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Rh and Funding loans alone, it was estimated, amounted to some £111,000,000. In June 1921, however, a small decline had recently been noticeable, and it seemed probable that, as time went on, the bankers would gradually divest themselves of a large portion of Government stocks.

Great services were rendered by the banks to the Government during the war. In most of the large loans that were floated the instalments were spread over a more or less lengthy period. In determining the amounts which the banks could conveniently handle account was taken of their reserve funds, which largely consisted of their deposits with the Bank of England. In describing the actual process of assisting the Government in this loan finance, the late Sir Edward Holden compared the payments with the revolutions of a wheel. The banks were described as placing in the wheel the payments they made for their customers who had subscribed for the loans; the wheel carried these payments to the credit of the Government with the Bank of England, and the subscribers received their securities. The Government then placed in the wheel cheques in payment of commodities and services rendered for conveyance to their creditors, and the creditors in turn used the wheel to carry the cheques to the credit of their accounts in the banks, thus reëstablishing the banks' reserves and preparing them for another instalment. Another method by which the Government was helped by the banks was by the steady absorption of Treasury bills and other securities sold over the counter at the Bank of England. The banks also rendered invaluable service to the Government in making available their credit facilities with the Bank of England. “To increase their clients' ability and their own ability to invest in Government issues they would borrow from the Bank of England. These loans would increase their deposits with the Bank of England, which, as reserves, would increase their ability to grant to their own clients loans equivalent to, say, five times such deposits” (English Public Finance). Then in the advances to the Government on “Ways and Means” they were of important assistance. The manner in which these Ways and Means advances operated may be best described in the words of the Committee on Currency and Foreign Exchanges after the war:—

“Suppose for example, in a given week the Government require £10 million over and above receipts from taxes and loans from the public. They apply for an advance from the Bank of England, which by a book entry places the amount required to the credit of public deposits. The amount is then paid out to Government creditors, and passes, when the cheques are cleared, to the credit of their bankers in the books of the Bank of England—in other words, is transferred from ‘Public’ to ‘Other’ deposits, the effect of the whole transaction thus being to increase by £10 million the purchasing power in the hands of the public in the form of deposits in the joint stock banks and the bankers' cash at the Bank of England by the same amount. The bankers' liabilities to depositors having thus increased by £10 million and their cash reserves by an equal amount, their proportion of cash to liabilities (which was normally before the war something under 20%) is improved, with the result that they are in a position to make advances to their customers to an amount equal to four or five times the sum added to their cash reserves, or, in the absence of demand for such accommodation, to increase their investments by the difference between the cash received and the proportion they require to hold against the increase of their deposit liabilities. Since the outbreak of war it is the second procedure which has in the main been followed, the surplus cash having been used to subscribe for Treasury Bills and other Government securities. The money so subscribed has again been spent by the Government and returned in the manner described to the bankers' cash balances, the process being repeated again and again, until each £10,000,000 originally advanced by the Bank of England has created new deposits representing new purchasing power to several times that amount.”

It may be noted, in connexion with the part played by the great joint stock banks in the raising of war loans, that for the first time they were made collecting agents, being so named in the propectuses with the Bank of England.

Note Issues.—The note circulation of the English joint stock banks remained in 1921 practically unchanged at £174,000. Scottish notes, it was found, were on the increase, while Irish notes showed a considerable decline. The expansion of the paper currency of the United Kingdom may be shown as follows,

the increases since 1913 being 279% for the Scottish, 206% for the Irish, and 349% for the Bank of England notes:—

The total issue of the Bank of England against securities is known as the Fiduciary Issue, and on June 30 1914, the amount of this issue was £18,450,000, while the Bank of England notes issued against gold coin and bullion, under the provisions of the Bank Charter Act of 1844, amounted to £38,476,000. As showing how the bank's note issue increased during the war and the period following it, it may be observed that the notes in circulation on June 1 1921 amounted to £144,993,235, as security for which the Government debt amounted to £11,015,000, other securities to £7,434,900, giving an excess circulation over the authorized issue against securities of £126,543,235, all duly covered by the deposit of gold coin and bullion in the Issue Department.

The Committee on Currency and Foreign Exchanges after the war sat in 1918 and 1919, under Lord Cunliffe's chairmanship, to consider among other things the working of the Bank Act, 1844, and the constitution and functions of the Bank of England, with a view to recommending any alterations which might appear to be necessary or desirable. Briefly, the conclusion they came to was that the principles of the Act of 1844, which upon the whole had been fully justified by experience, should be maintained, namely, that there should be a fixed fiduciary issue beyond which, subject to emergency arrangements, notes should only be issued in exchange for gold. They said in their report:—“It is noteworthy that from 1866 till the outbreak of the war (1914) no suspension of the Act was ever necessary.” The Committee considered that the stringent principles of the Act had often had the effect of preventing dangerous developments, and the fact that they had had to be temporarily suspended on certain rare and exceptional occasions (and those limited to the earlier years of the Act's operation when experience of the working of the system was still immature), did not, in their opinion, invalidate this conclusion. The Committee therefore recommended that the separation of the issue and banking departments of the bank should be maintained, and that the weekly return should continue to be published in its old form. The possibility of so modifying the Act of 1844 as to make provision for the issue of emergency currency in times of acute difficulty was, however, carefully considered. They said that it might, no doubt, be sufficient to leave matters as they were prior to 1914, and to risk the possibility of the law having to be broken, subject to indemnity from Parliament, but evidently the Committee were alive to the objections that had been expressed in many quarters to this procedure. Their report states:—“We are, therefore, of opinion that the provisions of Section 3 of the Currency and Bank Notes Act, 1914, under which the Bank of England may, with the consent of the Treasury, temporarily issue notes in excess of the legal limit, should be continued in force. It should be provided by statute that Parliament should be informed forth- with of any action taken by the Treasury under this provision by means of a Treasury Minute which should be laid before both Houses. The statute should also provide that any profits derived from the excess should be surrendered by the Bank to the Exchequer.” The Committee add:—“It will, of course, be necessary that the Bank Rate should be raised to, and maintained at, a figure sufficiently high to secure the earliest possible retirement of the excess issue.”