The Money Market

by F. Straker

The genesis of the Money Article was about the year 1825. Previous to that date a few of the leading papers published a list of the prices of the stocks and shares then dealt in on the Stock Exchange, but practically nothing further than the list appeared. About the above-mentioned year, however, public interest in Stock Exchange matters received a great stimulus, and the editors of certain papers then commenced to devote more attention to the matter than they had previously done. As the subject gradually became of more and wider interest to the public at large, the papers devoted more and more attention to it. The advent of limited liability companies enormously increased the number of persons interested in Stock Exchange matters, and the Money Article then became an important and integral part of every paper of standing. At the present time, as previously noted, the Money Article really reflects the financial matters of the whole world, and any event which causes a change in the natural or political conditions of any country the world over is sure, sooner or later, to have its effect noted in one of the paragraphs of the Money Article.

There are two ways of reading a Money Article. The first, and probably by far the most popular method, is merely to glance at, or “skip over, ” the information respecting the condition of the Money Market, the price of money, the discount of bills, foreign exchanges, Bank Return, etc., and to turn to the supposedly more interesting subject of the fluctuations in prices on the Stock Exchange, and especially of the prices of those securities in which the reader has a pecuniary interest.

The other method of reading these articles, and certainly the most profitable method, is to read thoughtfully all the information, and to note the connection of cause and effect in relation to the various items mentioned; in fact, to read the articles as a homogeneous whole, and not simply to dip into them here and there; and the reader who so reads his Money Article will be surprised to find what an insight into the present and, to a certain extent, the future financial position he acquires thereby.

The City Editor of a paper has a vast amount of information to supply to the public, and a limited amount of space in which to present that information, and the result is that these articles are usually decidedly “terse”—not to say abrupt—in style: a fact is briefly stated, and the probable effect of such fact is added, though no information is given as to why such an effect should result from such a cause, which is left to the reader to fathom out as best he can.

Money Articles may be roughly divided into two sections: the first deals with the Money Market proper, the foreign exchanges, gold movements, etc., and the second with Stock Exchange matters. These two sections may appeal to somewhat different classes of the community; but the connection between them is so intimate, and they act and react on each other so frequently, that they cannot be dissociated. The first section of the article more nearly affects the subject-matter of this book than the latter portion, which is amply dealt with in another book of this series.

Money Articles almost invariably commence with a paragraph which is really a general summary of the events which have transpired in the Money Market on the day of writing. The first paragraph, though consisting of only a few lines, often teems with information to those that can read it aright. Nearly all the subjects with which it deals have been dealt with in the course of this book, and therefore it will only be necessary to enumerate them here.

The condition of the Money Market is first noted in reference to the supply and demand of “call” and “short money,” as between the bill-brokers, the banks, and the Bank of England; the rates are quoted at which money was lent at “call,” “overnight,” or for “short periods,” and mention is made of any transactions in this market entered into by the India Council. Passing on from this, any facts are mentioned which, on the day in question, have had, or on the following day will have, any important bearing on the position of the short loan fund. These items comprise reminders of the falling due of any instalment on large new public issues, the payment for or repayment of Treasury, India, or Corporation bills, etc.

The question of discount rates is then dealt with, and a note is usually made as to whether or no the banks are “working”; that is, whether the banks are buying bills from the brokers, or refraining from so doing. The paragraph then usually concludes with a reference to exchange rates.

The article then proceeds to note any import or export of gold which has taken place on the day in question, and any variation which may have occurred in the price of gold. Importers of the metal know that they can always sell their gold to the Bank of England at the minimum price of £3 17s. 9d. per standard ounce, and therefore the price never falls below this figure. If there is any foreign demand for gold, the exporters will bid above this price, and secure what is offering, unless the Bank of England raises its buying price, as it sometimes does in times of stringency. It is of interest to note the origin of imports and the destination of exports of gold; and, at the same time, to follow the movements in the exchange rates of London with these places of origin or destination. The action of the Bank of France and of the Reichsbank in retarding exports will frequently become visible in these figures, as will also the action of the latter institution in facilitating imports of the metal into Germany. A note will at times appear that so much gold has been sold for Germany at such a price, and if the foreign exchange table in the same article be referred to, it will often be found that this gold has left us for Berlin in spite of the exchange being well above the nominal export specie point.

The expression that “the Bank bought so much gold to-day” appears to cause difficulty in some minds, in that some people cannot understand how the Bank benefits by buying gold. “What can be the use of the Bank buying gold?” they say. “It must give gold for gold, which won’t alter its position in the slightest!” This matter is a very simple one really, and explains itself with a little thought. The usual procedure of dealing with an import of gold is for the importer, or his agent, to hand the gold to the Banking Department of the Bank of England, which credits him for the value of the gold. Of course, if the importer were then to draw out this amount in gold the Bank would not be benefited, but this does not happen under any ordinary circumstances. The Banking Department passes the gold on to the Issue Department in exchange for notes, and the extent to which the Bank benefits is shown in the ensuing Return, when “Other Deposits” will be increased, owing to some account having been credited for the gold received, and on the other side of the account “Notes” will be so much higher; that is, the Reserve and Ratio will both be increased. The figures of the Issue Department will be increased on each side by the amount of gold received and notes issued.