Sidebilder
PDF
ePub

showed.

As early as July 31st the banks themselves began to run on the Bank of England, and with the utmost foolishness to make unnecessary difficulties about supplying applicants with gold. On July 31st and the following day there were queues of persons outside the Bank of England waiting to cash £5 notes which had been forced on them against their will by their bankers. The Bank of England of course changed these notes into sovereigns as quickly as was physically possible.

August 2 was a Sunday, and August 3 happened to be the day of the usual August Bank Holiday. It was clearly desirable in the circumstances to make arrangements for the issue of some form of emergency paper currency. For this purpose, therefore, and to allay the fears of the banks, the Bank Holiday was prolonged until August 7. When the banks reopened on that day, they had been protected against unreasonable demands on the part of their depositors as it turned out, unnecessarily -by the general Moratorium Proclamation; and two forms of emergency paper currency had been authorized.

The first of these was of the old fashioned kind: the Bank of England was authorized to exceed its fixed fiduciary issue. The circulation of bank notes, that is to say, might exceed the gold held against them by more than the statutory maximum of £18,450,000. This measure is commonly described as a " Suspension of the Bank Act," altho it in no way permits the Bank to suspend specie payment, the bank's obligation to redeem its notes in gold on demand remaining in full force.

As things turned out, the Bank of England never had occasion to avail itself of this permissive power. The fiduciary issue never exceeded £9,000,000 and was,

[ocr errors]
[ocr errors]

therefore, well within the normal maximum. The suspension was merely precautionary. It is to be noticed, however, that for the first time parliamentary authority for such a step was taken in advance. On former historic occasions the Prime Minister and the Chancellor of the Exchequer have promised the Governor of the Bank an act of indemnity. This timewhatever may have been the assurances given to the Governor privately during the first week of the crisis a clause was inserted in the Currency and Bank Notes Act, 1914, as follows; — " The Governor and Company of the Bank of England and any persons concerned in the management of any Scottish or Irish bank of issue may, so far as temporarily authorized by the Treasury and subject to any conditions attached to that authority, issue notes in excess of any limit fixed by law."

The avoidance of an excess circulation of bank notes is mainly to be attributed, however, to the second form of emergency paper currency authorized. This was of an altogether novel type. £5 notes obviously cannot take the place of sovereigns as the chief circulating medium in the country. £1 and possibly 10s. notes were, therefore, necessary. Altho every one who had thought about these questions at all knew that £1 notes must be required in any severe crisis, no steps had been taken to print any such notes in advance, or even to decide who was to issue them or what form they were to take. The absence of any notes ready printed was the occasion of a very inconvenient delay. Further, when the notes appeared, they were printed on un-gummed postage stamp paper (of which alone a sufficient quantity existed suitably watermarked) and were of so rough an appearance (no part being engraved) that some amateurs amused themselves by forging one or two as a memento." This unreadiness, however,

[ocr errors]

The

was a not altogether undesirable symptom. minds of those in authority should be equipped beforehand, but it is not a bad thing that their measures should be improvised. Altho I was inclined to criticize the plan actually adopted when it was first adumbrated, I believe this plan, as it eventually worked out in practice, was better than what would probably have been devised, if, necessarily without reference to the precise circumstances of the moment, a plan had been arranged in advance by some Committee.

This plan was for an issue of £1 and 10s. notes, not by the Bank of England as was generally expected, but by the Treasury. The notes bore the signature, not of Sir John Nairne the Chief Cashier of the Bank of England, but of Sir John Bradbury the Permanent Secretary to the Treasury. They were declared unrestricted legal tender and were encashable for gold only at the head office of the Bank of England as the Government's agent. The public made no trouble about accepting the notes; at first indeed, through motives of curiosity and as a result of a newspaper campaign in their favor, the demand for them in place of sovereigns was in excess of what the printing presses could supply.

These notes are quite outside the Bank Act and have no relation to the Bank of England's note issue or reserve. They do not appear anywhere in the Bank of England's weekly returns and are the subject of a separate statement by the Treasury. Their issue

obviated the necessity of any excess issue of notes by the Bank of England, altho as matters turned out the latter would have been small in any case, as the volume of Currency Notes only exceeded the Bank of England's reserve of unissued bank notes for a few days.

The most interesting feature, however, of these Currency Notes, as they are called, is their method of

regulation. By the Currency and Bank Notes Act, 1914, the Treasury is given extraordinarily wide powers. According to Clause 2," Currency Notes may be issued to such persons and in such manner as the Treasury direct," and there are no specific rules whatever governing the reserve, if any, to be held against them. The actual course followed by the Treasury has been as follows.

In the first instance the Currency Notes were issued as a loan to the Scottish and Irish Banks of Issue, the joint stock banks, the Post Office Savings Banks, and the Trustee Savings Banks. The loans were at the rate of 5 per cent and were, in virtue of a provision in the act, regarded as a floating charge in priority to all other charges on the whole of the assets of these institutions, which were not required to deposit any specific security. The Treasury announced that they were prepared to issue these loans to the banks for an amount up to 20 per cent of their liabilities on current and deposit accounts.

Thus several important objects were served at the same time. The banks were reassured as to their capacity to meet any reasonable claims on the part of their depositors, their depositors were reassured by the appearance of a sufficient supply of serviceable legal tender money, the Bank of England's stock of gold was conserved, and the necessity of an excess issue of bank notes, with the ill effect of this on the appearance of the Bank return and of the Bank's reserve, was avoided.

The only danger lay in an excessive use of the new facilities. As a matter of fact the additional issues of currency were on a very moderate scale. The principal figures are given below. In addition, some new silver coinage (not to an important amount) was issued from

the Mint, and, for a short time pending this, postal orders were legal tender.

[blocks in formation]

During the same period the net amount of gold passing into the Bank of England from abroad was £19,254,000.

Unfortunately it is impossible to distinguish between what was taken by the banks to strengthen their tillmoney at their 9,000 branches, and what went into the active circulation. The above figures are for the two taken together. It is probable, however, that a considerable part of the total issues of £37,500,000 remained with the banks, which naturally desired to have rather more cash in hand than usual. A part of the remaining issues were due to the large cash payments made by the War Office. The figures show that there can have been no significant amount of hoarding by private persons. Compared with the enormous issues of paper currency abroad, the above figures are very small.

As we have seen, the notes were issued in the first instance to the banks. But when a few days later they were put in funds at the Bank of England through the great volume of pre-moratorium bills discounted there under the Treasury's guarantee, they no longer had need of the Currency Note loans as well. Accordingly they paid off these loans by transferring credits at the Bank of England from their own names to the Public Deposits. The notes, which had been issued

« ForrigeFortsett »