weekly statements. This, in particular, was the case with regard to the balances kept by the London Bankers with the Bank of England to the close of 1877. I have included the information thus furnished in this analysis, as it shows the amount of money held ready to meet the immediate requirements of business.

During the period under consideration the amounts of the balances of the London Bankers largely and progressively increased, as far as this can be traced. It is a matter of regret that the Official Returns no longer enable this point to be ascertained with accuracy. There can be little doubt that a regular publication of the amounts would be of service to the community, and no good reason can be given for this information being withheld. In times when apprehensions prevailed, the knowledge that preparation was being made to meet any difficulties which might occur would of itself tend to allay alarm, and would assist in maintaining that feeling of confidence without which it is impossible that business should be suitably carried on.

The protection of the notes of the Bank of England rather than of the deposits of the Bank, was the object of the Bank Act of 1844. I have no intention in this place to inquire into the policy on which that Act was founded, but to investigate some of the events which have occurred since it was passed. Of late years the amount of the reserve of the Bank of England has on an average increased; but the proportion borne by that reserve to the total liabilities has, on the whole, diminished. The average proportion of reserve to total liabilities was 53 per cent. for the years 1845-53; while for the years 1870-78, it was 44 per cent. The average Preface. iii.

rate of discount, which was 31 4s lOd for the earlier was 31 9s Id for the later period. Of recent years a greater number of fluctuations in the rate of discount, and, on the whole, a higher rate, has prevailed. Meanwhile a vast increase in the amount of money held by bankers on deposit has taken place. Thus while the available supply of money has increased, there have likewise been far greater fluctuations in its price.

Great instability in the rate of Discount is undoubtedly a very prejudicial thing to the interests of commerce. Such an instability tends to render the results of trade more uncertain than they otherwise would be, and hence introduces an additional element of speculation in transactions where none further is needed. Meanwhile we must bear in mind that while the reserve which the Bank of England keeps is now generally somewhat smaller in proportion to its own liabilities than it was twenty or thirty years since, it is far smaller in proportion to the liabilities of the other banks of the United Kingdom at the present time than at any earlier period. Yet it is to that reserve alone that the other banks must have recourse in any time of pressure. The maintenance of an adequate reserve is a point of primary importance to all interested in banking and in commerce generally, and every endeavour should be made which will conduce to this result.

The Directors of the Bank of England feel, no doubt satisfied that the reserve they maintain is adequate to their own requirements, but it is only needful to glance at the vast amount of Banking Deposits now held to see how entirely inadequate it is when regarded

as the reserve of all the banks of the Kingdom. Matters have gradually drifted into this position. The arrangement is an anomalous one, but what we are concerned with now is not to discuss the manner in which it has arisen, but to consider how the existing system may be strengthened and improved. The subject is almost beyond the power of any private inquirer, however diligent, however well-informed, to investigate completely; and it certainly appears that it would now be of advantage to the community if an inquiry were made into the whole bearings of the question through the instrumentality of a Government Commission to be appointed for the purpose.

It is quite a doubtful question whether even from the point of view of "profit and loss," the economy of our reserve system has not been carried too far, and whether a system in which a larger reserve was maintained would not be an advantage to the banking as well as to the mercantile community, by tending to mitigate those frequent fluctuations which now constantly characterise our money market. That the cost of the maintenance of such a reserve should fall on the Bank alone appears scarcely equitable; arrangements might, however, be made which would bring every bank in the country into connection with the Bank, and on the basis of which a suitable reserve might be maintained. The closer relations which now exist between the Money Markets of England, Europe generally, and, it should be added, of America, render this subject one of high importance to the stability of business.

R H. Inglis Palgrave.

CHAPTER I.

INTRODUCTION.

The weekly return of the Bank of England is always carefully studied, as supplying much useful information on the position of the money market. The demands likely to be made on the "Reserve," and the proportion held by it to the "Liabilities," form the basis of most of those calculations which are continually being made by those engaged in business as to the probability of a rise or fall in the Bank rate of discount. The form in which the usual statement is made out supplies a great deal of information, but it leaves one or two very important points unnoticed, A Returns, however, which have been published by order of the House of Commons, supplement the information on the subject. Of these returns the one marked No. 6 in the Appendix to the Report from the Select (Secret) Committee on Commercial Distress, House of Commons, 1848, maybe cited first, as it carries the statement back to the date when the Bank Act came into operation. This return is reprinted, and continued to December, 1856, in the Appendix (No. 13) to the Report from the Select Committee on the Bank Acts, House of Commons, 1857. Subsequent returns continue a consecutive statement, on a uniform plan, from the date of the division of the two departments of the Bank of England, in 1844, to the close of 1875, containing particulars which are not included in the ordinary returns, of the total amount of bills discounted, and total amount of temporary advances made by the Bank, and the balances of the London bankers.

The return, however, which was ordered by the House of Commons to be printed 31st May, 1877, giving the statement for the year 1876, while it separates the amounts of the balances of the Exchequer and of the London bankers from the total deposits, does not continue to furnish either the amount of " bills discounted" or of the "temporary advances," which had been uniformly given from 1844 downwards in the previous returns. The corresponding return for 1877 is likewise deficient in the same manner, and in the return for 1878 the London bankers' balances were altogether left out. These omissions are to be regretted, as much in the interest of the Bank of England itself as of the public at large. The discount of bills, and the making temporary advances, are both proper functions of a bank. In the case of the Bank of England it is especially desirable that there should be no uncertainty as to the extent of its operation on these points, as it is mainly in this manner that its control over the outer market is maintained. The full possession of that control, and the power of exercising it rapidly when circumstances render it needful, are essential to the security both of the Bank of England and of the other banks of the country, and it cannot therefore be an unimportant matter that the information which shows the action of the Bank in this respect should now no longer be supplied.

It would also be very valuable if the information given in return No. 8 in the Appendix to the Report from the Select (Secret) Committee on Commercial Distress, House of Commons, 1848, were continued to the present time. This return, which is carried back to the year 1832, through the Appendix to the Report from Select Committees on Banks of Issue, House of Com