The sun., 1915-10-13
ENGLISH CURRENCY.
Treasury Note Experiment That May
Lead to Permanent Changes.

bead TO permanent changes.
To THE EDITOR OF THE SUN-Sir: II
requires force Of great dynamic power
To shake the foundations Of British fnan-
cial conservatism, but tho necessities
OF the Unprecedented war in which that
nation is now engaged are producing
conditions which II is not reasonable
to suppose will fail to modify the cur.
rency system Of the United Kingdom.
1t Is evident. In the Hrst place. by the
difference between the exports OF gold
! from London TO the United States this
| year and the amount Of decrease in the
| gold holdings OF the Bank of England
| during that period that the bank has not
| alone borne the burden OF supplying the
metal necessary to settle part Of Brit.
| aims adverse balance Of trade. II must
have received some assistance from the
unreported but undoubtedly large gold
holdings of the Joint stock banks. viii
| there be some permanent alteration In
the relations heretofore existing between
| the joint stock banks and the central In.
| stitution as regards the control and
| utilization OF the total gold resources
| of the United Kingdom?
Owing to the dangers to shipping al
| the start OF the war the Bank OF Eng
| land established branch deposits of gold
| at Ottawa and subsequently In South
| the empire. Tho bank created purchas-
| ing agencies. carrying to its credit at the
| central London office the precious metal
bought by these agencies from producers
| and in the case OF Canada and Australia
debiting Itself against shipments from
| those quarters to this country. This
| establishes practically system OF
branch banks In the empire which may
be made permanent Heretofore London
has insisted upon being the actual. phys
ical clearing house on its international
! transactions involving shipments or re-
ceipts of the metal itself. II Is to be
hoped that this will help toward the
establishment OF some sort OF clearing
house to lessen the shifting OF gold be-
tween all the civilized nations
But II IL with respect OF currency
itself that the more important changes
In the English system may be brought
about. To-day the British empire has
n note issue differentiated from the fidu-
clary note issue of the Bank of Eng
land In that II IL protected by part gold
and part securities. mostly Government
funds. The percentage OF gold cover
Is steadily diminishing. The Treasury
notes which were emitted at the outset
OF the war In lieu OF suspension OF
the Peel bank act and the authorization
! Of Bank OF England notes resting partly
or wholly on securities Instead of actual
bullion have led to much economizlng
IN the Use OF gold for circulation In Eng
land and have doubtless helped to pre-
vent drain upon both the central bank
and the joint bank concerns. The out
standing amount of such notes, Govern
| ment obligations but not legal tender
now exceeds $3.50, 100000.
The Joint issue OF these notes was
made on August &c, 1914. amounting 10
| f2l, ,535. .o64. and not n pound sterling OF
gold was behind It. On September the
amount had risen 10 fo7.l13.l27. and
the Government set aside ca. 1000. 900 gold
in the Bank OF England as a redemption
fund, gold percentage OF 11.o6. Evil
IDENTIFY in doubt as to how far confidence
| could be maintained In the Treasury
notes the Government for some time
while continuing TO issue them. strov.
to enlarge the gold redemption fund. a
brief table OF the larger fluctuations In
| the note issue and It's gold cover will
help to visualize the significance OF the
movements
Week ended Notes reserve o. gold
Aug IS. 1914. .f.i ss5osi .... go.
sept. .. 1917. ?7lisi27 fs.ooo.oco Ii.o'
March 2. 1915. a.. 1.os3.o7s $1,000 900 7ia
May l:. 1915. I3.ai9.oi9 ?s.5oocoo t5.A0
oct. 6, 1915. s3.o7s,S7 2s,5oo.ooo $40
In only seven weeks since January 6
last has there been a decrease from the
amount Of notes outstanding at the end
OF the preceding week Most of these
changes were negligible. Substantially
the volume OF circulation has shown n
weekly enlargement throughout 1915.
| while after gradually raising the gold
in the redemption fund from fls,5oo 600,
the percentage OF gold to notes being
b36, on January 6. TO f2T5o0, 900
174o per cent? on March 3, there was
no increase In the gold reserve until May
l2. when u was res. 100000 (65,%e per
cent?. since May l2 the amount OF
gold has been stationary. There arc nc
| Indications either that the supply OF
these Treasury notes Is TO he curtailed
or the amount OF gold in the redemption
| fund increased,
The gold cover OF the British "war
| currency" IL now per cent. below the ~
per cent gold reserve required for the
| Federal Reserve notes issued under the
new United States system. 1t Is evident
| that at least during the war England
will have adopted an asset currency
though i,s nOn-gold assets cover consists
Of securities. whereas our Federal Re-
serve notes are backed. IN addition 10
| the gold reserve, by liquid commercial
paper. In view OF the tremendous prob
lem Of debt adjustment and taxation
necessities when peace Ia restored, does
| II not seem probable that British Min
| listers will retain some form OF asset cur
rency TO supplement tho gold secured
circulation of the Bank OF England? And
may they not take another leaf from the
American hook and utilize silver as one
basis for circulating medium, more
or less patterned after the silver GER
| tificates OF the United states?
JAMES &. II. UMsryp.
NEW YORK. October II.