The item Other Securities, in the same department, affords an index to the state of the money market—generally referred to in the money article as "the market." When money is scarce in the market, borrowers have to go to the bank with their securities, and the more they go the higher the bank rate will go also. An increase in Other Securities will tell the reader that money is scarce ; a decrease, that it is becoming more plentiful. The market never cares to go to the bank for its supplies, and, on the other hand, the bank has no desire to find funds for competing institutions. In the above return there is an increase of £1,700,000 in Other Securities beyond the amount for the previous week. This was partly due to the outflow of cash to the country to meet the requirements of quarter day, the slowness with which the money disbursed by the Government came into the market, and the calling-in of outstanding cash by the executors of the late Baron Hirsch to provide succession and other duties, amounting to £1,200,000, payable in respect of his estate. The amount borrowed because of these matters, to gether with such disbursements to the public by the Government as did come to hand, enabled the market to meet its outflow of cash, at the same time adding an increase during the week of over £400,000 to the Other Deposits. The last item on the liabilities side of the return refers to short bills which have been issued by the bank itself, and which are called Bank Post Bills.
We now return to the all-important subject of the reserve. The bank is authorised to issue notes to the amount of p17,775,000, representing what is called its "authorised note-issue." There is, however, both a reason and, in fact, a reserve, for this issue. In the year 1844, at the time of the Bank Act, the Government owed the bank the sum of £11,015,100, and to this clay is still indebted to the bank in respect of the same debt. This debt of the Government became both a consideration for the monopoly in the issue of notes granted to the Bank of and at the same time a guarantee by way of reserve for the due honouring by the bank of notes to that amount. In addition to this, the bank has the right to take over the lapsed power of other banks to issue notes, and up to the present the amount represented thereby, and provided for in the first part of the return by Other Securities, is £6,759,900—a very seldom changing quantity, but one that has nevertheless increased by nearly four millions since the date of the Act. These two sums added together make up the amount of the authorised note issue. But it will be seen that the amount of notes actually issued is or £36,081,000 in excess of the authorised issue. By the Bank Act the bank is under a necessity to provide for this excess by a backing of gold coin and bullion, and the fact that this provision is in exist ence appears in the third item on the credit side of the issue department in the return. But when we come to examine the banking department in the return, it will be seen that the bank has actually in hand, as set out in the last but one item, notes to the amount of £23,309,000, and in the last item gold and silver coin to the amount of £2,077,000. These two items amount together to £25,386,000, and since the whole of the note-issue is already provided for as appears in the account of the issue department, it follows that the bank as that sum for the time being available against its liabilities other than those in respect of its note-issue ; such sum is the reserve. And this reserve may be needed ; for many occasions may cause either an augmentation or a depletion of its stock of gold coin and bullion. Gold may be required for export to the United States in the autumn, when rates are high there in consequence of the money required for the harvest; and it may return when by ordinary commercial events, or by arbitrfige operations, rates are such in England as to make it unprofitable for the gold to be kept in the United States. In the return before us the reserve is
X2,625,000 less than that of the previous week, a shrinkage which caused one of the soundest financial authorities to draw attention to the fact that the bank was losing strength.
Every afternoon the bank posts on its walls a statement showing the amount of•gold sent and received from abroad during the day, and generally also the place to which it has gone or whence it has come. Knowing from the return the variations in the note circulation, and the increase or decrease of and from the stock of gold, the daily statements of the exports and imports of gold, it is only a matter of calculation to discover the payments and receipt of gold to and from the country. Accordingly, we find that the above shrinkage was caused by the export of £636,000 in gold, the circulation of X843,000 of gold into the country, and an increase of X1,146,000 in the note circulation, the total loss of gold being X1,146,000. In the following week there may be a further outflow of gold into the country ; but, on the other hand, notes may return, and but little gold be withdrawn for abroad. Banks are supposed to keep a reserve equal to one-fourth of the deposits of the public, such reserve being often referred to as the " legal minimum." But the directors of the Bank of England endeavour to preserve a ratio of 40 per cent. It will be seen that the proportion of reserve to liabilities, as represented by the public and other deposits in the above returns, is 488 per cent., which is a decrease from of the previous return ; but this is in fair comparison with the bank's own standard of reserve, and with the 441 at the same period of the previous year. But the monetary conditions at and about the period of the return were such as ought not to have permitted the bank to reduce its reserve to the extent shown above ; thus the outcry of the financial authorities. Apart from the possible outflow of gold into the country, there were anticipated shipments of gold to Egypt and South America, and possible autumnal exports to the United States ; and with it all the fact that the foreign exchanges were adverse to this country, and an unusual amount of foreign money employed here. To regain and keep its strength, the bank would be compelled to take measures to protect its gold. Moreover, notwithstanding its then hard-up condition, the Govern ment in the following week would be required, as the financial authorities are careful to point out, to meet the quarter's instalment on its debt and other outstanding payments amounting to X5,160,000 ; to do which, it was antici pated that it would have to borrow some three or four millions, although the amount required to be borrowed was somewhat reduced by the fortunate payment of duties in respect of Baron Ilirsch's estate. Again, it was fore casted that the Government would find it necessary to borrow £10,000,000 from the bank and the National Debt Commissioners before the follow ing January. All these facts, therefore, gave reason for dismay at the compara tively small reserve, and the possibility of the Government borrowing heavily from the bank, and absorbing funds which are regarded as the reserves of the whole banking community. And so we see the value of a knowledge of the technique of the bank return and the scope of the money article. See BANKER AND CUSTOMER; BANK RATE; MONEY ARTICLE.