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FIRST REPORT

By the Lords' Committees, appointed a Secret Committee, to inquire into the state of the Bank of England, with reference to the expediency of the resumption of cash-payments at the period now fixed by law, and into such other matters as are connected therewith; and to report such information relative thereto as may be disclosed without injury to the public interest, with their

observations.

The Committee think it right to premise, that in this investigation they have taken as their guide the decided opinion of Parliament, as declared by many repeated enact ments, that the removal of the restriction upon cash-payments by the Bank, or, in other words, the restoration of the currency of the country to a state of regulation by its ancient metallic standard, is an object which ought to be accomplished at as early a period as shall be found safe and practicable.

The first act, confirming and continuing the restriction contained in the minute of Council of the 26th of February 1797, was passed on the 3d of May 1797, and was to be in force till the 24th of June 1797. The restriction was further continued by an act passed on the 22d of June 1797, until one month after the commencement of the then next

session of Parliament. By another act, passed on the 30th of November in the same year, the restriction was further continued until one month after the conclusion of the war by a definitive treaty of peace. On the 3d of January 1799, the Directors of the Bank, in pursuance of a power reserved to them by the acts of Parliament referred to, gave notice that on the 14th instant they would pay in cash all fractional sums under L.5; and on the 1st of February 1800 would pay cash for all notes of L. 1 and L. 2 dated prior to the 1st of July 1798, or exchange them for new notes of the same value, at the option of the holders. By another act, passed on the 30th of April 1802, the restriction was continued until the 1st of March 1803. On the 28th of February 1803, was further continued until the expiration of six weeks after the com

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mencement of the then next session of Parliament. On the 13th of December 1803, the country being then again at war, it was further continued until six months after the ratification of a definitive treaty of peace. In the year 1812 an act was passed for preventing any note or bill of the Banks of England or Ireland from being received for a smaller sum than the sum therein specified, and for staying proceedings upon distress by tender of such notes; and in 1814 this act was further continued during the continuance of any act imposing restriction upon the Bank with respect to payments in cash.

By an act passed on the 18th of July 1814, the restriction upon the Bank was continued until the 25th of March 1815; and it was further continued by an act passed on the 23d of March 1815, to the 5th day of July 1816. On the 21st of March 1816, an act was passed, by which, after reciting in the preamble," that it was highly desirable that the Bank should, as soon as possible, return to the payment of its notes in cash; and that it was expedient that the provisions of the former acts should be further continued, in order to afford time to the Directors of the Bank to make such preparations as to their discretion and experience might appear most expedient for enabling them to resume payments in cash, without public inconvenience, and at the earliest period; and that a time should be fixed at which the said restriction should cease;" it was enacted, that the said restriction should be continued until the 5th of July 1818. On the 28th of May 1818, another act was passed, by which, after reciting in the preamble," that it was highly desirable that the Bank of England should return as soon as

possible to the payment of its notes in cash, and that unforeseen circumstances, which had occurred since the passing of the last of the preceding acts, had rendered it expedient that the restriction should be further continued, and that another period should be fixed for the termination thereof; the restriction is further continued until the 5th of July 1819. Of these unforeseen circumstances, the most important was the apprehension of the effect of further foreign loans (particularly those of France) upon the exchanges and the price of gold.

Subsequent to the first restriction upon the Bank of England, similar restrictions were imposed and continued by different acts upon the Bank of Ireland, and their termination was fixed at three months after the expiration of the restriction upon the Bank of England.

During these successive prolongations, the Bank appears at different periods to have made great exertions to procure such a mass of treasure as might enable it to replace itself upon its ancient footing, whenever it should seem good to Parliament to remove the restrictions. In 1798, the treasure was increased to an amount which bore, in the early part of 1799, a very large proportion to that of the outstanding notes. During the years immediately subsequent, this treasure experienced a considerable reduction; but from the middle of 1804 to the middle of 1808, the favourable state of the exchanges enabled the Bank to make large purchases in gold. In order to encourage the importation of gold, the Directors determined to give L.4 per oz., and the treasure was so much augmented as to have exceeded in 1808 the highest amount which it had reached in 1799. From that period it successively de

clined. The restriction was prolonged in 1814 only to the 25th of March 1815; and in 1815 only to the 5th of July 1816; but the extraordinary high price of gold, and the extreme depression of the exchanges, which, from whatever causes, prevailed during great part of these periods, combined with the large advances to Government which the exigencies of the public service required, to prevent any material progress being made towards a restoration of the treasure of the Bank to its former

amount.

Notwithstanding these discourageing circumstances, the Bank more than doubled its treasure during the last eight months of 1815; and the fall in the price of gold, and the favourable turn of the exchanges, enabled the Directors to raise it, by January 1817, to more than quadruple what it had been in the begining of 1815. At this period the Directors felt so confident of being able to comply with the injunctions of Parliament, even before the period at which the restriction was to expire, that they issued a notice for the payment in cash of all the L. 1 and L. 2 notes bearing date prior to January 1816. Finding little or no demand for cash in consequence of this notice, and their treasure having continued during the course of the year to increase to an amount far exceeding what it had ever reached, and, with few exceptions, bearing a larger proportion to the extent of their issues than it had ever borne before, the Directors is sued a second notice in September 1817, for the payment in cash of all notes bearing date before the 1st of January in that year. This measure has been stated to the Committee to have been undertaken in the hope, that if it proved successful, that is, if the gold so tendered were not de

manded, or if when demanded it remained in the country, the complete resumption of cash payments would take place gradually, and as it were insensibly, even prior to the period then fixed by Parliament, viz. the 5th of July 1818.

In the month of April 1817, the effect of the great foreign loans made in that year began to be considerably felt. Between April and October 1817, the exchanges took an unfavourable turn, and the price of gold, which had, from July 1816 to March 1817, fluctuated between L.3:18:6 and L. 3:19:6, rose, between April and December 1817, from L. 3:18: 6 to L. 4:0:6; since which date it does not appear by the quoted prices to have been ever again reduced below L. 4. The new gold coinage also began to be issued in July 1817. The treasure of the Bank was raised to its highest amount in the month of October 1817. There appears to have been no considerable demand for gold previously to the month of October. The first issue of sovereigns in large quantities was in that month. There was a diminution in the demand for them in the three succeeding months; but in the month of Feb. 1818, the issue of gold increased till August in the same year; and the demand during this period is stated to have arisen decidedly for the purpose of exportation. It appears from the evidence of Mr Harman, that during the whole of the year 1817, the Bank did not think it necessary to make any reduction of its issues, either in consequence of the effect of the foreign loans upon the exchanges, or of its payments in gold, made in conformity to the notices above referred to. In fact, the average issue of Bank-notes in 1817 exceeded by L. 1,700,000 that of 1816; the average issue of

the last six months of 1817 exceed ed the average issue of the first six months of that year by L. 1,870,000; and this increase, combined with the revival of Country Banks from their previous depression, probably raised the circulating medium of the kingdom in the last six months of 1817 considerably beyond the amount at which it had stood in the preceding year.

A great reduction has been made in the issue of notes of the Bank of England since the commencement of the year 1818; they had been, on the average of six months from July to December 1817, at L.29,210,000; on the average of six months from January to July 1818, at L.27,954,000; from July to December 1818, they were reduced to L.26,487,000, and have since been further reduced to about L.25,000,000, and during the last three months of 1818, the issues of Country Banks are stated by persons much conversant with the subject, to have certainly not increased, and probably to have declined; but the price of gold and the state of the exchanges have continued to be such as to have drawn from the Bank, in addition to the gold demanded previously to March 1818, amounting at L. 2,022,000, a further sum of L.4,787,000, making in the whole an issue of L.6,809,000, in consequence chiefly of the liability with which the directors had, under different circumstances, voluntarily charged themselves to pay the fractional parts of dividends and a certain proportion of their notes in cash. Their treasure was by these drains very consi derably reduced; and they were still liable, in consequence of the same measures, to an additional demand for cash to the amount of several millions.

This unfavourable state of the exchanges and of the price of gold is

attributed to different causes by different persons examined before the Committee. By some to an excess in the circulating medium of the country; by others to the effect of the late regulations of the Mint respecting the new silver coinage, by which the proportions between the relative value of gold and silver are stated to have been so varied as to have occasioned the exportation of gold; by others it is attributed to the continued operation of foreign loans, to the temptation held out by a high rate of interest to the investment of British capital in foreign funds and foreign speculations, and to the large purchases of corn from abroad; a great proportion of which is paid for in advance, and must, therefore, in their opinion, have had a material effect upon the balance of payments, and of course upon the exchanges, during the year 1818.

It is under these circumstances that Parliament is called upon to deliberate, whether it will be most for the public interest to adhere to the decision it had taken in May 1818; or to allow a further delay for the preparations necessary to carry this important measure into execution, in order, as far as possible, to secure its ultimate accomplishment, and at the same time afford the means of taking such precautions as may diminish the pressure of whatever public inconvenience may be felt or apprehended.

Much difference of opinion upon almost all the questions, whether of theory or of practice, to which the attention of the Committee has been drawn, will be found in the evidence. Upon one point only there is nearly an unanimous opinion, grounded indeed by different persons upon different lines of argument, but concurring in the same result, viz. that it would not be safe and practicable

for the Bank to resume cash payments on the 5th July 1819; and as the Committee see sufficient reason to agree thus far with the practical result of these opinions, viz. that, in the state of things which now exists, there is a necessity for some further postponement, they need only refer to the evidence, in which the different reasons which lead to this conclusion are fully stated.

It can hardly be necessary for the Committee to remark, that this opinion does not rest upon any ground which can intimate the slightest doubt as to the credit or solidity of the Bank; that body possesses at the present moment the means of discharging, out of the treasure actually in its coffers, every demand which could have been made upon it for payment in cash, in consequence of the notices referred to; and the only object of the measure which, at the recommendation of the Committees of both Houses, has been already adopted by Parliament, during the course of the present session, was to prevent the continuance of a drain of the existing treasure, and thereby to facilitate such operations as the Committee might feel it to be their duty to recommend, in preparation to a final removal of the restriction.

Of the ultimate sufficiency of the Bank, no doubt has been or can be entertained; but as Parliament thought proper, at the period when it imposed the first restriction upon the Bank, to direct an inquiry into the actual state of its affairs; and as a similar injunction is contained in the order by which this Committee is appointed, they have thought it their duty to lay before the House the statement in the appendix; by which it appears that, exclusive of the debt from Government, at three per cent., of L. 11,686,800, and of the advance to Government, at three

per cent., of L. 3,000,000, making together L. 14,686,800, the balance in favour of the Bank, on a comparison of its debts and credits (including in the former the Government balances in the hands of the Bank) is L.5,231,190.

The next subject to which the attention of the Committee has been directed was the consideration of what time might now safely be fixed for the ultimate restoration of the currency of the country to the an. cient metallic standard of value, and what were the measures, if any, which it might be expedient to adopt, in order both to facilitate and to ensure the complete attainment of this great object.

Unless the market price of gold shall be, at the time so fixed, and shall continue to be afterwards, so near the Mint price as not to afford a profit upon the exportation of that metal, it has been abundantly proved by past experience, that no law can prevent such exportation, and the consequent demand upon the Bank. The main question therefore is, by what means, and within what time, the reduction of the price of gold to the Mint price, or, which is nearly equivalent, such a favourable state of the exchanges as will prevent a profit on exportation, may best be attained.

It is strongly contended by some of the witnesses, and is admitted by most, that a considerable and (as was expressed by one of them) forcible reduction of the issues of the Bank, accompanied by what some consider as a necessary, and others as a probable, consequence, a diminution in the issues of Country Bank paper, would produce a favourable turn in the exchanges and a reduction in the price of gold. But many of those who are most deeply impressed with the necessity of the earliest possible

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