As our standard is gold, there would be no agio on depositing gold bullion in the Bank, except what may arise from the circulating coin being worn, when that was deposited.

With the silver bullion deposited in the Bank it would be different; there would be an agio, which would vary according to the relative value of silver to gold at the market.

The principle being admitted, that it is desirable that every nation should have an exchange Bank and an exchange money of the same metal, the details for carrying into execution the system might be easily arranged; what is expedient for one country is expedient for every other country, and the interest of one is the interest of all. The exchange would be a domestic or national exchange, like that at Amsterdam; it would consist of the variation between the circulating coin and the bank coin; it would not be a varying exchange between different countries, produced by the varying relative value of the precious metals relative to each other.

The ancillary coins should be legal tender only for a certain amount: this may be arranged.

As the ounce of standard gold contains 440 grains of fine gold and 40 grains of alloy, together 480 grains, and as the pound would contain one quarter of this weight, or 120 grains of standard gold, on the proposed plan of a gold bank pound,—

The shilling in value would beth of 120 grains, or 6 grains.

The penny would be th of the shilling; or grain.

The farthing would be th of the penny; or 1th grain.

One grain of gold bank money would correspond with two-pence bank money.

There would be no alteration required in the domestic or national currencies of different countries ; there would be one invariable standard of international money, doing away with all mystery, and making weight the only test of value.

Is not this a consummation devoutly to be wished?

B. iv. c. 3. v. ii. p. 289. :

Adam Smith states his motive in writing his account of the Bank of Amsterdam to have been as follows:

"But it is now time to return from this long digression, into which I have been insensibly led, in endeavouring to explain the reasons why the exchange between the countries which pay in what is called bank money, and those which pay in common currency, should generally appear to be in favour of the former, and against the latter. The former pay in a species of money, of which the intrinsic value is always the same, and exactly agreeable to the standard of their respective mints; the latter is a species of money of which the intrinsic value is continually varying, and is almost always more or less below that standard."

And he also states the motive and object of those who established the Bank to have been

P. 289.:

"Public utility, however, and not revenue, was the original object of this institution. Its object was to relieve the merchants from the inconvenience of a disadvantageous exchange. The revenue which has arisen from it was unforeseen, and may be considered as accidental."

There was at Amsterdam no rival establishment issuing promissory notes payable to bearer on demand, and anxious to get possession of this bullion. The merchants of Amsterdam were careful to confine the bank money to its proper use, to pay with it foreign bills of exchange, and, indeed, all bills, except those which may be supposed to circulate among the traders at home and the retail dealers, bills of small amount, not exceeding six hundred guilders, about 60%. sterling; these bills might be drawn in current money. This arrangement might suit a small state like Holland, where different monies circulated; here such a limitation would be unnecessary; but the great principle remains the same in a large or in a small state; that the owners of the international bullion should

As our standard is gold, the on depositing gold bullion may arise from the circul that was deposited.

With the silver bull would be different; t would vary according to gold at the marke The principle be that every nation and an exchange details for carryi be easily arrang try is expedie interest of one would be ad at Amsterd between th

would not countries.

the preci The a a certai

As t

of fine grains of th

the I

A

could not always find heir bills of exchange, eral regulations which

A great measure uncertain."

disadvantageous exshed the good bills in namely, the dealers in

to a certain extent, the

antir a establishment of the Bank, ing the bullion which was to band appears to stand in the same

wt of the bills.

at

rator the merchants and manufacturers, that ahmetus exchange, for their own benefit: the Başı dave crac by means of a monopoly, a disto the stålshment of the Bank. The bullion dealers Find by means of its monopoly and bank s withholds, at its pleasure, the bullion British merchants, with plenty of good inland bills, h is the natural corrective of the exchange; the cannot always procure bullion to pay their foreign Is not the natural remedy for this inconvenience,

bills of exchange

o Amsterdam; to establish a bank and international that which was adopted by the intelligent merchants

, where the merchants of the ",

great mercan

pay
their

be in the possession of the owners, and not in the pos

The merchants of Amsterdam

were aware that the

possessor of bullion could always create good bills, by

ON AN EXCHANGE BANK.

85

ing the bullion to cover them. Of this I in the following pages.

Smith (b. iv. c. 1. v. ii. p. 222.): —

gold and silver which can properly be considered as accud or stored up in any country, may be distinguished into parts; first, the circulating money; secondly, the plate of ate families; and, last of all, the money which may have been ected by many years' parsimony, and laid up in the treasury the prince.

"It can seldom happen that much can be spared from the circulating money of the country, because in that there can seldom be much redundancy. The value of goods annually bought and sold in any country, requires a certain quantity of money to circulate and distribute them to their proper consumers, and can give employment to no more. The channel of circulation necessarily draws to itself a sum sufficient to fill it, and never admits any

more.

"The melting down of the plate of private families has, upon every occasion, been found a still more insignificant resource (for carrying on foreign war). To accumulate treasure seems to be no part of the policy of European princes."

Adam Smith (b. iv. c. 1. v. ii. p. 225.):

"Besides the three sorts of gold and silver above mentioned, there is in all great commercial countries a good deal of bullion, alternately imported and exported, for the purposes of foreign trade. This bullion, as it circulates among different commercial countries in the same manner as the national coin circulates in every particular country, may be considered as the money of the great mercantile republic. The national coin receives its movement and direction from the commodities circulated within the precincts of each particular country; the money of the mercantile republic from those circulated between different countries. Both are employed in facilitating exchanges, the one between different individuals of the same, the other between those of different nations.

Adam Smith again observes (b. iv. c. 6. v. ii. p. 376.):

"The great annual importation of gold and silver is neither for the purpose of plate nor of coin, but of foreign trade. A roundabout foreign trade of consumption can be carried on more advantageously by means of these metals than of almost any other goods. As they are the universal instruments of commerce, they are more readily received in turn for all commodities than any other goods; and on account of their small bulk and great value,

not part with the possession of it, and that the merchants who could pay for it, or who imported it, should be uncontrolled in the employment of it in their foreign trade.

P. 277.:

"The merchants, with plenty of currency, could not always find a sufficient quantity of good money to pay their bills of exchange, and the value of those bills, in spite of several regulations which were made to prevent it, became in a great measure uncertain."

Who were benefited by this disadvantageous exchange? Those who furnished the good bills in exchange for the currency; namely, the dealers in bullion, who, before the establishment of the Bank, had the power of regulating, to a certain extent, the exchange, by withholding the bullion which was to provide for the payment of the bills.

The Bank of England appears to stand in the same relation to the merchants and manufacturers, that the bullion dealers at Amsterdam stood in, previously to the establishment of the Bank. The bullion dealers may have created, by means of a monopoly, a disadvantageous exchange, for their own benefit: the Bank of England, by means of its monopoly and bank regulations, withholds, at its pleasure, the bullion which is the natural corrective of the exchange; the British merchants, with plenty of good inland bills, cannot always procure bullion to pay their foreign bills of exchange.

Is not the natural remedy for this inconvenience, that which was adopted by the intelligent merchants of Amsterdam; to establish a bank and international treasury, where the merchants of the "great mercantile republic" may deposit their own bullion to pay own bills of exchange; where the bullion deposited may be in the possession of the owners, and not in the possession and under the control of those who simply hold it on trust?

their

The merchants of Amsterdam were aware that the possessor of bullion could always create good bills, by