BORROWING ON CONSOLS. This refers to a method adopted by the Bank of Eng land for making an increase in its " Bank Rate " effective in preventing an undue drain of gold from its reserve. A large con stituent of the item " Other Deposits " in the Bank Return is formed by the balances of the other London banks. In ordinary times, therefore, when the amount of " Other Deposits " is high, it implies that the money market (the London banks and bill brokers) has a considerable slim of floating money at its disposal, which, seeking for any profitable investment rather than lying idle in the hands of the Bank, competes for the bills that are offered for discount and so prevents the market rate of discount from closely following the Bank Rate. But the only certain way to counteract the outflow of gold from the country is to increase the value of money at home, which proceeding acts in two ways ; it renders the export of gold unprofitable, because it is so dear to ' buy, and it turns the foreign exchanges in favour of this country by encouraging bankers abroad to purchase London paper for the sake of the high rate of discount which they can get. The Bank of England,
therefore, in order to get rid of this floating capital, which interferes with the effect of the Bank Rate, employ the somewhat drastic expedient of borrowing it themselves by selling consols for " money " and buying them back for the " account." The pur chasers, whoever they may be, draw cheques on their accounts, soon absorbing the float ing fund referred to and having the imme diate effect of lessening the bankers' bal ances contained in the " Other Deposits." Deprived of this means of competition with the Bank of England, the money' market has no alternative but speedily to raise its rate, and the desired result is obtained.
(See BANK RATE, BANK RETURN.)