Proportion per cent. of Capital, Deposits, Average Reserve, Reserve at and Circulation. Bank of England. Bank to Liability as of all Banks to the Public.
Deposits, Current Accounts and Circulation of all Banks publishing accounts in the United Kingdom were:—
1894 £721,400,000 £25,800,000 3·58 1895 794,600,000 29,900,000 3·75 1896 797,700,000 34,600,000 4·33 1897 816,400,000 25,100,000 3·07 1898 838,300,000 22,900,000 2·73 1899 869,300,000 21,200,000 2·44 1900 889,600,000 21,400,000 2·41 1901 888,100,000 24,046,000 2·71 [5]1902 904,100,000 24,166,000 2·67
“The Bank of England reserve, which constitutes the only real reserve of the country, is shown here in its true light from our present point of view. A further outside reserve of, say, £15,000,000 would only, it is true, serve to restore the proportion to that of the year 1896, but it would ensure the present maximum becoming, in effect, the future minimum, and here would be a great gain in an extra sense of security in troublous times. Should a gold panic at any time seize upon the public, it would matter little whether the ratio of Bank of England reserve to the aggregate liabilities were 2·50 or 5 per cent., suspension of cash payments would ensue. A credit panic, as distinguished from a gold panic, can usually be assuaged by a suspension of the Bank Act and an overissue of bank-notes. A further object of an increased gold reserve is that not only the periodic and well-recognised, but the unexpected and perhaps heavy withdrawals of gold may be met without recourse to violent measures such as those to which the market is too often subjected. If this were clearly seen to be not only the intention, but the practical working of the fund, an objection which, I admit, is of great weight would be fairly met, and minor objections would almost disappear.
“The objection to which I refer is this. Gold is meant to circulate, not to be hoarded, and any proposal permanently to withdraw such an amount as £15,000,000 from circulation and, as it were, entomb it again in the bowels of the earth, stands self-condemned. No such entombment is suggested, as far as I know, but the formation of a fund for use—a fund which, on occasions, would pass into circulation—international, if not national—and would have a steadying effect on the pulse of the Empire, the Bank of England rate. How can we set about securing it? Let us glance at the tabulated bank balance sheets of the country. From which of the items on the assets side could such a sum be withdrawn? Loans and discounts? No. Investments? No. Buildings? No. Money at call? No. Cash in hand and at Bank of England? This, _ex hypothesi_, is the item to be increased. The reasons I need not give, but it appears tolerably plain that no plan involving a permanent diminution of any item on the asset side would meet with a favourable reception from practical men. Is it possible, if these items cannot be conveniently decreased, to obtain the amount by a fresh creation of credit, an addition to loans and discounts, and an equivalent addition to the other side of the account? Please understand that I am considering the case quite apart from the Bank of England.