WELLINGTON NEWS

Hokitika Guardian, 13 November 1928, Page 3

WELLINGTON NEWS

BRITISH BANK NOTES

[Special To The G capdian.]

M ELLINGTON, November 10

According to a cable message published a i.Vw days ago the Currency and Note Banks Act. 1028. vesting in the Bank of England the sole right to issue legal tender notes in Great- Britain. is to come into operation on November 22nd. a Thurdsay. Tlie hank will thus take over the Treasury note circulation amounting to £28.3,000.000. The Treasury’s connection with note issue circulation was brought, about through the war and has been managed by the Treasury until now. Sometime ago a Royal Commission was appointed by the British Government to investigate the banking, currency, and credit situation and to report. This commission was under the chairmanship of Lord Cunliflo. and it made some very valuable. l recommendations, among them being the transfer of the Treasury note circulation to the control of the Bank of England. This transfer will cause a big change in tlie form of presentation of the bank's weekly statement. At present the bank can issue notes to the amount oil 21!’.730.'0) against Government securities and this is referred t as tlie lidm iu.rv. For every note issue l I ahovc* (hat amount there must he an equivalent amount in gold coin or In '- lion in the Issue- Department. The fiduciary portion of the note issue has for ils backing Government debt 211,013.100, ami other liabilities 2~.70 1.000. The “Government Debt’’ •is tin l name l implies is a liability of the Gnverninoii! Io the Lank and has always been closely bound up’with f'e very existence of that: institution. The Bank’s original charier of III!) I was granted in consideration of a loan Io the Government of 21,200.000, tlie su - scrihers to which were incorporated as “The Governor and Company erf ibe Bank of England ” and later advam-es often in c•onnee Lion with the renewal of the Charter was raised to .211.013,00 b and this amount was fixed by the Rank Act. 184 1. Simultaneously the l Bank was empower!cl to lake up any other authorised note* issue as they lapsed and up to two-thirds. The Bank has acquired from time the right to make l additional fiduciary issues. When .Messrs Uox, Fowler, and Co. amalgamated with Lloyds Bank in 1921, the right of note issue by the former lapsed, and in 192 U secured authority

to increase Llie i'idueiary issue by £1 ,300.000. and thus practically exhausted its rights in this connection. When the Bank takes over the Treasury’s note circulation the fiduciary issue will lie raised to £200,000,000. rnl’ortimniely not inudi attention is paid by New Zealand business men and newspapers to the weekly figures published by the Rank of England, and yet London is the financial -Centre ol the Empire and of the world. Oho war, by converting America from a borrowing to a. lending country, was expected to transfer the world’s finan--•ial centre from London t.o New "York and for a time this was the case, bet since Britain reverted to the gold standard and other European countries did likewise, London has recovered its supremacy and to-day is the cheapest, money market. The Bank of England discount rate is 4-J- per cent and that j-ate has hold over since April of last, year. The rediscount rate of the Federal Reserve Bank ot New "York is •> per cent. But this is not all. for call money, that is day-to-day and overnight loans, has ruled at 3.V to ,L;[ per cent. A London financial daily newspaper shows in its money article that on a 'certain day in September short loans on the London money market were being done at 3.1 per cent to 3', per cent, while three months’ bankbills were discounted at under 4J per cent, and throe, months “ Five Trade Bills” at a.. shade over 4J per cent,. On the same date in New York call money was ruling at i per cent, lime money for thirty or ninety days was at, ~V per cent. Tt was stated by the New York correspondent of the paper m quest : <>n that loans were being made d higher than the published rates and quotes as an instance the case ol a Yew Jersey trust company which paid p per cent for a loan of 1,000,000 dollars (£200,000) for four months. While gilt-edged are depressed in New York and new bond issues are difficult, such securities are well supported in London and are maintaining their values. The Bank of England is a unique and powerful institution, boats with age. and it clings to its old world terms hut is quite modern in its technique. . The’ whole of the original capital of the Bank was £1,200,000 that being the amount lent to the (iovernment in 1094, and the original Charter was granted in consideration of this loan. The subscribers, which were incorporated as “1 he Losctuoi and Company of the Bank of England.” What other hanks call their reserve fund the Bank calls it the “ Best.” It, is really the individual profits and in practice is never allowed to fall below £3.000.000. The Bank does not issue a yearly or half-yearly balance sheet but a weekly statement.