The Washington herald., 1910-09-04
Hartley WitherS Describes
Monetary Machinery.
FUNCTIONS OF NATIONAL BANK
Serves ns Center of Vast Financial
Fabric whose Manifestations Reach
to All the WOrId-Subiect Treated
in Monograph Issued by Monetary
COmmIssiOn-Credit Good as Gold.

| London market in its relation TO the Bank
Of England. the joint-stock banks. and
the discount houses has been made pub.
( lie by the National Monetary Commission
in monograph on The English banking
system. by Hartley withers. financial
editor Of the London Times
Mr.. Withers begins with an enumera.
ton Of the distinctive functions Of the
Bank Of England. which he declares to
be as follows
Banker to the British government.
Banker 20 the !Jint-stock and privat,
banks
Sole possessor Of the right 10 issue
notes which are legal tender in England;
sole possessor. among joint-stoclx banks
with an Office in London. Of the right 70
issue notes at all
Provider of emergency currency.
Keeper OF the gold reserve. which is
most readily available for the purposes
Of international banking.
These various functions Mt into and sup
plement one another, and though their
diversity is sometimes pointed 20 as
throwing too much responsibility onto one
institution, IT, in fact, enables the bank
to carry out its duties with extraordinary
ease and with the least possible disturb
to the financial community.
BY the fact that It keeps the balances
Of the other banks, the Bank OF England
Is enabled 10 conduct the payment OF the
interest on the British debt largely by
transfers I'm its books. BY the fact that
It keeps the balances OF the government
and has the monopoly of the legal-tender
note issue, the bank has great prestige
IN the eyes Of the general public which
II communicates to the other banks which
bank with H.
Credit Coos as Gold.
A credit in the books of the Bank Of
England has come to be regarded as just
as good as so much gold. and the other
banks. with one exception, habltually
state their cash in hand and at the Bank
Of England" as one item In their balance
sheets. as II there were no difference be-
tween an actual holding Of gold or legal
tender and a balance at the Bank Of
England. IL thus follows. at times when
an increase Of currency Is desirable. that
il can be expanded by an increase In the
balances Of Tx other banks al the Bank
OF England. since they thus become pos
sessed of more cash to be used as TO
basis Of credit; for currency in England
chiefly consists Of checks. and customers
who apply 10 the banks for accommoda-
ton, by way of discount or advance. use
it by drawing a check. which is passed
on and so creates deposit, and the ex-
pansion Of currency thus consists chiefly
in expansion OF banking deposits
This expansion IS only limited by the
proportion between deposits and cash
which the banks think fl TO keep. and as
long as they can increase their cash by
increasing their credit in the Bank Of
England'S books the creation OF currency
can proceed without let or hindrance.
Taking up the subject OF the position OF
the Bank of England In the international
market. il is declared that London IS the
only European center which is always
prepared to honor its drafts in gold i'm
mediately and to any extent The Bank
OF France has the right 10 make paw
ments in silver. and uses it by often
charging premium on gold sufficient 20
check any demand for il: and In other
centers measures are taken which make
apparently free convertbuity OF credit
instruments optional at the choice Of the
central bank
Meets Many Demands.
Consequently the Bank OF England has
to be prepared TO meet demands on It at
any time from abroad. based on credits
given to foreigners by the English bank
ing community. and 1t has thus TO OBJ
serve the signs Of financial weather in
all parts of the world and to regulate
the price OF money in London so that the
exchanges may not be allowed to become
or remain adverse to a dangerous point.
The difficulties Of this task are in
creased by the extent TO which the Eng
fish banking community works independ-
emily of it. by accepting and discounting
finance paper. and giving foreigners cred
its at rates which encourage their further
creation. For the low and wholly unreg-
ulated proportion of cash to liabilities on
which English banking works enables the
other banks 70 multiply credits ultimately
based on the Bank Of England's reserve.
MAINTAINING
the reserve to the bank This it does by
raising its rate when necessary, and so. !
# it has control Of the market and its
rate is effective raising the general
evel Of money rates in London.
When its rate is not effective, the Bank |
IF England finds itself obliged 10 inter- /
rene in the outer money market-conslst-
ng of the other banks and their custom |
control the rates current In n.
This it does by borrowing some of the /
boating funds in this market, so lessen
ng their supply and forcing up the price |
II money. BY means of this borrowing II /
iiminishes the balances kept with il by
he other banks. either directly OF indi-
'ectly-directly il II borrows from them. /
if it bOrrOws from their Gus
omers. who hand the advance to it in the
shape of a check on them.
Money Becomes Scarce.
The result is that so much Of the
cash at the Bank Of England" which
he English banking community uses as
'art Of its basis of credit is wiped out.
in London generally means
he price at which the bankers are pre-
jared TO lend for a day or for q short
'eriod to the discount houses-becomes
earer, the market rate Of discount
Consequently tends to advance, the for
ign exchanges move in favor of London.
nd the tide OF gold sets in the direction
4 the Bank Of England's vaults. and it
s enabled to replenish it's reserve or
heck the drain on it.
In summing up the relation Of the bank