We have already endeavoured to show, that the drain of specie to which an unfavourable balance of trade may subject the Bank, can never be such as to endanger its credit, because, in such cases, the de mand is neither so rapid nor so considerable as to preclude the Bank from providing the necessary sup ply of gold. Where trade is in such a state, indeed, the Bank will be exposed to a considerable annual expence in procuring specie. The punctual and ho nourable discharge of its obligations to the public will frequently be found to be both inconvenient and expensive, and its Directors will naturally be desirous to be free from that which increases responsibility, and diminishes profit. But, unless in the case of a general alarm, and discredit of bank-notes, it does not seem that a suspension of cash payments can ever be necessary to the safety of a bank. It de serves to be considered also, that an unfavourable balance of trade, accompanied by an unfavourable exchange, is in its own nature of short duration. It is an evil which tends to redress itself ; a large im portation of goods, necessarily leading to an exporta tion in the same proportion. But, although it is not consistent with the plan of the present article to en ter fully into the subject, for the consideration of which at greater length other opportunities will oc cur, we may observe, that the_ foreign exchanges of a country may be influenced by the state of its currency' at home, as well as by an unfavourable balance on its foreign trade ; and as it is of the first importance to mark the distinction between =unfavourable exchange proceeding from the state of trade, and an unfavour able exchange proceeding from the state of the curren. cy, since the least want of accuracy in this essential point must throw the whole subject into confusion, it is material to remark, that the unfavourable state of the exchange, and the demands for specie to which the Bank was in consequence exposed, which are urged by Mr Thornton as reasons for continuing the restriction on cash payments, have always been as cribed by those who deny the necessity of that re striction, not to the state of trade, but to the depre ciation of the paper, in consequence of that over issue which they maintain to have taken place very soon after the Bank was released from its obliga tion of paying in specie. Mr Thornton insists, • that if the Bank had been opened to demands for specie, it might, in consequence of the unfa vourable state of the exchange, have been ex hausted of its cash ; and that, to guard against this, it was still .necessary to condone the suspension of its cash payments. According to the opposite by it is maintained, that the state of the ex change, to which Mr Thornton refers, was connect ed not with the state of the trade, but with the state of the currency,—that the Bank being now dosed against any return of its notes, had hawed them in excess,—that having, in consequence, fallen in value, it became profitable to return them upon the Bank for specie,—that the demand for specie, of which the advocate& of the Bank complain, was in reality produced by the depreciation of its own notes,—and that the reasons, therefore, assigned by Mr Thornton for the continuance of the restriction, rather prove the necessity of reinforcing on the Bank the obliga tion of paying in cash, by which means its currency being restored to the value from which it had fallen, the demand for specie would have ceased; and Bank notes and specie would have been demanded indiscri minately. The one would have answered all the purposes of the other, and the business of the country would have been transacted, as before, with a mixed currency ofzer and of gold. It be is not to supposed, inde that there were no such occurrences in the history of the country, pre vious to the year 1797, as unfavourable balances of trade, large importations of corn, in consequence of scarcity, and heavy foreign expenditure, in come• quence of war. The Bank, from the time of its first establishment, has had to encounter all the fluent*. tions incident to peace or war. It has also been ex posed to drains of specie from unfavourable balances of trade, as well as from the debased state of the ducted their affairs with prudence, they have ge nerally increased their original capital, and on this account have acquired a great degree of respecta bility and credit. It is a well known fact, that among the Scotch banks failures have been much less frequent than among the country banks in Eng land.
In no country, perhaps, has banking been carried to such an injurious excess as of late years it has' been in Ireland. The national Bank of Ireland was established in 1783, with an original capital of L.600,000, raised by subscription, which was lent to government at an interest of 4 per cent. It was placed under the management of a governor, deputy governor,and fifteen directors ; eight of whom, includ ing the governor and deputy-governor, were to form a court of directors, for managing the concerns of the Bank. They were eligible every year, and it was provided that one third, at least, of the directors should be annually changed.
In 1809, the Bank of Ireland obtained a renewal of its charter for twenty-one years, on condition that its capital should be increased by L. 1,000,000 of stock, to be raised from the proprietary at the rate of L.125 per cent., and to be lent to government at 5 per cent. per annuat. The Bank alsoto continue the management of the public loans, free of expence to government, during the con. tinuance of its charter.
In 1797, when the Bank of England suspended its cash payments, the same privilege was extended to the Bank of Ireland,' and after this period its circu lation was rapidly increased. The following is an account of the amount of its notes in circulation at different periods: currency ; but it was not until the year 1797, that its Directors, as a, security against those inconve niences, bethought themselves of the singular ex pedient of dishonouring their own notes. In form _ er periods too, the credit of the Bank was nearly subverted by domestic alarm. A case of this na ture occurred in the reign of Queen Anne, when, from the apprehension of a French invasion, the Bank was assailed by an alarming demand for specie. The alarm, however, as is usual in all such cases, soon passing away, the credit of the Bank was entire ly re-established, and payments in specie were of course continued during the remainder of the war. The Directors did not venture upon the bold step of making a temporary alarm a pretext for the per manent suspension of their cash payments. They reserved this extreme remedy for extreme cases, not thinking it applicable to those ordinary casualties to which all banks are necessarily exposed.
At the tiioe when the Bank of suspend ed its cash payments, a law was passed, protecting a e debtor who offered its notes in payment against ar rest, though his creditor, by a common action of debt, might still recover payment in guineas, the legal cur rency of the country. In 1810, when guineas be gan to be currently sold for 25s. and 26s. in paper, a law was passed prohibiting this traffic, and impos ing severe penalties on those who should exchange bank-notes for less than their nominal value in gold. Tenants, who offered payment of their rents in bank notes, were at.the same time protected against dis tress, though they were still liable to a common ac tion of debt or of ejectment. In 1811, in conse quence of a great landed proprietor announcing that he would exact payment of his rents in guineas, an act was passed, protecting a debtor who offered Bank of England notes in payment of his debt against all farther. proceedings. The paper of the Bank of England became, in this manner, legal tender for all existing debts, however depreciated it might be in its value, and the law conferring upon it this import. ant privilege still continues in force.
In Scotland, banking has been generally carried on with great prudence and success. There are at pre sent, in the metropolis of Scotland, three banks incor porated by charter, namely, the Bank of Scotland, established by act of Parliament in 1695 ; the Royal Bank, established by royal charter in 1727; and the British Linen Company, originally incorporated in 1746, with a capital of L.100,000, for the encourage ment of the linen manufacture, but afterwards con verted into a bank, for the issue of promissory-notes, and the discounting of bills. Those different banks, besides their annual dividends, have been accumu lating a fund of undivided profit, which they have, from time to time, been adding to their original ca pital. The Bank of Scotland and the Royal Bank, have each a capital of L.1,000,000, with an additional 1..500,000 subscribed for, but which has never been called up. The capital of the British Linen Company was lately increased from L.200,000 to L.500,000.