It is not proposed at present to secure the circulation of paper instead of gold by legislation. The Committee considers that “informal action on the part of the banks may be expected to accomplish all that is required.” If necessary, however, it points out that the circulation of gold could be prevented by making the notes convertible, at the discretion of the Bank of England, into coin or bar gold. The amount which, in the opinion of the Committee, should be aimed at for the central gold reserve is L150 millions (a sum which is already almost in sight on its figures quoted above); and “until this amount has been reached and maintained concurrently with a satisfactory foreign exchange position for a period of at least a year,” it thinks that the policy of reducing the uncovered note issue “as and when opportunity offers” should be consistently followed. How this opportunity is going to “offer” is not made clear; but presumably a reflow of notes from circulation can only happen through a fall in prices or a reduction in bank deposits by the liquidation of advances made to the Government, directly or indirectly, by the banks.
Concerning the difficult problem of replacing the Bradbury notes by Bank of England notes of L1 and 10s., an ingenious suggestion is made by the Committee. It observes that there would be some awkwardness in transferring the issue to the Bank of England before the future dimensions of the fiduciary issue have been arrived at; and it suggests that during the transitional period any expansion in Treasury notes that may take place should be covered, not as now, by Government securities, but by Bank of England notes taken from the Bank. By this means any demands for new currency would operate in the normal way to reduce the reserve of the Banking Department, “which would have to be restored by raising money rates and encouraging gold imports,” and so a step would have been taken to getting back to a business basis in the currency system and away from the profligate printing-press policy of the war period.