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

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

As will be remembered, the Cunliffe Committee recommended that the division of the Bank of England into an Issue Department and a Banking Department, should be retained; that the old principle by which above a certain fixed limit all notes should be backed by gold, should also be retained, but that if at any time a breach of this rule should be found necessary it should be possible, with the consent of the Treasury, and that Bank rate “should be raised to a rate sufficiently high to secure the earliest possible retirement of the excess issue.”  Since it was formerly only possible to exceed the limit on the fiduciary issue by a breach of the law, under the Chancellor of the Exchequer’s promise to get an indemnity for it from Parliament, and since Treasury tradition insisted on a 10 per cent.  Bank rate whenever such a breach was permitted or contemplated, it will be seen that the Cunliffe Committee proposed some considerable modifications in our system and hardly justified Sir Edward’s assertion that it “proposed that the Bank should continue to work under the Act of 1844 as heretofore.”

At first sight there seems to be a good deal of difference between Sir Edward’s ideal and Lord Cunliffe’s, but is not the difference to a great extent superficial?  Whether the Bank be divided into two departments, each presenting a separate account, or its whole business be regarded as one and stated in one account, seems to be rather a trifling question.  And the arguments put forward for their several views by the two champions are not strikingly convincing.  Sir Edward wants only one account, because he thinks the consequence would be a stronger reserve and fewer changes in bank rate.  But a mere change of bookkeeping such as the amalgamation of the two accounts would not make a half-pennyworth of difference to the extent of the Bank’s responsibilities and its ability to meet them, and it is on variations in these factors that movements in bank rate are in most cases decided.  On the other hand, Lord Cunliffe and his colleagues argue that the main effect of putting the two departments into one would be to place deposits with the Bank of England in the same position as regards convertibility into gold as is now held by the note.  On this point Sir Edward’s answer is telling:  “In reply to this statement, I say that the depositors at the present time can always get gold by drawing out notes from the reserve and taking gold from the Issue Department.  There seems to be little difference between the depositors attacking gold direct and attacking the gold through the notes in the reserve.  If the Bank cannot pay the notes when demanded the whole machinery stops.”  Quite so.  The notion that the holder of a Bank of England note has now a stronger hold over the Bank’s gold than the depositor seems to be baseless.  He can exercise