It is, therefore, an essential condition for the circulation of the bank note, that it should be constantly convertible into money. We must not, however, confound the check with the bank note; this is not only, like the check, a means of payment, an instrument of compensation or of liquidation of engagements arrived at maturity; it is again and especially an instrument of credit; it represents capital, since it is only the transformation of the bill of exchange; it admits of utilising, by means of discount, a portion of the floating capital that industry and commerce hold in reserve for the wants of their transactions. This distinction in the nature of the two effects is indispensable to avoid falling into fatal errors.* * See evidence of M. Isaac Pereire in the Appendix. CHAPTER XI. THE PRESENT AND THE PROPOSED BANK THE three most prominent and effective of all the proposed changes will be: 1. Restoring the actual and independent capital of the Bank of England: 2. Raising the credit capital of the Bank from £14,000,000 to £40,000,000. 3. Empowering the Bank to issue notes, beyond the amount of £40,000,000, against gold and silver bullion, both or either, without limitation. These additional powers, as already shown, will enable the Bank of England to exercise a much greater influence than it has ever yet possessed for the Organisation of Credit in England, by keeping down the price of loanable capital in England. But, for making these powers more effective for this object, it is essential that the distinction between the Issue Department and the Banking Department should be abolished; that the maximum rate of discount for the Bank of England should be 4 per cent.; and that the Bank of England should be prohibited from advancing money on loan, except by way of advances on Government securities. Other important changes will be in throwing open the Royal Mint, for the coinage of gold and silver bullion in the coin of the realm, free of charge; and empowering the Bank of England to issue notes against gold and silver coin and bullion, without regard to proportions, but payable in gold coin only; and not making it compulsory on the Bank of England to give its notes or gold or silver bullion. The effect of these changes will be to enable the Bank of England to increase the supply of gold and silver coin and bullion, and also of notes, when these are wanted, without inflicting any loss on the trade and industry of the country by raising the rate of discount, and at the same time to strengthen the basis of security for the notes. Advancing the legal tender in silver to £5 will be an additional security to the Bank of England, and also an additional convenience to the country. The great demand for silver in the East Indies has actually produced, at several times, a very inconvenient scarcity of silver in this country. In the year 1857 the silver sent to the East Indies amounted to £17,000,000, and from Marseilles £3,610,000, and for many years past the average annual export of silver to the East Indies has been £6,000,000 sterling. The effect of this has been that, very recently the Bank of England was compelled, from want of silver, to issue a notice to the public that no silver would be given in exchange for notes or gold, an announcement of no small inconvenience to those having to meet the Saturday Pay to large numbers of workmen. To the People the free circulation of silver is more important than that of gold. Another great convenience to the country will be in removing the present singular anomalies in regard to legal tender money, by making Bank of England Notes discharge a debt in Scotland and Ireland, as well as in England. The tendency of these changes will be to keep the exchanges favorable to this country. As before explained, the term "favorable," un favorable," applied to the rate of exchange upon foreign countries, is simply a form to express whether more specie be coming in or going out. The par of the currency of any two countries. means, among merchants, the equivalence of the certain amount of the currency of the one in the currency of the other, supposing the currencies of both to be of the precise weight and purity fixed by their respective Mints. Thus, according to the Mint regulations of Great Britain and France, one pound, sterling, is equal to 25 francs 20 cents., which is said to be the par between London and Paris. And the exchange between the two countries is said to be at par when bills are negotiated on this footing; that is, for example, when a bill for £100 drawn in London is worth 2520 francs in Paris, and conversely. When £1 in London buys a bill on Paris for more than 25 francs 20 cents., the exchange is said to be in favour of London and against Paris; and when, on the other hand, £1 in London will not buy a bill on Paris for 25 fr. 20 cents., the exchange is against London and in favour of Paris.* But, the state of the exchanges has, perhaps, more to do with the profits of Bankers than of Traders, for, when there is a demand for specie, the bankers keep on hand a larger stock of specie than usual to meet the requirements of their customers. This causes a temporary diminution of Bankers' profits. Hence, Bankers term the exchanges "favorable" when specie is flowing into the * Lawson, History of Banking,' p. 48. |