A PLAN DOMESTIC CURRENCY, RENDERED INDEPENDENT OF THE FOREIGN EXCHANGES, MEASURED IN STANDARD GOLD. BY A BANKER. LONDON; PRINTED AND PUBLISHED BY LETTS, SON & STEER, 8, Rotal Exchange. September 29th, 1847. To tie Right Honourahle Lour John RussbIti;. My Lord, I take the liberty of once more addressing your Lordship in reference to the fundamental error made in the Bank Charter Bill, in not treating Gold as a commodity in accordance with Sir Robert Peel’s declaration of the 6th May, 1844. My enclosure is dated the first of July, the day on which it was written, but has not been forwarded until I had consulted -with Merchants, Bullion-dealers, and others, to ascertain if my views were just. We are now in the midst of another fearful crisis, and if it be overcome, it will be followed by another and another until the great mercantile and manufacturing interests of the Country are destroyed. I have the honor to be, My Loed, Your Lordship’s obedient Servant, (ekclosure) A PLAN DOMESTIC CUKBENCY, The occurrence of the recent Mone¬ tary Crisis, wherein the prosperity of this Country has been in most imminent jeopardy, and Avhich still paralyses the energy of commerce, has excited the keenest scrutiny into the causes of the disas¬ ter. Many reasons have been assigned, but, in my opinion, none with so much truth as the financial acts of the Legislature. Almost all persons who have thus accounted for the national sufferings, have joined in condemning the Bank Charter Bill of 1844. I, too, disapprove of that measure, yet I maintain that the principles upon which Sir R. Peel professed to proceed are right but that these principles are not carried out in the Bill. In his speech on May 6th, 1844, Sir R. Peel stated, that gold being the least fluctuating com- modity and the universal equivalent he would continue it as the measure of value and treat it as all other commodities are treated. The pro¬ fession is good, had he taken so much gold as was required for a measure of value, and left the remainder to obtain the market price he would have acted up to his principles. I proceed then to explain— 1st. How a requisite amount of domestic cur¬ rency may he supplied. 2d. How it may be maintained unaffected by the Foreign Exchanges, and 3d. How the necessary sum in gold is to be provided. 1st. The first object can be effected by the esta¬ blishment of a Bank issuing notes having twelve months to run and then payable in ounces of gold; the pound sterling being j oz. of gold. Twelve months after date I promise to pay to Bearer One thousand pounds (i. e. 250 Ounces of standard Gold) value received. £1000:0:0 sterling. A. B. Cashier. Notes upon the quarterly sum due by the public in Taxes, say 13,000,000, might be issued quarter¬ ly in payment of the public dividends and current expenses of the Government, and a further sum of 10,000,000, more or less, in notes, might he issued to the London Bankers for the discount of bills not having more than three months to run, which notes would be returned within three months in due payment of those bdls. Hereby would be esta¬ blished a circulation of about 23,000,000,1 mean such an amount of circulating medium as experi¬ ence would dictate to be necessary for the require¬ ments of the Country. This operation would have to be repeated every three months. 2dly. This currency would be independent of the Foreign Exchanges. For the contemplated Bank would not have the functions of buUion-dealers, as is now the case with the Bank of England. Hence gold, which in the usual course of trade has a tendency to flow into England, would he bought by the bul¬ lion-dealers, and be in turn sold by them to the merchants whenever it should be required for export in the balance of trade. The demand for gold from the buUion-dealers would accordingly enhance its price, and render it dearer to the foreign merchant, when he might require it, than our manufactured goods. He would thus be induced to accept manufactures in place of gold, with which he could trade, if so disposed, and realise a profit unattainable if he had taken gold; and the export of manufactures would greatly benefit the British producers. Also, in the proposed system, the bank-note cannot be depreciated. For, suppose that, owing to large purchases of com or any other import, gold is in demand, the bullion-dealers wiU endeavom- to increase its price, but in this case, if they suc¬ ceed in augmenting the price beyond £4 per oz., I propose that the Bank should charge more than 4 per cent, for discount of bills (which I would have to be their minimum rate) say to 4| or 5 per cent. The price of gold, then, being raised, the representative of gold, the bank-note, becomes affected, yet it is not depreciated, as is seen by considering the similar and even identical case of a dock-warrant for goods. If a dock-wairant for 50 hhds of sugar be worth £1000, and sugar rise in value 10 per cent., the warrant becomes worth £1100. A bank-note of £1000 is a war¬ rant for 250 oz. of gold, which, at £4 per oz. is worth £1000; now, if gold rise 10 per cent, in value, i. e. to £4:8s. per oz., the £1000 note becomes worth £1100, which is a contradiction in terms and therefore impossible. In order to correct the error that would ensue from this alteration in value of gold, the rate of discount should, I think, be raised to 4| or 5 per cent, per 9 annum for the time that gold continues above £4: per oz. For example— V^Tien Gold is £4 oz. the rate of discount should ho 4 cent. „ .£4:5 ,, „ 44 „ „ £4:10 „ „ 41 „ „ £4:15 „ „ 44 „ „ £5 „ „ 5 „ Again, that the bank-note is augmented in value the following instance will show. Suppose that A sells goods for JIOOO and draws a six months’ hill upon his customer B, which he gets discounted at 4 per cent., hy this process A receives £980, hut if his hiU he discoimted at 5 per cent, he receives only £975, hence it is plain that if gold rise in value, the bank-note rises also, because in this case fewer notes obtain the same quantity of goods as before the altera¬ tion in the value of gold. When gold begins to recede in inice I woidd begin to lower the rate of discount, but not to less than 4 per cent, per annum at any time. When gold falls to less than £4 per oz. the issuing bank and the bulhon- dealers wdl probably lay in a stock of cheap gold, until the foreigner finds that it is unpro¬ fitable to remit gold to England and sends us goods instead; but in this case, he must be con¬ tented with a lower price for his goods, whereby 10 we obtain foreign goods at a low price as well as gold. Also the circulation is undiminished in amount by the interference of the Foreign Exchanges. For, though notes due and over due should be presented for gold, when gold is needed, as above supposed, in payment of the balance of trade, and those falling due should be hoarded to obtain gold, and those with some months to run should be exported instead of gold and be due on their return: still, to replace the consequent diminu¬ tion in number of the notes, at prese)it irremedi¬ able, I propose that the Bankers should be able to go to the issuing bank and discount their hhls, but, by reason of the rise.in price of gold, 4| or 5 per cent, discount should be charged them, 5 per cent, being the maximum rate contemplated. 3rd. Lastly, To provide a necessary amount of gold for the Bank. It has been estimated that there are in cumu¬ lation more than 50,000,000 of coined gold occupying the place of £1 notes. Many millions of this gold can be procured for the proposed Bank, by an issue of notes for £3 and £4 each, in addition to the other notes in cumulation, the execution of which might be rendered superior to the possibility of forgery. The requiimd amount of gold would thus be raised, and these notes 11 would remain in circulation for the purposes of trade. Present Plan requires Gold. Proposed Plan requires no - -1- Gold. The payment of £3 requires Notes 0 Gold 3 £3 requites Notes 3 Gold 0 „ 4 „ 0 4 4 „ 4 0 „ 6 „ 5 1 6 „ 6 0 „ 7 „ 5 2 7 „ 7 0 „ 8 „ 5 3 8 „ 8 0 ,, 9 „ 5 4 9 „ 9 0 37 20 j 17 37 37 0 We see £17 in gold is required to effeet the payment of £37, which is a wasteful expenditure of gold. By the above statement it will lUrewise he seen that aU payments of £3 and upwards to ant) amount^ may be made -without the use of gold. I propose that the London Bankers, in addition to the facility of obtaining bank-notes at aU times at a moderate rate of discount, shall have the privilege of paying into the Bank of Issue all their due hiUs and checks upon Bankers, to the credit of their several accounts. 12 I consider that the Provincial Banks should he allowed to issue ^3 and £4 notes in order to economise gold and assist the small traders and others. Mr. Huskisson remarks—“ The with- “ drawing of the small notes is a measure sug- “ gested hy considerations of expediency, which “ ought to outweigh perhaps the economical ad- “ vantages which the country derives from the “ use of them. It is not necessary at present “ to examine the question in this comprehensive “ view, although I own that I very much doubt “ whether country hanks might not he allowed to “ issue notes as low as two pounds.” I propose to abandon all restrictions upon hanking, with the exception of prohibiting issues vdthin sixty-five miles of London. . It has been proved in the evidence before Parliament, that Coimtry Bankers can neither increase nor diminish their issues, Sir. Huskisson frirther remarks—“ It is admitted that the country “ hanks cannot make, or permanently maintain “ in circulation, any over issues of their paper. “ On this point there is no difference of opinion “ in the evidence taken before the Bullion Com- “ mittee of 1810.” The overtrading fostered by the facilities given by Country Banks has arisen from the non-issuing banks principally and not at all from the country 13 issues. The exchanges of the Countoy Bankers among themselves twice a week, and every day at the London Agents, effectually prevent over¬ issues. We find that, as banidng accomodation in¬ creases in Scotland, its issues diminish. Such will he the case in this country upon obtaining the additional banidng accomodation proposed. Any interference whatever with Scotland I strongly deprecate: then- barrldng arrangements ought to be left to themselves -with the orre ex¬ ception of depositing the amount of one-fourth of their issues in gold, receiving thereon two per¬ cent. per arrnum irrterest. In like manner the Pro-vdncial Bairks. Thus if a faihrre occurred, five shillings in the pound worrld be paid imme¬ diately ; and if the bank (so failing) paid fifteen shillings hr the pound, the issrre would he paid infiiU. At the commencement of the Bairk Charter, 1844, the Bank of England reduced then- rate of discount from 4 per cent, per annum to 21 per¬ cent. per- annum, and were yet unable to employ tlreh’ private deposits amounting to 8 millions; thereby not only losing then- profit as private bairkers, but causing aU other bankers to sacrifice their fair profits of barrking. The Bank of Englaird will be the greatest gainer by the new system. 14 The dreadM losses sustained by this coiuitiy in buying aU imports dear and being compelled to sell exports cheap, in order to keep gold to sustain the present imperfect system of currency, have, at last, raised a spirit of inquiry among our merchants which I trust will not subside because smooth times have appai'ently returned, for the same losses will again be sustained until our trade and commerce go to other nations. I have, as I think, pointed out a means of sup¬ plying an adequate currency clear horn the ob¬ jections which attach to the present system, while I remain, as I have ever been, an advocate of the measure of value in standard gold. London, 1st July, 1847. THE EXD. Sos, s STEE2, Printers, 3, Hoyal Es