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amount. They were also convertible on demand during office hours at the Bank of England into " gold coin, which is for the time being legal tender in the United Kingdom." At the same time postal orders were made temporarily legal tender and sim- ilarly convertible at the Bank of England into any legal-tender coin. By the terms of the Act, currency notes were to be issued to such persons and in such manner as the Treasury directed, but the amount of the notes issued was to be a floating charge in priority to all other charges on the assets of the recipient.

This provision was based on the belief that the Treasury notes would be issued by way of loan to bankers. An explanatory memorandum by the Treasury stated that " Currency notes are issued through the Bank of England to bankers as and when required up to a maximum limit not exceeding, in the case of any bank, 20 % of its liabilities on deposit and current accounts. The amount of notes issued to each bank is treated as an advance by the Treasury to that bank, bearing interest from day to day at the current Bank rate. The bank is permitted to repay the whole or any part of the advance at any time." But in fact many of the banks never took out currency notes as a loan, but paid for them from the beginning with a draft on their balance at the Bank of England; and this soon became the usual and general way by which the notes went into circulation.

At the same time a general moratorium for postponement of payments was made by proclamation on Aug. 6, which provided that any payments due before that date or on any day before Sept. 4, in respect of any cheques or bills payable on demand drawn before the beginning of the 4th day of August, or in respect of any negotiable instrument, not being a bill of exchange, dated before that time, or in respect of any contract made before that time, should be deemed to be due and payable on a day one calendar month after the day on which the payment originally became due and payable, or on Sept. 4 1914, whichever was the later date. The proclamation did not apply to wages or salaries or to liabilities of less than $ or to dividends or interest on stocks, funds or securities or to the liability of banks of issue in respect of bank-notes issued by them. This last-named provision is important as showing that the moratorium did not affect the convertibility of the Bank of England note. Any payments to be made by a Government department were also exempted from the moratorium. This general moratorium was afterwards continued for two more months. By its terms all danger of a continued run on the banks was stopped because the banks were enabled to exercise their own discretion as to meeting cheques drawn upon them in respect of money paid in before Aug. 4. Already, however, the public nervousness concerning the banking position had been allayed and it is an open question whether it was really necessary to give the banks the protection of a mora- torium of which most of them made little or no use. On Aug. 7 Bank rate was reduced from 10 to 5 %.

By these measures the provision of new currency which the banks were empowered to take by way of loan from the Treasury to a much greater extent than they actually required and the suspension of payments the situation between the banks and the public was effectively regulated. The more difficult and tech- nical position arising from the position of the accepting houses, the banks as large acceptors of bills and the discount market, owing to the break-down of the machinery of exchange and the consequent inability of foreigners to make remittance, had been already met by a proclamation of Sunday, Aug. 2, for postponing the payment of bills of exchange by reacceptance for a month. On Aug. 13 a notice was published stating that the Government had agreed to guarantee the Bank of England against any loss incurred in discounting bills of exchange, " home or foreign, bank or trade, accepted prior to August 4, 1914," and that the Bank of England was prepared to discount " approved " bills accepted before Aug. 4 without recourse against the holders. By this measure all holders of such bills were able to dispose of them to the Bank of England and be quit of any liability in respect of them as is usually carried by all who endorse a bill. It was also stated that the Bank of England would be prepared " for this purpose to approve such bills of exchange as are customarily

discounted by them and also good trade bills and the acceptances of i such foreign and colonial firms and bank agencies as are es- tablished in Great Britain." It was found, however, that these measures did not sufficiently meet the position by restoring the machinery of acceptance and exchange and on Sept. 5 a fresh step was announced and the Bank of England, instead of merely buying bills accepted before the moratorium, lent money to acceptors to meet them with, so relieving not only the holders of the bills but also previous endorsers from liability. Moreover, the assets of the acceptors were to be subject to a first charge in favour of any bills drawn since the moratorium, and this pro- vision naturally encouraged the creation of new bills by making pre-moratorium bills, the liability for which the Government had accepted, a second charge on the assets of the acceptors. The acceptors were not to be asked to repay these advances made to meet their pre-moratorium bills for a period " of one year after the close of the war," but in the meantime the acceptors were to be under obligation " to collect from their clients all the funds due to them as soon as possible, and to apply those funds to the repayment of advances made by the Bank of England." Interest was charged at 2% above the ruling Bank rate.

Such were the measures taken for dealing with the monetary crisis that preceded and accompanied the beginning of the war. It was then the general belief that the war could not last long, and that the business organization should be encouraged to pro- ceed as far as possible as usual so that British trade should'con- tinue to be financed on the old lines with the ordinary machin- ery of exchange, acceptance and the discounting of commercial bills in Lombard Street. As the war went on, however, the money market became more and more a controlled establishment. As Government purchases of munitions, food, wool, etc., expanded, the credits drawn for their financing were naturally taken out of the hands of private enterprise and were created for the Government by means of Treasury bills, Ways and Means advances, and occasionally by bills drawn on and accepted by Government departments. Moreover, as the war went on and its cost increased, the Government found it necessary to prohibit new capital issues at home except such as were permitted by a Treasury Committee appointed to consider whether they were desirable from the point of view of the country's war efficiency and also to forbid the export of capital. All these measures and tendencies made a profound difference to the nature of the busi- ness done by the London money market. The diminished supply of what used to be called " bank " and " trade " bills, that is to say, bills drawn on banks, accepting houses, merchants and traders, was very much more than replaced by the enormous total of Treasury bills, of \\ hich there were 1 5 millions outstand- ing when the war began, 1,148 millions in Dec. 1916, and 1,124 millions at the date of the Armistice. The system had also been introduced by which the Treasury bills, instead of being offered occasionally for public tender, were on offer from day to day at rates fixed by the Treasury. Thus the discount market, instead of having to compete for bills, fluctuating in number according to the trade and financial demands of Great Britain and her foreign customers, and having to exercise judgment and ex- perience in discriminating concerning the quality of the bills and the degree of favour with which they would be regarded by the banks and other buyers to whom it hoped in due course to sell most of them, had its business enormously simplified by the supply " on tap," in unlimited amounts, of Treasury bills with the credit of the Government behind them. The rate at which Treasury bills were offered became the dominant factor in the discount market. At the same time a new market for Treasury bills came into being, and a large part of the new supply wa bought by contractors, shipowners and others who acquired big cash balances during the war. The following table shows the extent to which Treasury bills and Ways and Means advances were created during and after the war.

A still more profound change, and one which had much more important effects upon the general public and upon the whole course of British war finance, was the enormous extent to which the Government found it necessary to apply to the Bank of England