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be changed for money. Hence during times of commercial security and tranquillity the Act is inoperative; it remains to be seen what its effect is during the panics, which it is powerless to prevent. During a panic there is a general desire to discount bills, money is at a premium; every one who owns bills of exchange is desirous of changing them for money, on account of the insecurity which prevails. Hence during a panic the Bank is urged to discount an unusually large number of bills, and the rate of discount rapidly rises. Now the Bank Charter Act effectually restricts the amount of accommodation the Bank is able to give, for it provides that the Bank shall purchase an equivalent in bullion for all notes which it issues over a certain amount. When therefore this sum is reached the issue of notes is stopped, because it would be no longer profitable to the Bank to continue it. Hence the rate of discount is still further augmented because the supply of credit is artificially restricted. No other instrument of credit is able at such a crisis to produce the same effect as bank notes; people will not accept bills of exchange because the public confidence is disturbed, and a general feeling of insecurity prevails. Bank of England notes are, on the contrary, as readily accepted as gold, because they can always be exchanged for gold on demand at the Bank. It is therefore seen that the Bank Charter Act does not prevent reckless speculation and an undue extension of credit during periods of commercial tranquillity; and when public confidence is shaken and a commercial panic takes place, the Act absolutely limits the amount of accommodation the Bank can afford. This fact has been so far recognised by legislators and the Bank authorities, that the Act has been temporarily suspended during each of the three panics that have occurred since the passing of the Act. On every occasion after the suspension of the Act the rate of discount has rapidly

subsided; the suspension of the Act served in a great measure to allay the excitement which prevailed, because it was thought that after the suspension there would be no scarcity of money. In 1857 and in 1866 about £1,000,000 extra notes were issued by the Bank; nearly all of these were returned to the Bank in a few days, and the currency gradually returned to its normal condition. The uncertainty whether the Act will be suspended or not, adds another element of excitement to the general frenzy that prevails during a panic. The merchants and speculators know that the Act will probably be temporarily suspended during the panic, but the exact day and hour of the suspension are of course unknown. The time at which this takes place may make all the difference to a speculator between solvency and ruin.

The Suspension of the Act protects solvent Merchants, without sparing those who have speculated rashly. It is, however, to be observed that the suspension of the Act does not retard the ruin of those who speculate rashly, and who are really insolvent; the directors of the Bank, in their own interest, take care to discount only good bills, and they are more cautious in this respect during a panic than they are at any other time. The suspension of the Act saves those from failure who are really solvent and wealthy, but who conduct their business on the justifiable expectation that they will be able to renew and discount bills: the sudden contraction of credit which accompanies a panic often involves such persons in ruin through no fault of their own. Although the Bank Charter Act has been powerless to prevent panics, and although it appears occasionally to aggravate their intensity, there is a service rendered by this Act which goes far to outweigh any inconveniences it may temporarily produce. Bank of England notes are in this country legal tender; that is to say, that all debts may be legally discharged in Bank

of England notes. A creditor can legally claim to be paid either in coin or in Bank of England notes; he is not compelled to accept the notes of any other bank. The Bank of England is bound by law to give gold, on demand, in exchange for its own notes: and the Bank Charter Act gives an absolute guarantee to the public that the Bank shall always be able to fulfil this condition. By the regulations of this Act, after the Bank has issued £14,000,000 of notes, it can issue no more without placing in the coffers of the bank an amount of coin or bullion corresponding in value to the sum which the note represents. The Act therefore ensures that there shall be no inflation of the currency through an excessive issue of Bank of England notes, and in this way it provides a guarantee for the convertibility of the notes of the Bank. The whole of the credit system of this country centres in the Bank of England. Every country banker keeps an account with a London banker, and all the London bankers keep accounts at the Bank of England. The importance, therefore, of giving a legal guarantee for the convertibility of Bank of England notes can hardly be exaggerated.


Convertible and Inconvertible Paper Currency. It has frequently been stated that in this country bank notes can always be exchanged for gold. It is the law of the country that a private bank should always give gold or Bank of England notes, on demand, in exchange for its own notes; and that the Bank of England should always give gold, on demand, in exchange for its notes. regulation makes ours what is called a "convertible paper currency;" that is to say, it can be exchanged at any time for gold. In some other countries, America and Italy for instance, there is an "inconvertible paper currency ;" that is to say, the notes are not convertible into money on demand. No injustice is done to any one by an issue

of inconvertible notes if they are not made legal tender, because then no one need accept them who would rather be paid in gold. There are, however, always many dangers connected with the use of inconvertible notes. There is, practically, no limit to their issue, and such enormous sums may be by their means added to the currency as seriously to disturb the finances of the country, and to undermine the credit of the Government. The extraordinarily large issue of these inconvertible notes in America during the war caused a disparity in value between the gold and the notes, because it was not confidently believed that the Government would be able to redeem the notes. Gold was at a premium, and the notes, or green-backs as they are called, were at a discount. This disparity, though it has greatly diminished, still continues. Once during the civil war £100 in gold exchanged for £180 in notes. In Jan. 1870 £100 in gold exchanged for £120 of notes, and in July 1871 £100 in gold exchanged for £112 of notes; and it still remains at about this figure (1876). The large issue of these notes in America has had a very great influence in raising prices in that country. The loss of credit sustained by the American Government by too large an issue of inconvertible notes has produced a disparity in value between gold and green-backs, and this circumstance has brought into existence a class of speculators whose operations are most detrimental to the interests of legitimate industry. These people speculate in gold, that is, they treat gold as an ordinary article of commerce, buying up large quantities of it in hopes of increasing its value.

The Gold Ring of New York. The speculations of the Gold Ring of New York became famous all over the world in the autumn of 1869. The members of the Gold Ring conspired together to buy up all the gold in the

country, and all the gold cheques. (The latter are instruments of credit in the form of cheques, and payable in gold coin, not in green-backs.) These large purchases of gold began to produce effect in September 1869, when the members of the Ring held nearly all the gold in New York; the amount owed to them being estimated at 100,000,000 dollars. As the gold owing to them was paid in, they stored it away, and the value of gold began rapidly to advance. The gold speculators thought that they would be able to force up the value of gold 100 per cent. The only thing which they feared would mar their designs was a sale of gold by the Government. Against this contingency they endeavoured in vain to protect themselves; they therefore were obliged to be content with the hope that they would raise the price of gold so quickly, that there would not be time for the Government to suspect the plot. Their expectations were very nearly realised. In one morning before 12 o'clock the value of gold rose from 130 to 160. At 12 o'clock the Secretary of the Treasury ordered a sale of four millions of Government gold; the plot of the Ring was frustrated, and in eight minutes the value of gold fell 12 per cent. At 12 o'clock it was at 160, and at eight minutes past 12 it was at 140; in nineteen minutes more the premium was only 133.-(Fraser's Magazine, Jan. 1870.) It is not necessary to dwell upon the injury inflicted upon legitimate industry by the possibility of such occurrences as that just described. It casts a hazardous uncertainty over the transactions of every merchant: and all business partakes more or less of the nature of gambling.

The Influence of Credit on General Prices is beneficial. Where credit is kept within legitimate bounds, there is no doubt that its influence on prices is beneficial to the general interests of the community. For the use of credit tends to prevent those fluctuations in general prices which

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