The following is a copy of the Return or Balance Sheet for the week ended Wednesday, 1st October, 1902:—
ISSUE DEPARTMENT.
| £ | £ | ||
| Notes Issued | 51,792,330 | Government Debt | 11,015,100 |
| Other Securities | 7,159,900 | ||
| Gold Coin and Bullion | 33,617,330 | ||
| —————— | —————— | ||
| £51,792,330 | £51,792,330 | ||
| =========== | =========== |
BANKING DEPARTMENT.
| Liabilities. | Assets. | ||
| £ | £ | ||
| Proprietors' Capital | 14,553,000 | Government Securities | 15,826,080 |
| Rest | 3,816,736 | Other Securities | 31,837,516 |
| Public Deposits (Including Exchequer, Savings' Bank, Commissioners of National Debt, and Dividend accounts) | 10,025,973 | Notes | 21,391,145 |
| Other Deposits | 42,695,526 | Gold and Silver Coin | 2,225,084 |
| Seven-day and other Bills | 188,590 | ||
| —————— | —————— | ||
| £71,279,825 | £71,279,825 | ||
| =========== | =========== |
A glance at the right hand side of the statement relating to the Issue Department tells us that every note, either in the hands of the public or held in reserve in the Banking Department, is covered by securities and specie deposited in the Issue Department. The amount of the notes in circulation is, of course, obtained by deducting the notes in hand in the Banking Department from the total amount of Notes Issued on the left-hand side of the Issue Department. The difference, £30,401,185, is called the "circulation," and represents the sum which the Bank of England had borrowed from the public on its notes on the 1st October last.
Each department is distinct, and has, in fact, a separate existence; so if the Banking Department requires gold, it must, like an ordinary individual, exchange some of its notes in hand at the Issue Department, obtaining therefrom the additional coin to satisfy the demands of its customers in the Banking Department.
The Bank has transferred the Government debt and other securities, which together amount to £18,175,000, to the Issue Department, and this sum is called the "authorised issue," for the simple reason that the Government allows the Bank to issue notes for a like amount against these securities, which are mortgaged to the holders of its notes. Gold coin and bullion, we know, must be deposited against every note issued in excess of this sum; and as both sides of the statement agree, it is evident that this has been done. These £51,000,000 of gold and securities, then, are hypothecated to the holders of the Bank's notes, and, in the event of the Bank of England being wound up, the creditors in the Banking Department could not touch either the securities or the gold. But we see that the Bank holds £21,391,145 of its own notes in the Banking Department, and, of course, these notes are secured in the same manner as those held by the public; consequently, this department enjoys similar rights and privileges in respect of them. Add the notes in hand in the Banking Department to the "circulation," and it will be found that the total equals the amount issued.
It follows that the Bank only makes a profit on the authorised portion of its note issue, for, as gold is deposited against the remainder, it must lose thereupon to the extent of the cost of production of the notes issued in excess. Obviously, then, the Act does not limit the note issue of the Bank, but it does limit that portion which is not covered by gold, and, consequently, it removes the probability of our seeing Bank of England notes at a discount, as was the case during the early part of the nineteenth century, for the fact that the Bank of England is compelled to redeem its notes in gold on demand prevents depreciation of its paper.