tion than a joint stock bank. As a bank of discount it may cease to issue, but all the bills when due will be paid in Bank of England notes, by which the amount in circulation will be reduced. But the Bank of England has other means by which it can reduce its circulation more rapidly. It can sell government stock or exchequer bills. It will be paid for these in its own notes, which will thus be withdrawn from circulation. If a joint stock bank should sell stock or exchequer bills, it would not be paid in its own notes, but in those of the Bank of England. Hence no reduction would take place in its own circulation. It is not therefore quite fair to blame the joint stock banks for not reducing their circulation as rapidly as the Bank of England, when they have not the power so to do. 8. But even could it be proved that the joint stock banks had issued an excessive amount of their notes, it might then become a matter of inquiry whether that excess could counteract any measures adopted by the Bank of England with a view to the state of the foreign exchanges. The bank can control the foreign exchanges only through the means of its own circulation. Let us suppose that the circulation of the country is in excess, and that under these circumstances the Bank of England contracts her issues. The immediate effect in London will be, that the interest of money will advance, money will become scarce, traders will be less disposed to purchase, and more disposed to sell, and consequently the price of commodities will fall. Now this will produce an effect upon the country circulation in two ways; first, through the means of trade; and secondly, through the direct monetary transactions. With regard to trade we shall simplify the illustration by taking an individual case. A wholesale grocer, who has travellers in every part of the kingdom collecting money and receiving orders, will write them to avoid taking bills as heretofore, at two or three months date, and to allow a liberal discount for cash. Now, money being abundant, the country shopkeepers will be glad to take the discount and pay cash. Instead of bills the travellers will get country notes, which they will take to the banks for payment, or transmit to London for presenting to the London agents. Here the country circulation is reduced by the withdrawal of notes in circulation. This is the case of a house that sells to the country. Now let us take the case of a house that buys from the country. A wholesale ironmonger has been in the habit of receiving weekly a quantity of goods from Sheffield, against which he had accepted a bill: the Sheffield manufacturer had taken this bill to the bank to be discounted, and had put into circulation the notes of the Sheffield bank to that amount; but in consequence of the contraction of the notes of the Bank of England, the wholesale ironmonger discontinues his orders, believing that money will become scarce, and that prices will fall. The Sheffield manufacturer having no orders, sends no goods, and draws no bills, and consequently puts no notes into circulation. Here the country circulation is diminished by a diminution of the issues; hence we perceive that the operations of both the export and import trade of London with the country have a necessary effect of reducing the currency in the country to a level with that of London. But this effect will be still more rapidly produced by direct monetary transactions. The country banks that rediscounted their bills in London, finding that their bills are rediscounted with difficulty, and only at an advanced rate of interest, will also reduce their discounts in the country, and hence their issues will be diminished. They will also call up any loans they may have advanced, and these will be paid to them in their own notes, or in the notes of the neighbouring banks, and hence the country circulation will be reduced by a withdrawal of those in circulation. Parties too that have money will send it to London for employment, as the high rate. of interest, and probable fall in the public securities, 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 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: July Sept. Dec. Dec. 1833... 15,000,000 3,200,000 18,200,000 8,836,803 Joint Stock Total Country 1,315,301 10,152,104 1,458,427 10,191,827 1,642,887 10,518,682 1,783,689 10,154,112 2,122,173 10,659,828 2,188,954 10,420,160 2,484,687 10,939,801 2,508,036 10,420,623 2,799,551 11,134,414 3,094,025 11,447,919 3,568,064 12,202,196 3,969,121 11,733,945 4,258,197 12,011,697 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. This 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. |