding Exchequer, Gold and silver coin... 1,183,810 Sayings' Banks, Commissioners of National Debt, and Dividend accounts... 7,498,189 Other deposits 16,972,956 Seven day and other bills 448,456 £42,620,408 £42,620,408 The old Form. The above accounts would, if made out in the old form as used before 1844, present the following result :— Liabilities. Assets. Circulation (including £ * bank post bills) 23,128,896 Securities 31,151,888 Public deposits 7,498,189 Coin and bullion 19,595,960 Private deposits 16,972,956 £47,600'041 £50,747,848 The balance of assets above liabilities being £3,147,807, as stated in the above account under the head "Rest." It seems desirable to adopt a form more in accordance with that generally adopted in Bank Statements on the Continent of North America, and which will pre- sent more clearly the actual i)osition of the two Departments of the Bank of England ; — 3 -)!> 1 18 Proprietors' capital . .XU.RS.^.OOO (lovernment