The Hattiesburg news. (Hattiesburg, Miss.) 1908-1917, 1910-09-06

that 1t keeps the balances of the Gov
eminent and has the monopoly Of the
legaltender note issue, the bank has
a great prestige in the eyes Of the gen.
eral public, which it communicates to
the other banks which bank with it.
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,
habitually state their cash in hand
and at the Bank Of England" as one
item in their balance sheets, as if
there we're no difference between an
actual holding of gold or legal tend
er and balance at the Bank Of Eng
land. 1t thus follows, at times when
an increase in the currency is desir-
able, it can be expanded by an in
crease in the balances of the other
banks at the Bank of England, since
they thus become possessed of more
cash to be used as the basis of credit
for currency in England chiefly con-
sists of checks, and customers who ap-
ply to the banks for accommodation, by
way of discount or advance, use it by
drawing a check, which is passed on
and so creates a deposit, and expan-
sion 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 fit 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 hinderance.
Taking up the subject of the posi-
ton of the Bank of England in the in
ternational market, it is declared that
London is the only European center
which is always prepared to honor its
drafts in gold Immediately and to any
extent. The Bank of France has the
right to make payments in silver, and
uses it by often charging a premium
on gold sufficient to check any de-
mand for it; and in other centers
measures are taken which make ap-
parently free convertibility of credit
instruments optional at the choice of
the central bank. 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 banking
community, anil it has thus to OBJ
serve the signs of financial weather
in all parts of the world and to regu-
late the price of money in London so
that the exchanges may not be allow
ed to become or remain adverse to a
dangerous point. The difficulties of
this task are increased. by the extent
to which the English banking COM
munity work independently of it, by
accepting and discounting finance
paper, and giving foreigners credits
at rates which encourage their furth-
er creation. For the low and wholly
proportion of cash to liza
bilities on which English banking
work enables the other banks to null
tiply credits ultimately based on the
Bank of England's reserve, leaving
the responsibility for maintaining the
reserve to the bank. This it does by
raising it's rate when necessary, and
so, if it has control of the market and
it's rate is effective" raising the gen
eral level of money rates in London.
When it's rate is not effective, the
Bank of England finds itself obliged
to intervene in the outer money mar
ket-consisting of the other banks and
their customers-and control the
rates current in it. This 1t does by
borrowing some of the floating funds
in this market, so lessening their sup
ply and forcing up the price of money
By means of this borrowing it dimin
ishes the balances kept with it by
the other banks, either directly or in
directly-directly if it borrows from
them, indirectly if it borrows from
their customers;who hand the advance
to it in the shape of a check on them
The result is that so much of the
cash at the Bank of England" which
the English banking community uses
as part of it's basis OF credit, is wiped
out, money-which in London gener
ally means the price at which the
bankers are prepared to lend for
day or for a short period to the dis
count houses-becomes dearer. the
market rate of discount consequently
tends to advance, the foreign exchang
es move in favor of London, and the