War-Time Financial Problems eBook

This eBook from the Gutenberg Project consists of approximately 242 pages of information about War-Time Financial Problems.

Fortunately, however, the banking community had at its disposal a weapon of which it was already making considerable use, namely, the system of issuing credit by means of banking deposits operated on by cheques.  Eight years before Peel’s Act was passed two Joint Stock Banks had been founded in London, although the Bank of England note-issuing monopoly still made it impossible for any Joint Stock Bank to issue notes in the London district.  It is thus evident that deposit banking was already well founded as a profitable business when Peel, and Parliament behind him, thought that they could sufficiently regulate the country’s banking system so long as they controlled the issue of notes by the Bank of England and other note-issuing banks.  It is perhaps fortunate that Parliament made this mistake, and so enabled our banking machinery to develop by means of deposit banking, and so to ignore the hard-and-fast regulations laid upon it by Peel’s Act.  This, at least, is what has happened; only in times of acute crisis have the strict regulations of Peel’s Act caused any inconvenience, and when that inconvenience arose the Act has been suspended by the granting of a letter of indemnity from the Treasury to the Governor of the Bank.

Under Peel’s Act the present rather anomalous form of the Bank of England’s Weekly Return was also laid down.  It shows, as all men know, two separate statements; one of the Issue Department and the other of the Banking Department.  The Issue Department’s statement shows the notes issued as a liability, and on the assets side Government debt and other securities (which are, in fact, also Government securities), amounting to L18,450,000 as allowed by the Act, and a balance of gold.  The Banking Department’s statement shows capital, “Rest” or reserve fund, and deposits, public and other, among the liabilities, and on the other side of the account Government and other securities, all the notes issued by the Issue Department which are not in circulation, and a small amount of gold and silver which the Banking Department holds as till money.

Sir Edward Holden’s proposal is that the Act should be repealed practically in accordance with the system which has been adopted by the German Reichsbank.  The principles which he enumerates, as those on which other national banks of issue work, are as follows:—­

1.  One bank of issue, and not divided into departments.

2.  Notes are created and issued on the security of bills of exchange and on the cash balance, so that a relation is established between the notes issued and the discounts.

3.  The notes issued are controlled by a fixed ratio of gold to notes or of the cash balance to notes.

4.  This fixed ratio may be lowered on payment of a tax.

5.  The notes should not exceed three times the gold or cash balance.

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War-Time Financial Problems from Project Gutenberg. Public domain.
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