New-York tribune., 1918-12-01
Larger Gold Cover
In Great Britain
Is Recommended
Lord Cunlife Suggests
Prompt Cessation of Gov
ernment Borrowing


Great Britain's financial problems after
peace. Lord CLnliffe, at the head Of
the Bank of England and we'll known
in this country from his visit here in
1877, was chairman of the committee,
which included some Of the strongest
names in British banking and eco
ncmics, including the Secretary of the
Treasury, representatives. of the great
banks of the Colonies and Professor
Pigou, of Cambridge University, one Of
the most prominent of English econo-
mlsts. The committee has now made
its first report, which deals especially
with the currency and foreign ex-
changes.
1t is we'll known that England has
heavily expanded it's banking obliga-
tions without any corresponding gain
in the loan holdings, resulting in
greatly lowered gold reserve, and at
the same time it has issued a large
amount Of paper money, the so-called
hduciary currency, though this issue is
by far the smallest for any Of the
great nations at war, and we'll within
the bounds of what could safely be
sustained by the existing amounts Of
gold. AS to the policy that should now
be pursued, the committee makes the
following report:
Before the war the countrv nossesscd
complete and effective gold standard.
Ihe provisions cf the bank act, 1914.
operated automatically to correct un-
favorable exchanges and to check un-
due expansion Of credit.
During the war the conditions neces-
sory to the maintenance of that stan
dard have ceased to exist. The main
cause has been the growth of credit
cue to government borrowing from the
Bank Of England and other banks for
war needs. The unlimited issue of
currency notes has been both an in
ovltaole consequence and a necessary
condition Of this growth of credit.
In our opinion it is imperative that
a1ter the war the conditions necessary
u the maintenance of an effective gold
standard should be restored without
delay. Unless the machinery which long
experience has shown to be the onlv
effective remedy for an adverse hal
ance Of trade and an undue growth OF
credit IS once more brought into play.
enere VIII be grave danger Of a pro-
gressive credit expansion which will
result IN foreign drain of gold men
aclng the convertibiity of our note
issue and SO jeopardizing the inter
national trade position of the country.
The prerequisites for the restora-
ton of an effective gold standard are:
(a) The cessation of government
borrowing as soon as possible after
the war; We recommend that at the
earliest possible moment an adequate
sinking fund should be provided out
OF revenue, so that there may be
regular annual reduction of capital liza
bilities, more especially those which
constitute the floating debt.
(b) The recognized machinery,
me'y, the raising and making effect
I've of the Bank of England discount
rate, which before the war operated to
check foreign drain of gold and the
speculative expansion of credit in this
country, must be kept in working
order, This necessity cannot, and
should not, be evaded by any attempt
and foreign money after the war.
Co. The issue of fiduciary notes
should, as soon as practicable, once
more be limited by law, and the pres
ent arrangements under which de-
posits at the Bank Of England may be
exchanged for legal tender currency
without affecting the reserve of the
banking department should be termi-
mated at the earliest possible moment.
Subject to transitional arrangements
as regards currency notes and to any
special arrangements in regard to
Scotland and Ireland, which we NAV
have to propose when we come to dea,
with the questions affecting those parts
of the United Kingdom, we recommend
mat the note issue Except as regards
existing private issues) should he en-
tlrely In the hands of the Rank oF
England. The notes should be payable
IN London only and should be leraj
tender throughout the United King
dom.
Control of Note Issue
Having carefully considered the va
rious proposals placed before US as re-
CARDS the basis of the fduciary note
issue. we recommend that the principle
of the Bank Charter Act, 1914, should
he maintained-namely, that there
should be fixed fiduciary issue be-
yond which notes should only be is.
sued in exchange for gold.
We recommend, however, that provi
SION for an emergency be made by
the continuance in force, subject to
stringent safeguards Recommended In
the body of the report). Of section s
o. the Currency and Bank Notes Act
1914. under which the Bank of Eng.
land may, with the consent of The
treasury. temporarily issue notes in ex
cess of the legal limit
We think it desirable to fix the
amount which should be aimed at a:
the central gold reserve, leaving the
tiduciary issue to be settled ultimately
at such amount as can be kept in cir
culation without causing the centra
gold reserve to fall below the amoun'
so fixed. We recommend that the nor
NAL r,inimum of the central gold re
serve to be aimed at should be, in the
first instance f150,00O,000. Until thi,
amount has been reached and main
tanned concurrently with a satisfactor,
foreign exchange position for at leas
year the policy of cautiously reduc
ing the uncovered note issue should b,
followed. When reductions have be-,
effected the actual maximum tiduciar,
clrculatlon IN any year should becom,
'he legal maximum for the following
year, subject only to the emergency ar
Tangements previously recommended
" hen the exchanges are working nor
mally on the basis of a minimum re
"a naA .