War and the Money Market.

Press, Volume L, Issue 15037, 4 August 1914, Page 8

War and the Money Market.

On Saturday last we explained the' effect tho war crisis was likely to liavo iv causing a heavy drain in gold from London, necessifcaiing the raising of tho bank rate with the object of proteciin_, the Bank of England's reservos. Tho prophecy contained in t*e> tab-tic!*, received sudden and, indeed, startling fulfilment in tho fact that before twenty-four hours had elapsed news came to .hand that the bank rate had been raised from four to ten per cent. This is not only the highest figure at which it has stood in modern times, but wo Cannot recall an instance in which the rate Has mounted up with the same rapidity. Wo have no doubt that the result was' at once to change the course of foreign exchanges, so as not only to stop withdrawals of gold from London, but actually to set the tido in the opposite direction. If it has not had the full effect desired,, it may be taken for granted that tho rate will be raised still higher, so as to mako it really effective. It has also been indicated that if necessary the Bank Charter Act.. 1844, will bo suspended. At present tho Bank can issue notes to tho extent of sixiecu millions against Government securities which it holds, but beyond that fresh notes can bo issued only against an equivalent amount of gold transferred from the Banking Department to the Issue Department of the Bank. If the Bank Charter Act is suspended, tho Bank will ho empowered to issue notes not represented by gold. This was done in 1847. in 1857. and in 186G, and on each occasion tho effect was to reassure the public and put a stop to an incipient panic. It has indeed to,, bo said for the credit of tho Bank as a national institution that with these two amplo weapons at its disposal it has always proved it-self capable of coping with any emergency. Tho closing of the London Stock Exchange is unprecedented in tho memory of tho present generation, but there is no doubt that it is a most wiso and politic measure. It will put a firm stop to unwholesome and fevered speculations, and compel tho oublic to take a more doliberato outlook upon the situation and view it in a morb calm and reasonable fashion. It is perhaps a fortunate coincidence, as helpi*

give timo for reflection and calm action, that yesterday happened to be a Bank Holiday in England. Wo believe that as on previous occasions tho common-sense of the English commercial world will prevail, and that tho crisis will be speedily and successfully surmounted. The Bank of England is tho main factor in the situation, and, as on previous occasions, its directors will prove equal to their responsibility. It must bo borno in mind that they never take a narrow view of their duties. They know that they cau protect the Bank only by protecting the community. Consequently they are not content with simply strengthening their reserve, but on such an occasion they lend money in the freest possible way on any legitimate security. In tho great panic of 1866, following on the failure of Overend,

Gurney and Co., the Bank directors had advanced one-half of their reserves before they could approach tho Chancellor of tho Exchequer with a view to the suspension of the Act, and the Governor of the Bank afterwards was ablo to say with some pride: "We " would not flinch from the duty which " wo conceived was imposed upon us of " supporting the banking community, •'and I am not aware that any legitimate application mado for assistance "to this houso was refused. Every " gentleman -nho came hero with ade- " quate security was liberally dealt -• with, and if accommodation could not " be afforded to tho full extent which " was demanded, no one who offered " property security failed to obtain re"lief from this house." It is tho bold and enlightened policy m the past which has raised tho Bank of England t-* the great position of influence and confidence which it enjoys, and which now enables tho community as a whole to regard even a financial crisis like the present with a good deal of equanimity.