APPENDIX
THE GOLD RESERVE
Since the remarks concerning the Gold Reserve were written ([chapter xiv].) much interest has been aroused in the matter by a suggestion made by Mr. J. Herbert Tritton, the President of the Institute of Bankers.
At the opening of the last session of the Institute (November, 1903) the President, in his inaugural address, after referring to many current and important topics, passed on to the subject of the visible gold reserves, and made the following novel suggestion. By Mr. Tritton’s courtesy his remarks on this matter are here reproduced in full.
“Visible Gold Reserves
“The ever-pressing question of this country’s visible reserves of gold, quiescent during the war, is again attracting attention. Theoretically, everyone would admit that larger reserves of gold in this country are desirable; many would go further and say necessary; but any, even the smallest, step in the direction of action is at once barred on the ground of expense. At whose cost is the reserve to be held? £15,000,000 at 3 per cent. is £450,000 a year, and this must almost inevitably come out of somebody’s pocket. Bank of England stockholders and ordinary bank shareholders would be mulcted, or would think they were, to the extent, say, of a second income tax of 1s. in the pound on their dividends. Of course, the question is, in its essence, of national importance, but the Treasury of this country never allows itself to be influenced by considerations of this character—nor, indeed, have the English people for the last fifty years expected either Government help or Government interference in their financial or commercial affairs. Pardon the interjection, but I, for one, say long may this country be not only self-reliant, but free; free to trade as each member of it shall choose, unshackled and uninfluenced by Government restrictions or Government encouragements! We may, perhaps, cherish a faint hope that the new Chancellor of the Exchequer may realise that he has taken with him from the Post Office, liabilities as a banker, £144,605,088 in respect of Post Office Savings Banks, and finds in his new office a further sum of £52,505,081 in respect of Trustee Savings Banks, making together £197,110,169, liable to be repaid in gold; and realising this as a banker, may be less obdurate than his predecessors. But it would not be wise to expect much from Downing Street: if the thing is to be done we must do it ourselves. That a solution of the question is supremely necessary I am convinced, however great the initial difficulties may be; and that it is not beyond attainment if the best energies and the best brains of the banking community be devoted to it, I am also persuaded. Mr. R. H. Inglis Palgrave gives in his new book, Bank Rate and the Money Market—a book which every banker should possess and read—page 104, the following table:—
| Capital, Deposits, and Circulation. | Average Reserve, Bank of England. | Proportion per cent. of Reserve at Bank to Liability as of all Banks to the Public. | |
|---|---|---|---|
| 1872 | £584,000,000 | £12,100,000 | 2·06 |
| 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.