MR. GOSCHEN'S IDEAS ON CURRENCY. T HERE is a certain inconvenience
in making a currency proposal, as Mr. G-oschen did on Wednesday, in a speech before a Chamber of Commerce. The speaker cannot be questioned at once, as he practically can in the House of Commons, nor can he at once remove any misapprehensions his words may have created. We greatly doubt, for example, if anybody at Leeds felt certain that he understood what the Chancellor of the Exchequer intended to do with his one-pound notes in order to create a "second reserve" of gold in the Bank of England, and must perforce acknowledge that we have ourselves only a glimmering of his actual plan. There is, however, no uncertainty as to his object, and it is one about which every business man in the country will heartily wish him success. The events which preceded the fall of Barings have convinced the Chancellor of the Exchequer that the danger to the commerce of this country arising from the smallness of the stock of gold in the Bank of England in proportion to the fabric of credit built upon it, is immediate, excessive, and requiring prompt and de- cided remedy. The Bank is the only central reservoir ; it is liable to be tapped from abroad, and it is also liable to be drained by the other banks, which hold together .€600,000,000 in deposits on current accounts, yet keep reserves which are in some instances as low as 12 per cent., and rarely exceed 20 per cent. They therefore, when pressed, rush to the Bank of England, and in a ,panic it might be simply impossible to provide the gold necessary to meet commercial engage- ments, which would mean something like general bank- ruptcy. Had Barings fallen like other houses, this would actually have occurred. Mr. Goschen, who is perhaps the greatest authority in the world on the matter, declares that had the great house simply stopped, as a little house might have done, the Black Friday of 1866 "would have been child's-play" to it, and the credit of Great Britain as the banking house of the world would have been trans- ferred to other countries. His words are extraordinarily emphatic The liabilities were so gigantic, the position of the house was so unique, that interests were at stake far beyond individual fortunes, far beyond the fortunes of any class It was a time when none who had liabilities or engagements to pay could say how they could pay them if a condition of things were to continue under which securities could not be realised, under which produce could not be sold, under which bills could not be discounted, under which there appeared an absence of cash sufficient to discharge the liabilities of the general public. That was the position at home, and I toll you what was at stake,—you risked the deposition of London as the banking centre of the universe. You risked the supremacy of English credit, you risked the transfer of the business of this country to other European centres, if such a catastrophe had occurred as you were on the eve of witnessing. I cannot exaggerate the danger, the im- mediate danger, to which this country was exposed at that time." Those are strong words from a Chancellor of the Exchequer with Mr. Goschen's special knowledge, atld he made them stronger by pointing to the precautions which other countries think imperative. Instead of °tint rumpery 24 millions sterling, the Bank of France holds 95 millions in bullion, the Bank of Germany 40 millions, the State Banks of the United States 142 millions, It is true that this country keeps an immense amount of gold in circula- tion, perhaps 60 millions, perhaps even 110 millions ; but that is not available, "it is in the people's waistcoat- pockets," and just at the moment when it is wanted at the centre, it is sure to stay there. It is high time that this state of things should be remedied, and if the country will only support him, Mr. Goschen is just the man to remedy it. It is to strike a note of warning, and, if possible, to elicit popular support, that Mr. Goschen spoke at Leeds before he submitted regular proposals to the House of Commons. These proposals will be of two kinds. Mr. Goschen desires first of all to limit the pressure by private banks upon the Bank of England, and insists, therefore, that they ought to keep a larger proportion of their deposits in their own vaults. In order to increase their dividends, they lend their deposits "up to the hilt," and then, when they are pressed, rush upon the Bank to help them. Eleven large banks in 1889 had liabilities amounting to £170,000,000, with cash balances amounting to only £17,500,000, little more than 10 per cent. Mr. Goschen holds that they must be persuaded, or if necessary compelled, to keep larger balances, and hints his intention, first to exact a monthly publication of accounts so that depositors may see their risk ; and secondly, if that does not suffice, to tax the lending of deposits beyond the proportion Parliament may fix. There will be plenty of discussion over that; but there can be no doubt that, i the end sought were secured; the huge commercial danger to which the country is now exposed would be materially lessened. Mr. Goschen, however, would go farther. He wants the Bank to have a second reserve, a great sum in gold or safe notes which it could issue automatically in crises such as justify and compel the suspension of the Bank Charter Act. He thinks this may be obtained by the issue of notes ; how, he does not, to our minds, precisely explain. If . the notes proved popular, as they would, owing to their extreme convenience for the p'ayment of wages, and if they did. not supersede the larger notes, there would of course be a "second reserve" of gold in the Bank equal to the difference between the total value of the notes in gold, and the quantity of gold usually asked for in exchange for them. That is certain ; but it is so certain that Mr. Goschen would not have dwelt on it as he did, or have so expressly repudiated the notion of making any profit. on the £1 notes. He means something more than this, and as it cannot be merely an issue of £1 notes in times of emer- gency—for that would be exactly equivalent to the sus- pension of the Bank Charter Act—we must await fuller explanation, only recording that Mr. Goschen believes the danger from our small central reserve of cash exceedingly great, and that he intends to use the long looked-for issue of ..t1 notes in order to create permanent means of rendering the danger less.
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