“But copper is a legal tender, I suppose, up to a shilling; or perhaps beyond it, as silver is to more than a pound.”
“Copper is a legal tender to the amount of fifteen shillings.”
“Well; I am sure that is enough. Nobody would wish for more. But why should we not have the easiest kind of legal tender of all,—paper money of all values? A note for a penny and a note for 100,000l. would be equally convenient; and both more so than any coin whatever.”
It was presently pointed out that paper-money being, in fact, circulating credit, and not a commodity, could not be made a standard, though it may represent a standard, and be used as its substitute. Bank-notes might, Mr. Craig observed, be made a legal tender, if so strictly convertible that their value should never vary from that of the metal they represent. No means had yet been found to make such an identity of value permanent; and while any variation existed, all dealers in money would be exposed to the evils of a double standard. He supposed the country had had enough of the legal tender of an inconvertible paper currency.
“Has paper then ever been made a legal tender in this country?”
“It was rendered so to all practical purposes,—though not under the very terms,—by the Restriction Act. Bank of England notes were received as cash in all government transactions, and by almost all individuals after the crisis of 1797. The effect upon the country was much the same as if they had been avowedly legal tender; and it is thought that not one man in twenty was aware of their being any thing else.”
“Nor is, to this day,” observed the shopkeeper. “Every man in this town who holds Bank of England notes would be confounded if you told him that his creditors are no more obliged to be satisfied with payment in those notes than in Cavendish’s rotten rags. Would you have them no longer a good tender for practical purposes, when the Bank returns to cash payments?”
“I think one kind of paper might be legal tender for another. Country bank-notes being made convertible into Bank of England notes instead of coin, might, as it seems to me, be a very good thing for all parties, (if the Bank is to continue to hold its present station and privileges,)—provided, of course, that this Bank of England paper is strictly convertible into the precious metals.”
“But would not that be hard upon the Bank of England? Should the Bank be thus made answerable for the issues of the country banks?”
“Nay; the hardship is under the present system; for, according to it, the Bank of England is made answerable, without having any of that power of control which it would have under the other system. We know that country bankers do not keep much coin in their coffers. As soon as a panic arises, they pledge or sell their government stock, and carry the notes they receive for it to be changed for gold at the Bank to answer the demands of their country customers. Thus the Bank is liable to a drain at any moment, without further limit than the stock held by all the country bankers. Now, as it need not issue more paper than it can convert on demand, it is not answerable for any proceedings of the country bankers, and holds a direct check over the issues of all who are not careless of their credit.”