The sun. [volume] (New York [N.Y.]) 1833-1916, 1915-12-18
THE WAR or THE SPECIE
VAUL rs.
Be4llscrent Finances From Fro
herman Point Of View.

TO ~ EDITOR or IL StN-S"' >"
THE SuN of December Is Mr.. James =
H.. Umsted reviewed the status on the
central banks in Germany, England ana
France. lie arrives Mt the conclusion
that Germany's financial position Is far
the worst Of the three. and repeats the
oft heard opinion that Germany's cap
ital is being slowly consumed.
incidentally a few cautious hints are
! given AZ to Germany having taken over
the gold reserve Of the Austro-Hunga-
rian Bank. a charge which has been
explicitly denied by the Secretary Of the
German Treasury. What OF the fact
that England has as yet not attempted
to refute the charge that Great Britain's
gold stock has been replenished by In
cooperating the gold reserve OF the Bel
gan National Bank. the Egyptian Ma
tional Bank, the Indian Currency Re-
serve and the Argentine Conversion
Fund? In spite Of such confscations
and Of more recent contributions by the
Banks Of Russia and France the gold
stock OF the Bank Of England decreased
from $4,000. 900 pounds sterling at the
end Of 1914 to 100000 at the end OF
November last. Moreover. the French
and Russian institutions have been
forced to an agreement providing
their obligation to come to the help OF
the English ally II the gold stock OF the
latter should sink below a fairly high
point" as Mr.. Lloyd George said.
The power Of central banks to increase
their gold holdings is limited by the
amount Of coin circulating In the difer-
ent countries. most Of the neutrals hav-
Ing forbidden the expectation OF gold.
| According to the statistics OF the Direc-
tor of the United States Mint England
had the smallest margin In this respect.
The latest figures are not at my actual
disposal. but In 1906 England had a cir
c~ulation of not much more than $50 mill
ion dollars against Germany's $50 mill
ions. France. however. led with approx
imately 100 millions. These figures
cast a strong doubt upon the reported
statements of the British Chancellor OF
the ExcheQuer saying that English pri-
vate banks were still holding 55l million
dollars in gold in addition to 3S1 mill
ions still held by the public. 1t seems
hardly possible that the present gold
stock Of the Bank Of England can be in
creased from the domestic circulation.
1t may. however. be possible that the
British Government contemplates high
handed measures similar to those men,
toned above.
The accuracy OF the synopsis OF the
status OF the different banks as given
by your correspondent may be granted.
as no means for verification are at my
dis sosal. A few remarks. however.
seem necessary.
Russia's financial position cannot be a
subject of serious discussion at the pres
ent time, as the Cars Government has
virtually declared bankruptcy by De-
faulting in the payment of interest on
the Russian loans. Russia's gold treas
ure would dwindle to small proportions
II she should fulfil her obligations as an
honest debtor.
AS an asset OF the Bank of England
your correspondent gives an amount OF
1857 million dollars, labelled as gold
for treasury notes. This item is of a
purely fictitious nature, representing no
specific cash besides the coin and bullion
held by the issue and banking depart
ments Of the Bank of England. BY
eliminating that item the gold stock is
no more than 25i.6 million dollars and
the notes are only covered to a proper
ton of 32.S per cent.
cash in hand Of the Bank OF
England consists not only IN gold. but.
as the reports say. in coin and bullion,
thus including sometimes large sums
OF silver money. the intrinsic value of
which Is much less than the face value
The same reserve, only much stronger,
has TO be made In regard TO the Bank OF
France. Five franc pieces OF silver are
admitted AS cover OF the French bank
notes and II il well known that huge
amounts Of them are stored in the vaults
Of the French bank. The proportion of
the cover is considerably influenced by
the masses of the overvalued white
metal. II shoul moreover not he for
gotten that the liQuidity Of the Bank OF
France is largely impaired by the ad-
vances made to the French Government.
These advances amounted even in August
last to I6, 900, 000. 900 francs, besides
short term notes issued by the Govern
ment amounting to about 5000, zoe, oo0
francs. which were also taken up by the
Central Bank. France has made the
grave mistake of stunning too long the
raising of loans and II is not to be ex-
pected that the much heralded loan OF
victory" Will remedy this muddling o.
the first one and "A half years.
G~ermany's position is rendered bad In
your correspondents synopsis by includ.
ing in the liabilities Of the Reicnsbank
tn. notes issued by the war loan banks
That Is a rather arbitrary proceeding
The war loan banks are not In dlrec,
connection with the Reichsba nix. II tho
portfolio Of the Reichshan nix contain,
notes issued by them, they ought to 1t
counted az assets, not as liabilities, ex
actly as the notes OF Bavarian, Saxor
and other secondary German note banks
Any note Issuing bank in the United
States will consider the notes OF othel
: banks as an asset. not as a liability
, The business of the loan banks is purel,
collateral the notes issued therefor,
represent real securities and the gooc
foundation OF the loan hank notes SHOULD
not be questioned. Their transaction
} are cautious on account of the s~trictnes!
Of the rules concerning the evaluatior
of the coilaterals. At the same time thi.
collateral basis implies that the securi
ties cannot decrease without an equiva
lent decrease in the amount OF notes.
Thus it will be apparent how littl,
justified II Ia to count the loan BAN
notes as liabilities Of the Reichsbank
Not coins so far as to include them IL
the Reichsbank's cash In hand, which
would be perfectly Justified, but merel,
, leaving them out OF the Reichsbank'
, accounts, where they have no place, tn
proportion of the cover OF the Germa,
bank notes rises to 40.5 per cent, thu
eXcelling both England and France.
In parenthesis IL should be notice,
=, that England has established institu
tions similar to the German war loaI
banks. They serve for financing the sub
; scriptions to English war loans. and dif
fer from the German scheme in so ia
=, as the loans can be granted for thre
, years Tin Germany restricted to ST
months), destinations can go az high a
the fun price Of the securities Gin Ger
: many only a proportion) and the rate D
; interest is l per cent, below the ordinar,
discount rate Gin Germany l per cent
above). The transactions of institution