The Sun.
London, England, 1861-02-19 00:00:00

THE RISE IN THE BARK RATE OF DISCOUNT.

From the Economist.

On Thursday the Bank of England raised its
rate to 8 per cent.—a step which has excited much
surprise and drawn forth some severe criticisms.
The general reason which has no doubt influenced
the directors is not so much the increase in the
demand for accommodation at the Bank, though
the Other Securities have increased by 1794,088
in the week ; for this is properly ascribed in great
measure to temporary causes. It is rather the re-
appearance of the drain of bullion from this
country which has been temporarily, but only
temporarily, checked by the high rate already
adopted, taken in connexion with the circumstances
which show that the causes of that drain are still
in operation. The bullion reserve is diminished
this week by £261,504. The particular form which
the drain is now assuming is that of a demand for
silver for India. The amount of the silver exported
in the last six weeks to India and China is
£1,521,901, the whole export of silver in the pre-
vious six months having been only £3,703,903—50
that there is reason to fear that the drain in that
direction is likely to spring again into its old
proportions. This turn against, us is said to be
due to the " wild orders" for cotton from Bom-
bay, and very probably this may be the case. But
it matters not in the least to what cause a drain is
due—nor, of course, whether it be a drain of silver
or gold—so long as it continues and seems likely
to continue. The special form it takes bears on
the question only so far as it indicates:a more or less
temporary cause. Yesterday it was a demand of
gold for the United States—now it is one of silver
for India. The greater the number of possible or
probable causes for a turn of the exchanges unfa-
vourable to England, the more needfulis the
caution which the Bank directors have shown in
adopting the only remedy which can arrest its con-
tinuance—because, when there are many such
causes, even if one cause ceases to operate, some of
the others may again become active.
In the present instance it cannot be denied that
there is evidence of a steady tendency to a renewal
of the drain. For more than twelve months it
has gone on steadily, and only been arrested for
very short intervals.

On the 15th of February, 1860, the bullion
and coin in the Bank of England
was £15,105,287
On the 13th of February, 1861 11,571,332

Decrease
But it is said that for the fortnight ending with the
6th inst. a recovery took place in the Bank's stock
of bullion, and it is argued that even if that re-
covery has been lost (which it has almost entirely),
we are no worse off than we were when the
high rate of 7 per cent. was first fixed. This is
erroneous reasoning. We are worse off if, after
trying a remedy believed to be sufficient and more
than sufficient, we find that its effect is inadequate ;
and this we do know, if the tendency is to lose in-
stead of to gain bullion in spite of the 7 per cent.
rate. The absolute stock of bullion may not be
less; but we have the evidence that it will
shortly be less instead of more, unless a still more
stringent rate be adopted. In short, we have it
proved that the current is against instead of for us,
in spite of the high rate of 7 per cent. And it
seems, therefore, only reasonable to try at once the
effect of a still higher rate.
Nor is the argument that the rate on the conti-
nent is in most places much lower than in London
of any value, if we find practically, as we have
found, that the difference in the rate is not suffi-
cient to pay a profit on importation thence. The
test is simply the fact whether in spite of the lower
rate at Hamburg, Amsterdam, and elsewhere, bul-
lion is sent thence to London. If not—and this,
we need not say, has not been the case—it is no
consolation to the Bank of England to know that
exportations cannot profitably be made from Lon-
don to Hamburg, Amsterdam, and so forth. The
bullion is going away from us to India, and we
want to replace it. Until our rate of discount
either tempts hithdr enough to supply its place, or
prevents its going out at all, it is not high enough.
The only question for the Bank to consider is
whether or not the causes which produced the
gradual drain of the last year have yet been ar-
rested, and the evidence is clear that they have not.
The United States have sent us largely increased
quantities of grain, and have taken less than usual
of our manufactures in return. There has been a
large expenditure in China. Besides this, our
merchants are increasing their investments in the
China trade on the strength of the new treaty. In
India thcrc i 3 a con3iderable demand for capital on
account of the new railways, as well as a suddenly
increased demand for cotton. All these causes
tend to make floating capital dear, and most of
them directly to turn the exchanges against us.
When there is added to these general considera-
tions the fact that bullion is taken from the Bank,
instead of being brought there, there is enough to
justify the caution of the directors, though cer-
tainly not enough to justify panic.
It has been said in some quarters that the demand
is for silver, not for gold, and that this doesnot dis-
turb the exchanges in the same way as a demand for
gold. The remark is obviously puerile. If silver is
wanted for export, it can only be got by buying it.
And wherever it is obtained, either in Eng-
land or France, the tendency must equally be
to diminish the bullion reserve. If the silver is
bought in France, gold will be sent to buy it with.
And if gold is sent, it will be obtained by discounts
or by presenting notes at the Bank of England.
It is said that "the stock of bullion now held is
nearly a million in excess of the average of the en-
tire year 1856, when the average rate of discount
was 5i." This is a loose kind of comparison worth
very little. The greatest loss of bullion in 1856
was between June 28, when the bullion stood at
£33,073,758, and when the rate was 41, and Nov.
8, when it had sunk to £9,530,152, after which it
was raised to 7 per cent., being a loss in 19 weeks
of about £3,500,000. If we go back for the same
period, that is 19 weeks from the present date, we
shall find that