By this revolution Sir Edward would abolish all legal restriction on the issue of notes by the Bank of England. It would hold a certain amount of gold or a certain amount of cash balance against its notes, but in the “cash balance” Sir Edward apparently would include 11 millions odd of Government debt, or of Treasury notes. As long as its notes were only three times the amount of the gold or of the “cash balance,” and were backed as to the other two-thirds by bills of exchange, the situation would be regarded as normal, but if, owing to abnormal circumstances, the Bank desired to increase the amount of notes issued against bills of exchange only and to reduce the ratio of its gold or its cash balance to its notes, it would, at any time, be enabled to do so by the payment of a tax, without going through the humiliating necessity for an appeal to the Treasury to allow it to exceed the legal limit.
At the same time, by the abolition of Peel’s Act the cumbrous methods of stating the Bank’s position, as published week by week in the Bank Return, would be abolished. The two accounts would be put together, with the result that the Bank’s position would be apparently stronger than it appears to be under the present system, which makes the Banking Department’s Return weak at the expense of the great strength that it gives to the appearance of the Issue Department. This will be shown from the following statement given by Sir Edward Holden of the Return as issued on January 16th, and as amended according to his ideas:—
BANK STATEMENT, JANUARY 16, 1918.
Notes Issued .. L76,076,000 Gold .................. L57,626,000 Government Debt ....... 11,015,000 Other Securities ...... 7,435,000 ----------- ----------- L76,076,000 L76,076,000 Ratio of Gold to Notes Issued = 75.7 per cent.
Capital ....... L14,553,000 Government Securities ...... L56,768,000 Rest .......... 3,363,000 Other Securities ........... 92,278,000 Deposits-- Notes .......... L30,750,000 Public L41,416,000 Gold and Silver 1,143,000 Other 121,589,000 ----------- 163,005,000 ------------- 31,893,000 Other Liabilities ... 18,000 ----------- ----------- L180,939,000 L180,939,000
Ratio of Cash Balance to Liabilities = 19.6 per cent.
RECONSTRUCTED BALANCE-SHEET OF THE BANK,
JANUARY 16, 1918.
Notes Issued (circulation) 45,325,000
Other Liabilities 18,000
Currency Notes 11,015,000