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by this Act, subject to redemption upon twelve months' notice, to be given after the 1st of August, 1855, and upon repayment of the public debt, and of all sums and arrears whatsoever owing to them by Government."
A searching inquiry will be found in a previous part of this work into the design, import, and effects of this much-debated Act.
We proceed to give a summary of the business operations of the bank, and of the changes which have taken place in its relations to Government and the public since the publication of the former editions of this work.
The Bank of England can now issue to the extent of £15,000,000 against that amount of securities set apart for this purpose. It can issue to any farther amount against lodgments of gold and silver, as regulated by the above Act. This amount of £15,000,000 may be issued either at the office in London or at the branches. Were the bank to reduce the number of its branches it would not be required to issue less than this £15,000,000; and were the bank to increase its branches, it could issue no more. If other banks discontinue their circulation, it may upon application receive permission to extend its issues to twothirds the sum thus withdrawn; but all the profit of this increase must go to the Government. It cannot issue any note for a less amount than five pounds. All the notes are payable in gold on demand. The payment of those issued in London can be demanded only at the London office. But the payment of those issued at the branches may be demanded either at the London office or at the branches where they were respectively issued. Bank of England notes are a legal tender in all cases, except when tendered by the bank itself.
It will be observed that the issue against securities is now £15,000,000 as compared with £14,000,000 at the time of the passing of the Act. The occasions and reasons for this increase have been lucidly set forth as follows in the “ Bankers' Magazine" for March, 1866 :
“ The authorized issue of Bank of England notes based on Government securities, which was fixed at £14,000,000 by the Act of 1844, and which having been increased in 1855 and 1861 respectively, by the sums of £475,000 and £175,000, now stands at £14,650,000, is to be further augmented by £350,000, which will raise the total to £15,000,000. The process is in conformity with the provisions of the law, and is perfectly simple. The basis on which the amount of purely paper circulation was fixed at the date of Sir Robert Peel's measure was as follows :Long experience has shown that whenever the note circulation of the country declined to a point approaching £22,000,000, through the contraction forced upon bankers by an adverse state of the foreign exchanges, the scarcity of currency was so felt in its action upon prices as to cause invariably a strong turn of the tide. That total of £22,000,000 was, therefore, fixed as the safe amount at which paper, secured only by the credit of the Government, might be allowed to pass as a legal tender, and was made up by £14,000,000 issued by the Bank of England, and £8,000,000 of issues of private and joint-stock banks in the provinces. At the same time a provision was made, that if
any of the latter establishments should fail or withdraw from business, then in each such case the right of issuing notes should be forfeited; and that it should be competent for the Government, by an order in council, to authorize the Bank of England to supply the deficiency thus created.
“ To effect that purpose, it would not be necessary for the bank to issue more than two-thirds of the amount of the circulation that had been forfeited, because it was taken
for granted that every issuing bank would keep at least a reserve of gold, equal to one-third of the notes it had issued payable on demand, and which might therefore be presented at any time; and that, consequently, the actual currency which each had put out was practically only twothirds of its nominal amount, since to the extent of the remaining third, other currency—that is to say, gold-was withdrawn from use and locked up in their tills. Accordingly, the new issues of the Bank of England, in supplying the deficiencies from any such failures or withdrawals, were to be limited to two-thirds.
“Gradually, after the passing of the Act in 1844, individual country banks broke down or died out, but it was not till 1855 that the vacuum thus occasioned attracted much public attention. At that date it was found that issues had during the preceding eleven years been extinguished to the extent of £710,000, and an order in council was then put forth for an increase of £475,000 in the notes of the Bank of England. Between 1855 and 1861 further lapses occurred to the amount of £262,500, and these were made up by a new order in council for an additional issue of £175,000. Thus the total paper circulation of the bank was increased from its original sum of £14,000,000 to £14,650,000, the amount at which it stood up to Thursday last.
“The process by which the new issue is effected merely consists in the purchase of Government securities to the required amount. Stocks may be bought in the open market, or an advance made to Government on Exchequer bills. The gain from this investment in the present, as in the previous instances, after deducting the annual expense for the manufacture of the notes, &c., will be placed to the credit of the Government, the bank being only an agent in the business. The actual amount of the country circulation
that has lapsed since the last filling up took place in 1861, is £739,965, of which £442,000 was from a voluntary surrender on the part of the National Provincial Bank, when iť determined to change its character from that of a country to a London bank. Two-thirds of this amount of £739,965 would be £493,310, but the present order is limited to £350,000, a circumstance for which no other reason can be conjectured than a desire to take the opportunity of fixing the Bank of England circulation at the symmetrical figure of £15,000,000. The amount was included in the account published for the week ending 21st February.”
The Bank of England is a bank of deposit, of loan, and of discount as well as of issue. It allows no interest on any portion of its deposits, nor permits any account to be overdrawn. It charges various rates on the bills it discounts, but does not often go below the rate it announces to be its minimum. It does not act as the London agent of country banks; but is the agent of the Bank of Ireland, and the Royal Bank of Scotland. It does not accept any bills that may be drawn by those banks, or by its own branches—they are all drawn without acceptance. It does not issue any circular notes on foreign countries, nor grant letters of credit on foreign banks. to and from its branches, and from one branch to another, and issues at the London office bank-post bills, drawn at seven or fourteen days after sight.
The Bank of England is also the banker of the Government. It has always a large amount of public deposits, on which it allows no interest. It receives the public revenue, and pays the dividends on the National Debt.
The profits of the bank are derived from its capital, its rest, public and private deposits, bank-post bills, its agencies, and its circulation. From these funds it makes investments in public securities and private securities.
It remits money
These bring dividends and interest. It also has a profit on the £15,750,000 of notes in circulation. This profit is the difference between the expense of maintaining the circulation, and the interest received on the securities set apart to meet this circulation. The bank has an annual payment from the Government for managing the National Debt. It also receives a commission from those banks to which it is the London agent. A profit is also supposed to be obtained on bullion transactions. Against these profits the bank has to place the expense of conducting the establishment, and the losses incurred by bad debts, forgeries, and unfortunate investments.
The Bank of England established branches in the year 1826, at the suggestion of Lord Liverpool, in order to extend to the provinces the advantage of a secure circulation This was considered the grand desideratum at that time, in consequence of the numerous failures that had recently taken place among the country bankers; and was effected with the greater facility, in consequence of the establishment of joint-stock banks, who made arrangements for issuing Bank of England notes.
The branches being not merely banks of circulation, but of deposit, of discount, and of remittance, they came into competition with the country bankers. This, in some cases, reduced the charges previously made on banking transactions. As banks of discount, they charged the same rate which was charged at the London office-a charge usually below that of the country banks. As banks of remittance, they granted letters of credit at a shorter term. As banks of deposit, they charged no commission. But, on the other hand, they allowed no interest on the balance, and they allowed no account to be overdrawn; and they would not receive from their depositors any country