WELLINGTON NEWS

Hokitika Guardian, 6 July 1928, Page 4

WELLINGTON NEWS

MONETA.Hr GOLD

(Special to " Guardian.") WELLINGTON, July 4. Tho Hank of England is not the' largest bank in the world, lor that honour is claimed, and with some justification by the National City Bank of New York, but the Bank of England has the greatest prestige of any bank in the world. During the war the Bank Act was .suspended, and gold passed out of circulation, just as in New Zealand gold ceased to circulate when bank notes were declared legal tender. The ‘‘man in the street" would no doubt be perplexed on being referred to the Bank Act. This Act was passed in 1844 when Robert Peel was Prime Minister of England, and the cinrency of the country was placed on a sound basis. At that time the Government owed the Bank £ll,010,000 in round figures, and the Bank was authorised to issue notes against this debt. At that time there were several other banks which had the right of note issue, and it was provided in the Bank Act that if any of the issuing banks suspended or amalgamated or changed constitution in any way the right of note issue should cease and the Bank of England should be vested with right up to two-thirds of the lapsed issue. Under this provision of the Act the Bank now issues £3,735,000 of notes covered by Government securities, and this £8,735,000.p1us the £11,015,000 covered by the Government. together equal to £10,750,000 is known as the fiduciary issue, that is there is- no gold backing for the notes, but above that amount there must lie gold in the vaults for every £5 note issued.

At the close of the business on June 27th. that is last week, the gold held in the issue department amounted to the huge sum of '£100,634,000, the highest in the history of the Bank. When Britain reverted to the gold standard on April 28th. 1025. the stock of gold amounted to a little more than £154.000,000 and there were many eminent economists who doubted the wisdom of the movement and suggested that a. “managed currency" would bo safer. Events have justified the British Government anil the Bank authorities, for after passing through three most difficult years the gold holding is £15,000,000 larger. The Bank has been able to add to 1 its metal reserve bv drawing from various countries, but principally from the United States. The reversion of Britain to the gold standard does not impose the same conditions as before the war. Then a Bank of England £5 note could bo converted into gold at will, for the Bank is bound to buy 'and sell gold. Under the Act restoring the gold standard the -Bank is not obliged to do so, so that the holder of a £5 note cannot demand gold for it. Tlie crucial index of the Bank of England’s ims-uon is the proportion of reserve to liabilities in the Banking Department. It .should bo explained that there arc two departments in the Bank of England, the Issue Department, which is concerned entirely with the issue of notes for which it lias but one customer, and that is the Banking Department. The liabilities in this Department are the public or Government deposits, which last week amounted to ‘ £23.876,000. “other” or the people’s •deposits, winch totalled £105,593.000, and Bank post bills, and these amounted to £6OOO. The reserve of notes totalled £53,127,000. and tlie gold and silver coin to £2,654,000, the latter being the till money required by tlie Bank for its daily operations.

This reserve of notes and coin was equal to 43 Ivor cent, of the liabilities; At the time of the reversion of the gold standard three years ago the proportion of reserve to liabilities was only 22.1 per cent, so that it will be seen that the Bank has gained enormously in strength. In the last week in April the proportion exceeded 40 per cent, for the first time since July, 11)13. The Bank has been building up i's strength under very adverse conditions. In 1920 there was the labour trouble and the coal strike while last year there was the dullness in trade. The Bank reduced its discount rnto from 5 to 41 pgr cent, and there were expectations at various times since that there would be a further reduction, hut the Bank could not act independently of the Federal Reserve Bank of New York. ' .This institution, it must he confessed, rendered the Bank of England every possible assistance. The Bank of. England rate has remained at. 4 per cent, notwithstanding that the New York rate has been advanced twice since the beginning .of the ’year from 3.V per cent, to 4 per cent, and then to 41 per cent, at which rate it now stands.

'the pound sterling for many reasons now dominates the dollar; when Britain’s debt to America was funded tho exchange rate was at or under 3.50 dollars to the pound, hut for the past 12' months it has stood above the mint parity, and at times it was very near tho gold point. Mr F. C. Goodcnough, Chairman ofi Barclay’s Bank, remarked recently in it public address: “I have tho feeling that our turn for a greater spell of prosperity has arrived.”