New-York tribune., 1878-02-02
THE MONETARY DUEL.
LETTER FROM GEORGE WALKER.

TIE OUTFLOW OF GOLD CRITICIsED-A SILVER
CURRENCY ONLY POSSIBLE UNDER THE BLAND
| BIu-sHALL THE UNITED STATES FOLLOW The
ExAMrLE OF THE LATIN UyIoN'
TO the Editor Of The Tribune.
SIR: In an article which contributed to the Octo
Der number of The Bank1S Magazine. on the " Bank
| of Englands Minimum l called attention to
the fact that the fluctuations which have
been so frequent in the bank rate within
the last twenty years have been due to two
| causes. First, the obligation to protect the
metallic under the purely currency provls-
ions of the act of 1914 and the practice OF dong So
| by raising the rate to check an outflow and second
! to the enormous increase of bank deposits in
England, without any corresponding increase in the
| metallic reserve of the country, and with the
| concentration of that reserve in a single
institution. ! pointed out that capital
| had been mobilized TO an extreme degree,
| and that a vastly increased National busl-
ness was being done on smaller and smaller basis
of real money. Hence, had arisen very sensitive
and feverish condition of the money market under
which the rate of interest established by the Bank
of England, instead of being regulated
| by the state of the capital market,
as il ought to be- has been very largely controlled
by the state of the metallic reserve pointed out
that these fluctuations very detrimental to COM
merce and tend to reduce all business to the condl-
ton OF speculation and that in France where busl-
ness is carried on with so much larger proportion
| of ready cash. the bank and market rate for money
have been much steadieT, and crises are less fTe-
| quent and severe may say, III passing that TINS
greater seadiness in the rate of discount il claimed
| by Rouand, Governor Of the Bank Of France, and
bv Lavecye and other bimetallsts, as being directly
owing to the use of the double standard. asocalled
attention to the fact that since The establishment
Al, ha
sh bank rate has been repeatedly raised to a point
entirely uniusfable by the condition Of the capital
market, III order artIfcally TO resist the drain of
gold to Germany, and that the old rule, under which
the Joint stock banLs, private bankers and discount
houses in London used To regulate their paying rate 20
depOstOrs and their lcndingrato to customers by the
| bank rate had been partially ifno wholly abandoned,
| the Bank attempting to dictate rate TO the money
market in order to prevent Germany from getting
gold and the open market Tebclling against the
! dctaton, by sinking its rate 50 far below that Of
/ the Bank to make its arbitrary rise a mere
! brutum filmeH How does this method of restrain
ing the outilow of gold differ from direct tax on
the export Of IT, measure which is universally de-
nounced as beyond the province Of goyernmentsi u
The conclusions which drew from the state of
things thus shown to exist in England. first.
| that the modern practice Of the Bank of England,
in the fixing Of its rate is purely artificial, not in
conformity TO the principles Of sound banking, and
! extremely detrimental to trade; and secondly, that
! one and perhaps the only. effective remedy wouia
he 10 induce or require other English banks to keep
] larger metallic reserves i'll their own vaults so a.
to make them self-dependent, aud to take tue
strain from the parent institution.
| CRITICISMS ON THE BANK OF ENGIANDs POLICY.
All these several statements of fact aud deductions
from them have been signally confirmed in several
| communications which have appeared IN The London
! Eoopomst Of later dates than my own article above
referred to. The mo't notable of these are from \
Banker" in the number of October 27; from 4" Bill
Broker in the number Of November TO- from c. II.
Metger Ia Bremen correspondent. in the number of
December % and from a Bill Brobcr,' again, in
| the same number. The Bremen letter is especially
| poteworthy rs showing what our Banking Re
serve look like 10 stranger" |" Bill Broker" in
his letter Of November 10. uses this language:
II has been that the impotence OF the Bank OF
an. %ron ~ the f"ct hat the German Goyernnent
establishing gold currencv and that Franc" does not
pay specie that when Germany has competed ArI
arfang ngrmcuts ard when France returns 10 specie pay
there wllhen be three centres from which To draw
gold and TIE Bank "!l again Dc master T ne si.uhon
and return 10 H. old normal coudiii"n lhis strongly
! doubt. why docs not gold now come irOel Germany
epod authority that IL constantly goes thence
does no' gold from Par,f Il is not because the
law prohibits their paying In specie, Tor one
|
and london informed me only fortnight since, that It
IL could made worth MS while he would place G3p0Q
because Bank OF England rate OF per cent power
less. And wonder, when We lfoA AZ te fact mat Tue
mnnity eight or ten Of whom hold deposits. "a before
stated Sgsesains @ ,psc n ~ dt
Intervals. upon one institution Is IKE cone stauihe
banks keep their gold fear Ne shall have
! constant d.sarrangement OF our financial system
Nv attention has been carried back TO these sew
cral communications by reading, this evening" the
leading article III The Economist of January II. on
| the Reduction of the bank rate to per cent" Ii
would seem that the Bank OF England is at length
tired of fighting against natural laws, for 1t mas III
this instance followed the course which otherbanks
would pursue not charged with the duty of guard
| ing the currency and one which .s dictated by the
duness of trade and the sackencd demand for cap
| ital aud il has done it in the face of a declining
reserve Of bullion The outside rate is only "a per
| cent. nearly per cent below the bank minimum,
so that, The Economist remarks, for the present
the bank seems scarcely likely to obtain more busi-
ness by the change" 1t goes on to say
That the Bank has made the alteration with view 10
dmiush the discrepancy between is own rate and me
market rate IL clear IA has done though the reserve
abou, 900 this week than last The Bank may
ling 10 allow ts grasp on tho bullion holds 10 be cla xrd
Ivy lowering the rate Of discount. bat the probaolity
IN accordance with the prccedents OF the Bank to
| lower the rate OF discount when thcr reser.e .
sinks, though there may have occasionally heen
examples when they have done TINS before. We
should have thought II 10 the general interest maj
they should have ab-taned from lowering the rste W
the reserves showed an augmentation lslrsd Oh ue
cline Should demand FOR bullion arisc, the banks may
again find themselves compelled. IN order 10
| protect their reserves, To charge "A rate 10
| whicn the outside market VIII not rise III
proportion; and this Is perpcxng thins TO sl
those concerned ~ dealing win money Ana lhtre Is M M
other point which must not be lost sight ol when II tnc
gradual dnnuion which has TAX place IN the STOCK Oh
bullion held hy the principal banks oi Lntope @ a,J t IN
year which has just closed movement so enureV h
one direction ~ not little remarkable. IL shows tiIe