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will offer profitable means of investment, and this will draw off a further portion of the country circulation. These are some of the ways in which a contraction of the London currency will rapidly and necessarily contract the country circulation.
If indeed it be admitted that a variation in the dearness or cheapness of money will cause it to pass from London to all parts of the world, it seems hardly necessary to prove that the same variation will cause it to pass from the country parts of England to London. If then, the Bank of England has the power of reducing the country circulation, how can the country banks render the exchanges unfavourable, in opposition to the exertions of the Bank of England?
But it may be still further a matter of inquiry, whether the Bank of England ought to place herself in a situation that shall render necessary the adoption of any measures, with a view to the regulation of the foreign exchanges; whether a national bank ought not, like other banks, to keep funds sufficiently ample to meet her engagements; and whether the foreign exchanges ought not to be regulated by the legitimate operations of commerce, and not by operations on the currency. A bank that has the control of the foreign exchanges has an interest opposed to the interest of the community. It is the interest of the community that the national bank should always hold an amount of treasure adequate to meet all the demands that may come upon it. it. It is the interest of the bank to hold as little treasure as possible, to employ its funds in securities, upon which she gains interest; and then if the demands should exceed her means, to avoid stopping payment by a sudden operation on the currency that may involve the nation in distress. The notion of regulating the currency is peculiar to England. Who regulates the currency of Scotland or America? A short time ago we had institutions for regulating the price of bread, the wages of labour, and the import and export of a variety of commodities. Now it is found that these things can regulate themselves. Such probably will be the case with the
currency. After a few more years have elapsed, after some thousands of fortunes have been destroyed, and some millions of families ruined, we shall then possibly discover that the amount of the currency, the prices of commodities, and the course of the foreign exchanges would have gone on better without our interference. With regard to the tables given by the committee, we may observe,
1. That the table referring to the country circuculation, states the quarterly averages, but the table referring to the Bank of England merely states the circulation, &c. on those days that are there mentioned. To form a proper comparison, the two tables should refer to the same periods. The following table is formed entirely upon the quarterly averages.
A table of the London and branch circulation of the Bank of England, and the circulation of the private and joint stock banks:
Dec. 1833... 15,000,000 3,200,000 18,200,000 8,826,803
2. The daily amounts of the circulation_present no certain means of forming a comparison. Thus, if we wish to prove that the Bank of England had diminished its circulation, we might compare March 1834, with June, 1836, and say, that the circulation had considerably decreased. On the other hand, if we wished to shew that the circulation had increased, we might take the two points of comparison three months farther back, and shew that between December 1833, and March 1836, the circulation had considerably advanced.
3. In noticing the London circulation of the Bank
of England, we shall find that the first and third quarters in the year are usually higher than the other quarters. The dividends payable in January and July are to a larger amount than those paid in April and October. Hence the quarters that take in January and July have a higher circulation of notes. If therefore we wish to mark the increase or decrease of notes in circulation, we must not compare the highest quarter in one year with the lowest quarter in a subsequent year, but compare the correspondent quarters. Thus we find the difference between December 1835 and December 1836, there is a diminution of £300,000.
4. It will be seen that the branch circulation of the Bank of England does not fluctuate so much quarterly as the circulation of London. There seems to have been a steady increase. The increase between December 1835 and December 1836, is £400,000. From the evenness in the amount of the branch circulation, I should infer that the branches have very little business in the way of current accounts.
5. It will be perceived that the circulation of the joint stock banks has considerably increased, while that of the private banks has diminished. arises, in the first place, from a number of private banks having merged in joint stock banks;* and secondly, from a transfer of accounts from private banks to joint stock banks. Had we returns of the circulation of those private banks which are not exposed to the competition of joint stock banks, those for instance within sixty-five miles of London, we should probably find that these banks had increased their circulation, and that the total diminution had fallen upon those private banks that are beyond the sixty-five miles.
In judging of the effects produced upon the foreign exchanges, we must take the whole amount of the country circulation; for the circulation of the joint stock banks could not have produced any effects, if it merely filled up the void occasioned by the with
* See a list of these in the Appendix.
drawal of the private circulation. Nor is it fair to consider the increase in the whole amount of the circulation, as produced solely by the increased issue of the joint stock banks. The circulation of the joint stock banks is about one-third of the whole circulation, and consequently they are chargeable only with onethird of the excess.
7. Every variation in the amount of notes in circulation of the Bank of England, must be produced either by the action of the public, or the action of the bank. The public act upon the circulation through the deposits and the bullion. If I take £10,000 in bank notes, and lodge them as a deposit in the bank, I diminish the circulation £10,000, and increase the deposit by the same amount. And if I withdraw £10,000 from the deposit, I diminish the deposits and increase the circulation. So if I demand gold for notes to the extent of £10,000, I diminish the stock of gold in the bank, and diminish the circulation. If I take gold to the bank, I increase both the stock of gold and the circulation. The action of the bank is indicated by the change in the amount of securities. But did we not know the amount of the securities, we might ascertain the action of the bank by calculating the results of the action of the public.
The circulation of the Bank of England
28th December, 1833, was
25th June, 1836
Showing a diminution of
Now we may easily ascertain whether the diminution was produced by the action of the public, or that of the bank. Thus
8. The increase of the circulation by the action of the bank is denoted by the increase of the securities. The only way the bank can affect the circulation, is by increasing or diminishing the securities. If the bank buy exchequer bills, or discount bills of exchange, she increases the circulation and also the securities. If she sells exchequer bills, she diminishes the circulation, and also the securities. It will be seen that from December 1833, to June 1836, the securities of the bank were increased £4,271,000. Now it may be observed, that the increase of the country circulation from £10,152,104 to £12,202,196, may not have been by any voluntary action on the part of the banks; it may have been by the withdrawal of deposits. But the increase of the Bank of England circulation must have been occasioned by a voluntary action. These tables therefore, do not seem to present us with sufficient ground for holding up the Bank of England as a model to the country banks, for making exertions to limit the amount of circulation.
THE BRANCHES OF THE BANK OF ENGLAND.
The Bank of England first established branches in 1826. The object was to improve the country circulation by operating as a check upon the private banks, The circulation of all the branches in 1831 was £2,372,000. It has since increased, as will be perceived by the table to £3,800,000. In 1832, Mr. Horsley Palmer was asked
"Have the bank taken any measures, and what measures, for extending the circulation of bank notes through their branch banks?
"The measures they have taken have been permitting individuals of supposed credit to open discount accounts with the branch banks; they have also afforded every facility to the transmission of money from London to the country, through the branch banks; and to those bankers who have proposed (for the bank have made no proposition themselves to the