The Sun.
London, England, 1827-05-30 00:00:00

BANK OF ENGLAND AND COUNTRY

BANKS.

The following circular, it is said, has been sent
to some of the leading private banks throughout the

country :

(CIRCULAR.)
"Assuming it to be desirable to retain a paper
money currency convertible on demand, the great
question for consideration is, how that paper money
can be so regulated as to afford the greatest security
for receivers, both as regards the solidity of the
issuer, and the power of obtaining coin for the same
on demand.

" In order to obtain those objects, it is necessary, '
in the first instance, to free the paper money as far
as may be possible, from the effects of what has
been termed panic. In a great commercial country
like this, periods Of speculation and over-trading may
frequently arise; still, no event of that nature ought,
under proper regulation of the currency, to affect
the credit of the paper money, the discredit of which
has hitherto tended very greatly to aggravate the
evils which we have in such times sustained. Now
under the present system of issues by the Bank of
England and the country bankers,there is the greatest
difficulty, amounting almost to an impracticability, of
so regulating the paper money currency as to attain
the objects immediately referred to. The conflic-
tion of action and interest between these two descrip-
tions of issues is the main difficulty ; the main fact
being that, as prices expand, and even where the
notes are returning upon the Bank for gold to be
exported, the issues of the country bankers are ex-
tending,and are never attempted to be withdral,vn,until
the Bank makes an evident demonstration to the
country of contracting from a continuance of the
drain upon that establishment for gold. That ac-
tion, though of the most trifling amount, imme-
diately lays the foundation of alarm, and the paper
money issued by the country bankers becomes dis-
credited before they can be provided to meet the
run upon their establishments. Stoppage is the
consequence, with many ; and although they may
eventually realise sufficient assets to meet their en-
gagements to the actual holders of the notes, yet
' the country has to sustain all the evils attendant on
the first discredit, and which no final payment can
ever alleviate. It is in this state of discredit, at-
tending the private paper money currency, that the
Bank of England is looked to, not only for gold in
exchange for its own notes, but also to supply an
almost instantaneous demand, to a very great ex-
tent, on the part of those country bankers who have
the command of funded or other tangible property to
offer as security, the magnitude of which internal
demand for gold actually places the Bank in the
greatest possible danger, and with that danger the
credit of the country is placed at hazard.
" It may, perhaps, be deserving of consideration,
whether the hazard and difficulties of our present
system might not be obviated by confining the issue
of the paper-money currency to one body of undoubted
solidity ; and believing that such a measure, if prac-
ticable, could not be so satisfactorily carried into
effect as by the Bank of England, under proper and
efficient Parliamentary regulations, it is proposed
that the paper of that Corporation should be that
alone permitted to circulate. There could, how-
ever, be no objection to the substitution of any other
body of equal credit, which might be deemed more
advantageous for the country. In thus limiting the
issue to one body, the accommodation and advantage
derived by the public from the country banks ought
to be preserved as far as may be practicable ; and
which, it is presumed, might be effected, by continu-

ing in that ckannel the issue of the paper money
proposed to be adopted, in such manner and at such
rate of interest as may afford a fair proportion of the
advantage which the country bankers have for so
Many years been permitted to enjoy in their own
circulation. It remains, therefore, to be shown, in
what mode a plan of that nature could be adopted.
" The advantage hitherto derived by the country
bankers upon their issues may be estimated at .5 per
cent. per annum ; from which, however, should be
deducted:—
" I. The expence of printing, issuing, &c.
" Z. The stamp duty.
" 3. The interest on the amount of Bank of Eng-
land paper, or bullion, which they ought to keep to
meet returns.
" 4. The risk of loss in times of general discredit
of private paper money, upon realizing funded or
other property, which wader the present system has
generally occurred once in four or five years ; and I
there appears no reason to suppose that it will occur
less fi equently hereafter.
" These deductions may be fairly estimated at
from ; to 3 per cent. per annum, the residue forming
the amount of net profit. It might therefore be pro-
posed that every country banker, withdrawing his
own paper circulation, should receive that of the
Bank of England, to the same amount, at a re-
duced rate of interest, giving to that corporation se-
lity for such issue; one-third of which should be in
bills of exchange, or other convertible securities, ‘vhich,
in the event of a contraction becoming necessary
to correct the exchanges, might be withdrawn by the

Bank upon three months' notice, in sums not ex-
ceeding 5,0001. in succession; and any sums so with-
drawn should, if required, be again re-issuable in the
same mariner, and upon the same terms. The re-
maining two-thirds to be a permanent advance upon
funded or landed property, during the term sf the
Bank charter, at the option of the borrowers.
" The country bankers would thus derive the full
benefit between the rate of interest paid to the Bank,
and that which they would obtain from their bor-
rowers, free from all anxiety arising from panics, and
from other causes discrediting private paper-money.
There might, perhaps, be some little difficulty in
laying down regulations for keeping up this system
upon the dissolution of existing country establish-
ments
: that difficulty might, in all probability, be
got over when the details of the plan came to be
considered.
" The Bank paper thus proposed for circulation
might be issued from the branch banks established
in central parts of the country, affording the facilities
of exchange, and payment in coin when demanded;
and from which branch banks any further issue
might be made upon discount at the current rate of
interest, which might be required by the expansion
of prices, so lone.. as the exchanges were in favour of
the country ; thus' affording at all times a full and
efficient currency. In order to give the desired
effect to a plan of this description, it would be es-
sential to obtain she concurrence of the majority of
the country banking interest, and which, from a
limited inquiry that has been made, it is thought
would be given, provided no material difficulty arose
in arranging of details. And, finally, to give stabi-
lity to the system, the Bank of England should be
required to publish in the Gazette every quarter, the
amount of notes in circulation, with the bullion, and
securities in deposit, that the public might be ap-
prized of any fluctuation in either paper or bullion,
which might occur, and which publication would, it
is conceived, be a sufficient security against any un-
due use of the power thus placed in the hands of
the Bank.
" It is presumed that by the foregoing plan, al

.
the advantages and convenience of the country bank
establishments might be retained, and permanent
soliiity be given to our paper money currency, no
contraction ever being likely to occur, except in the
event of a continuance of an unfavourable exchange,
and the consequent return of paper upon the Bank
and its branches, for gold to be exported, which
return of paper, if not improvidently re-issued by
the Bank, would, in all probability, be sufficient to
correct the exchanges, and bring back the gold
which might have passed abroad. If the demand,
however, for gold should at any time be very rapid
'and extensive, it might, possibly, in such case require
some trifling check, either by contraction of the paper
circulating throughout the country, or by a limita-
tion of the mercantile discounts at the Bank, the
effect of which would be to contract at an early
period that part of the currency which may be
termed collateral—viz. bills of exchange and credits,
thus lowering the prices of commodities, so as to

render them cheaper articles of payment to the fo-
reigner than the bullion previously required,

" If, upon giving this subject the fullest considera-
tion, it should be deemed objectionable to confine
the issue of paper money to one body, it appears to
be doubtful whether any real and effectual security
can be given against the recurrence of the evils we
hare so lately sustained. So long as the Bank and
the many exist together, so long will the latter
always rest upon the former in the day of distress
and discredit; and from what has hitherto so fre-
quently occurred, it may be confidently asserted, that
under the great exist;ng state of our paper money,
the Bank continuing to act as heretofore, must ne-
cessarily incur the greatest risk of stoppage, and
thereby place at hazard the very credit of the country.

" In considering the preceding statement, the fol-
lowing principles should be admitted :—That all
supposed vested interests, either in the Bank of Eng-
land or other establishments, issuing paper money,
should be deemed subservient to the national inte-
rests : consequently the security of general property
should form the only object of consideration in any
plan for substituting paper money for coin."