TOPICS OF THE DAY.

DEfOSITS IN THE BANK OF OR NOT ENGLAND: ARE THEY

CURRENCY ?

Tao recent appointment of a Committee of the House of Com- mons to inquire into Banks of Issue, has greatly stimulated dis- cussion, and set afloat the most conflicting opinions, on the subject of Currency. And it appears that even as to points which aright be considered as fundamental, there is far from being any thing like unanimity. For instance, it is not yet agreed upon what principles we are to proceed in estimating the amount (1 currency existing at any given period.. An important question has been started respecting the deposits in the Bank of England and in other banks of issue—Are not these deposits to be treated as constituting a distinct and substantive portion of the actual currency, and acting upon prices in the saute manner as other portions of the currency ? The affirmative of this opinion is maintained in the published Report of the Manchester Chamber of Commerce on the subject of the Bank of England and its recent administration : and if the Times is correctly informed, Mr. SMITH, one of the leading gentle- men in. that Chamber, has triumphantly sustained the same doc- trine in his recent examination as a witness before the Committee en Ranking. Mr. SMITH and the Manchester Chamber of Commerce tell us, that our currency (over and above what is gold and silver) includes not merely the notes issued by the Bank of England and other issuing-banks, but also the deposits held in those banks ; that in calculating the aggregate amount of currency, we are to take the nun of notes and deposits jointly—in other words, the total liabili- ties of issuing-banks. It is said in defence of this opinion, that a Bank of England note of 1,0001., deposited in the Bank of Eng- land by any person and entered to an account in his name, is to be considered as still remaining out, and still forming an item of currency, just as much as if the depositor had locked it up in his own strong box: that it depends upon his will, both in the one case and in the other, whether this note shall or shall not be actually employed in a purchase : that if the Bank of England, having received such note in depostt, shall keep it locked up with- out again lending it out, in that case the aggregate of currency will remain just the same as it was before the deposit was made ; but it ou the contrary, the Batik shall reissue the note in the way of loan to sonic new borrower, in that case the aggregate amount of currency will be positiveltincreased by so much, above what it was before the deposit was made. We think that this doctrine; respecting the functions and cha- racter of deposits, is altogether untrue and untenable, if it is meant to apply to the sense in which deposit-banking is univer- sally understood and practised in Great Britain and the United States. We think there are other modes of deposit-banking, actual or conceivable, with regard to which the doctrine might perhaps be called in substance correct, though the language in which it is stated is confused and misleading. By deposits we mean, coin or bank-notes lodged with a banker or with any other party, the depositor always retaining at full legal right to draw for it on demand.

When money is deposited with a banker, he may do one of two things,—he may either keep it untouched in his possession and custody, until the depositor shall redemand it ; or he may invest the whole or a portion of it in some profitable manner, in the con- fidence that. the depositor (or the entire body of depositors, if' they are many) will not call fur the whole at one time, and that he shall be able to disengage the money in time to meet any extent of pro- bable demand. The latter is the system universally adopted both in England and in the United States : the former is said to be the system adopted by the Bank of Hamburg. Deposit-banking upon either system may consist either with a currency wholly metallic, or with a currency partly incodlic mid partly paper. Let us first reason out the case on the supposition that there is no paper—nothing but metal, or gold sovereigns. ht this case, it is plait that the quantity of currency in the country is measured by the number of sovereigns iii the country. In whatever manner these sovereigns may be distributed, the og- rgate amount of them is at any given moment certain and definite : it is so much and no more : and the proportion of currency pos- sessed by each individual is measured by the number of sovereigns • which be has in his hands. If A deposits 1,000 sovereigns in the hands of B, a given portion of the aggregate currency passes from the possessicn of A to that of B: it' B redeposits these same 1,000 sovereigns in the hands of C, remaining himself' under the liability to pay them to A OD demand, there is indeed an increase of deposits in the community, but there is no increase in the amount ofinoney or currency. The same identical 1,000 sovereigns may be trans- ferred successively in the way of deposit to ten different. individuals, each sueessive depositee being liable to repay them on demand : ASSUlile this to happen, and the amount of deposits in the community. will be increased by 10,000/., but the amount of money or eurreney will remain unaltered. it is not the deposit which forms any portion of the currency—it is the money deposited. The 1,000 sovereigns were money, and formed a portion of the currency, betbre they e ere deposited ; they con t nue to be money, and to form the same portion of the currency, after they are deposited, whether they are deposited once or one hundred times in succession.

A banker is the receiver of deposits from many different indivi- duals. The money deposited with him undoubtedly forms part of the currency, whether he retains it or parts with it : and if the system of banking be that of the Bank of Hamburg, so that all the money deposited with hint is locked up in his chest or cellar, then in a certain sense it may be said, though we think very loosely and incorrectly, that his deposits form part of the currency. But if the system of banking be that of all British and American Banks, it would be a complete mistake to say that his deposits formed a part of the currency. Of the money deposited with him, he invests by far the larger proportion, say three-fmrths, in profit- able securities, retaining one-fourth as a reserve to answer current demands. It' 400,000 sovereigns have been deposited with him, he will have employed 300,000 and kept only 100,000 in his posses- sion. The 300,000 sovereigns which he has received and employed form the subject of rights (to call for at pleasure) on the part of the depositors, and of tueillit(*.ei (to pay on demand) on his part .; but they have passed out of his possession into that of othors, and can no longer be computed as a portion of currency password by hint or by his depositors. All the portion of curreacy possossed by him or by his depositors is measured by 100,000 sovereigns----not by 400,000. In other words, it is not the amount of deposits lodged with the banker, but the number of sovereigns actually in his hands, which is to be reckoned as forming a portion of the currency of the country.

But then we are reminded, by those who bold the opposite

opinion, that every depositof 1.1raW out his deposit ze pleasure : and what is the difference (they ask) between possessing one hundred sovereigns in your owo strong box, and the same sum in a good and solvent bank ? Caeuot you lay your hands on the metal, at any moment you please, in the latter ease—and what more can you do in the former ?

We answer, that the two cases supposed are indeed precisely identical if the system of Woking be that of the Bank of Ham- burg; but that they are not. at all identical if the system be that of the English and Amer:ean Banks. Suppose each man the keeper of his own money : then all may at one and time same mo- ment unlock their coffers, zmi each man may produce his portion without delay. The same thin,s mays happen at the Bank of Hain• burg: let all the depositors send at ooe and the saute iustant to redentand what belongs to thrum, the coffers of the Bank will in- deed be emptied, bat every maxis deposit will be restored to him forthwith. But. the saute thing could not happen with banks con- ducted upon the English or American system, assuming them to be ever so solvent and ever so prudently conducted. The system is not formed so as to meet the case of asimultaneous demand from all. It subsists only beeause every one, depositor as well as banker, believes such an occurrence to be' out of the reach of pos- e sibility. Well-e■mducted banks, upon this system, csin :nest all such demands tap ,n them as tile system con:ea:plates ; but they can do no more. pc.,',.1:c,e'ly true—that is, it is true under any such combination of circumstances as can be held rossonably possible—tbot. evcm.v (11.1201.110f may thaw out the whole of his balance at any moment : but it is not literally and r.eactly true, as ' it is With repel to the Bank of hamburg; nor is it ecieetOied true, so a t.. serve as a e,o.zaill and in lisputable basis for deduc- tions of re:tooting, When we are to . in lsolks conducted OD the EtigU ore to lso c ! constitotiosi • of currency j .o• •,!te depsitor', or, box, on the grosa l!ss ells a::: :on ..2“:•*- sibb-; to Ili:::

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But who can suppose, that if Coors's's, or DRUMMOND'S, or HoARE's, were to begin the practice of issuing their own notes, the whole of the deposits in their hands would immediately be converted into portions of currency ? or that if GURNEY'S of Norwich were to make an arrangement with the Bank of England, and discon- tinuethe issue of their own notes, the deposits in their hands, being at the present time portions of currency, would cease to be so at the moment of such discontinuance ?

We maintain that there is no distinction between deposits in issuing-banks and deposits in non-issuing banks; that neither of them form portions of currency ; that after the introduction of a paper-circulation as well as under a metallic circulation, it is only money deposited with bankers and remaining in their hands un- employed which forms part of the currency:, whether the sum so circumstanced may be coextensive with their whole deposits, or equal only to a part of them.

When a depositor pays in 10,0001. in bank-notes to a deposit- account in the Bank of England, he in fact foregoes the use of those notes for a time, and leaves them to the Bank Directors either to lock up or to use instead of him. The argument which we are combating supposes that the bank-notes which he pays in to his account still continue to form a portion of currency ; and that if the Bank of England keep them locked up without employing them, in that case the aggregate amount of currency remains the same as it had been before the deposit was made, but that if the Bank of England, having received this new deposit, reissue the notes in a new loan, then such reissue positively augments the 'currency by so much. Because (it is said) the Bank of England still continues under the liability to return the notes to the de- positor when he asks for them—and by reissuing the notes it has contracted a fresh liability to the Eke amount : so that its liabili- ties, and consequently the currency, are by so much increased.

We admit that the liabilities of the Bank of England would under the supposed circumstances be increased as is contended, (with this pert of the case we shall deal presently) : but we deny that the aggregate of currency would be at all increased. For if it be said that when the depositor has paid in his 10,000/. of notes, these notes are not cancelled, but still remain out and form portion of the currency, inasmuch as they are still under the control of the depositor,—then we maintain, that the Bank of England in reis- suing them makes no addition whatever to the aggregate amount of currency ; the notes were oat before the reissue—they are still oat; and no more arc out, after the reissue. If however it be said, that the depositor in payita- in his 10,000/. of bank-notes, actually causes this amount of notes to be cancelled, (and we apprehend that this is both the ordinary end the reasonable statement of the case),—then the depositor, in lodging his deposit, occasions a positive diminution of currency to the extent of 10,000/. • and the

e Bank of England, in reiss:ng the notes which he has deposited, only restores the currency to its previous amount. By no con- sistent view of the case can it be made out, that the Bank, by employing the notes deposited with them in some profitable in- vestment, makes any positive addition to the amount of currency as it stood before the deposit was made.

But are not the liabilities of the Bank increased by such a pro- ceeding? and if liabilities of the Bank under the form of bank- notes constitute part of the currency, do not liabilities of the Bank under the form of deposits constitute part of the currency also ?

The liabilities of the Bank arc undoubtedly increased : but liabilities under the form of deposits are not currency. Bank-notes and deposits agree in being liabilities of the Bank ; but the former alone are currency, and not the latter.

Nothino.b is currency except Hod which ?ell serve to pay debts and to make purchases; and dtpo its in the Bank of England will do neither. To effect either of these objects, the depositor must draw out the bank-notes which he has paid in ; that is, he must extinguish the deposit, and convert the amount of it into an equal amount of' liabilities of the Bank under the form of bank-notes.

Now when the depositor draws out his deposit, what is—or at least what ought to be—the conduct of the Batik of England? They hand over to him tlee amount of bank-notes required : but the aggregate of their depolts is by so much diminished, and they know that the amount of sccuritks which they can afford to hold, depends upon the amount of deposits left with them. Accord- ingly, at the same time that they pay out the deposit, they realize securities, and thereby call inn hank-notes, to the like amount : and thus the aggregate amount of bank-notes out—in other words, the aggregate currency—is not at all increased.

In supposing that the Bank will take or ought to take this course, we merely assume that they will net upon the maxim habitually re- ceived among deposit-hankers—that when deposits are diminished, the amount of securities held must be diminished also. In the case of non-issuing bankers, attention to this maxim is most peremptorily enforced by the visible wasting away of their cash-reserve: but in the case of bankers who combine deposit with issue, the observance of the rule is not less essential. We admit, indeed, that the combina- tion of issue with deposits does introduce a certain degree of tempta- tion to imprudence in the conduct of the latter branch—and this is one of the grounds on which we question the wisdom of such a combi- nation. We admit that an issuing-banker, or the Bank of England, on losing a portion of deposits, may be guilty of the imprudence of trying to pay them in his own notes without realizing securities, inasmuch as the consequences are not so obviously perilous as in the case of a non-issuing banker. We further concede, that if an is-

suing banker, or the Batik of England, should permit himself to pay out deposits with bank-notes, without at the same time realizing securities, he does pro tanto increase the aggregate amount of cur- rency. But when it is contended, that in estimating the total amount of currency, the amount of bank-deposits is to be added to the amount of bank-issues, inasmuch as the de- positors may at pleasure convert the deposits into additional issues,—we deny the position altogether. We maintain that the depositors cannot do this, if the Bank of England be managed with as great a degree of prudence as is exhibited by deposit-bankers ge- nerally ; for in that case the bank will meet the drafts of deposi. tors by the sale of an equal amount of securities, so that the ag. gregate currency will not be at all increased. The depositor may indeed draw out his deposit whenever he pleases; but it seems to be forgotten that he cannot increase the aggregate currency by any act of his own, unless the Bank of England are disposed to concur in his doing so, and to omit those precautionary measures which would prevent him. We wish it to be clearly understood that we are not here dis- cussing, much less vindicating, the actual management of the Bank of England during recent years. We are perfectly aware that they have not in point of fact managed their deposit-business upon the prudent maxims here laid clown : to what extent they have de- viated from those maxims, is an investigation of great importance, but one which does not belong to the present argument. For it is impossible that the solution of this general pmbletn—whether or not deposits in banks of issue form a portion of the currency—can be made to turn upon the recent proceedings, be they creditable or otherwise, of the Directors of the Bank of England.

Taking deposit-banking, therefore, as it exists in this country, it seems to us in no sense true that deposits, either with issuing- bankers or with non-issuing bankers, are to be counted as portions of currency. The deposit was a portion of currency before it was made a deposit ; the depositor parts with his currency, and contents himself with a right to reclaim it at pleasure: but this right is not itself a new portion of currency, and we should greatly mistake if we treated it as such.

Deposits are in fact loans of money payable on demand, with or without interest. A bank-note of 1,000/. may be loaned and re- loaned twenty times in succession from one party to another; but it still remains a fixed amount of currency, nor can these multiplied transfers multiply in any way the amount of currency.' No one, we believe, has yet asserted that all loans payable on demand are to be reckoned as portions of actual currency.