paid in England by half-yearly instalments, and to be charged upon the territorial revenues of India exclusively, and to form part of the territorial debt of that country, not to be redeemable before the 30th of April, 18-, and then, at the option of Parliament, by the payment of 1007. for every 57. 58. of annuity. Such part of the commercial assets as is convertible into money to be so converted, and the proceeds, with the cash balance of the commercial department, as exhibited in the account of stock by computation for the 30th of April, 1834, appropriated to the discharge of an amount of the present territorial debt equal to a capital producing 630,000. a year. The territorial revenue of India to be chargeable with all expenses ncurred on account of that country at home and abroad. The new annuitants to retain the character of a joint stock company. The qualification of the proprietors, and the right of voting, to remain as at present. The number of directors to be one fourth to go out by rotation every year, but to be immediately re-eligible. The patronage to remain vested in the directors. The military patronage to be exercised as at present. The civil servants to be educated at Haileybury. The details of the arrangement to be settled hereafter; but, perhaps, something of the following nature might answer : The students at the college to be considered only as competitors for writerships. Their number to be so regulated that there may be always more candidates than appointments. Each student to remain at the college no longer than years. Vacancies for civil appointments in India to be filled from the college, on public examination, by the students approved the most able. The directors to fill up the vacancies at the college each year: each director to nominate in succession. The plans and arrangements respecting the course and subjects of study to be formed by the Board and the professors. The 47th section of the 53d Geo. III. cap. 155, to remain, but made applicable to removal as well as appointment, and to Professors as well as Principals. The Governor-general in council to report annually, on his responsibility, the number of writers and cadets and assistant-surgeons required for the service of the next year. The Board of Control to have the power of reducing, but not of augmenting, that number. Every British subject to have the right of going out to the seats of government of the three presidencies of India, without license; but his right of visiting the interior, or of residing there, and of acquiring and holding property, to be subject to the restraints and regulations which the local government may impose. The powers of the Court, and its relations with the India Board, to remain as at present, except as modified in the following summary : The Court, on the Board's final and conclusive order, are to send the despatch by the first ship that goes after such order. In the event of the Court refusing to prepare a despatch, or to send a despatch as altered by the Board, the Board to have the power of sending it themselves. Appointment of Governors subject, as now, to the approbation of the King; but the Board to have a veto on the recall. The same with regard to commanders of the forces. The Board to have the same power with regard to pensions or salaries below 2007. a year, and to gratuities below 6007, that they have now with respect to salaries, pensions, or gratuities above Home expenditure and establishment to be under the control of those amounts. the Board. The directors demand, as an indispensable preliminary to their acceptance of the government of India on the terms submitted, that they "should be secured in the regular supply of funds to defray the territorial payments in England, amounting to between 2,000,000l. and 3,000,000l. annually;" but to this Mr. Grant replies, "that the funds requisite to meet the expenses of the Indian empire must be sought, and will be found, in the resources of that empire itself;" and "that the means of making available in England any part of those resources, will be furnished by some of the different modes of remittance which are usual in the commercial world, and which are never found wanting where remittance is required, either for commercial or political purposes." Another demand of the directors is, that some collateral security should be provided "for the regular payment of the dividend, and, ultimately, if necessary, the principal, in the shape of an effective sinking-fund, based upon the investment in the national stocks of some portion of the commercial assets." They wish that a sum of 3,000,000l. should be devoted to this purpose. To meet these views, the government make the following proposal : :- "That there shall be taken out of the commercial assets of the company the sum of 1,200,000/. sterling, which shall be invested in the national stocks or other public securities of this country, and shall, with its accumulated interest, form a fund, as a guarantee or collateral security for the capital stock of the Company, and applicable to its future redemption. That this sum shall not, nor shall any part of it, nor of the dividends arising from it, be applied to any other purpose than the formation of such guarantee fund for the object just mentioned; but that it shall be suffered to accumulate until it shall be applied, as hereinafter mentioned, towards the redemption of the annuity of 630,000., or until it shall, together with its accumuiations, amount to the sum of twelve millions; after which, no further accumulation shall take place, but all the subsequent interests or dividends shall be applied, at the option of the directors and the board, either towards the discharge of the principal of the general territorial debt of India, or in some other manner for the benefit of the territory." The security, therefore, it will be observed, is not to be applied to the payment of the dividend, but only to the redemption of the capital. It is afterwards stated that ministers, expecting that the guarantee-fund thus established will, in the course of forty years, amount to 6,000,000l., are ready to recommend it to Parliament to declare that the anthat term. That the repayment shall be at the rate of 100%. nuity shall not be liable to a compulsory discharge within for every 57. 58. is declared by Mr. Grant to be considered by the Company it is also intimated that there will be transhim as a sine quâ non. With the commercial property of ferred to the government "all the obligations, whether of a legal kind, or binding on the ground of equity and liberality, which may attach to that property." Finally, the period during which the political functions of the Company shall be continued, it is proposed to fix at about fifteen years; and it is hinted that meanwhile, as the duties of the Directors will, under the new arrangement, be considerably diminished, it may be proper that their number should be reduced in a corresponding ratio. This correspondence, we have only further to add, was read to a General Court of Proprietors on Monday, the 25th inst., when no debate took place, but the discussion was adjourned to the 15th of April. The manner in which the plan of the government is likely to be received by the proprietors and the public may be anticipated from the fact that on the day after this communication was made, India stock rose immediately not less than 12 per cent. LONDON:-CHARLES KNIGHT, PALL-MALL, EAST. Shopkeepers and Hawkers may be supplied Wholesale by the following Booksellers :London, GROOMBRIDGE. Falmouth. Philp. The subsequent correspondence refers, of course, entirely to these propositions; and the following are the principal points which come into discussion. On the important subject of the monopoly of the trade to China, Mr. Grant's declaration in his letter of the 12th of February, is perfectly explicit. After a long and elaborate argument, he concludes by saying:-"Whatever may be the decision of the Company, I must repeat, that it is not the intention of the government to recommend to Parliament the renewal of the Company's exclusive privilege of trade with China." He adds, in the same communication, "I am bound to state frankly, that his Majesty's ministers being, on the fullest consideration, convinced of the justice and liberality of the terms now offered, will be prepared, in the event of a rejection of them, to propose to Parliament a plan for the future government of India without the instrumentality of the Company." He concludes by intimating that if no decision of the proprietors is communicated to him by the 23d of March, he will feel himself compelled to consider that the proposal is declined. In a subsequent letter, however, dated the 14th March, he states that he had no desire to Exeter, Balle. adhere to the period here specified as the limit of deliberation on the subject. Panyer-alley, Pater Hull, Stevenson. Bath, Simms. kester. Doncaster, Brooke White. & Nottingham, Wright. Orford, Slatter. Plymouth, Nettleton. Portsea, Horsey, jun. Sheffield Ridge. Shrewsbury, Tibham. Southampton, Fiewher. Llandovery, D, R. & W Lane End, Staffordshire, Smith. Rees. Lynn, Smith. Manchester. Robinson; C. Watts. Worcester, Deighton. and Webb & Simms. Dublin, Wakeman. Newcastle-upon-Tyne,- Edinburgh, Oliver& Boyd. Charnley Norwich, Jarrold & Son: Glasgow, atkinson & Co. berdeen, Smith. and Wilkin & Fletcher. New York, Jackson. Printed by WILLIAM CLOWS, Stamford-street. COMPANION THE TO THE NEWSPAPER. TO BE CONTINUED MONTHLY. No. 4. MAY 1, 1833. Results of Election Petitions, sentation. Abstracts of Parliamentary Pa pers PAGE 63 63 64 64 THE BANKING SYSTEM OF GREAT BRITAIN. Ir was our intention to have devoted a Supplementary Number to an analysis of the Report of the Committee of the House of Commons (August, 1832) on the affairs of the Bank of England; and, incidentally, to have added some remarks on the subject of banking generally. We have, however, thought it more advisable to limit the publication of Supplements to one in each Quarter; and, therefore, as the question of the renewal of the Bank Charter will almost immediately come under the consideration of Parliament, it has appeared to us right, at the risk of affording little variety in the present Number, to give the main facts of this important subject without delay. The knowledge of these facts may throw some light upon the general question of the currency, which has just been disposed of by Parliament. The subject will divide itself into two parts:-1st, The rise, progress, and present state of the Bank of England. 2dly, The operations of the Provincial Banks of England and of the Banks of Ireland and Scotland; with a notice of the improvements in our banking system that naturally arise out of the renewal of the Bank Charter. To the first division of the subject we shall confine ourselves in the present Number. Price 2d. sitor; giving him credit for the amount of the money, or sterdam attained great importance in trade. Several cir- tensive opening to the north-east of Germany afforded by the Zuyder-zee; the vicinity of Flanders, at that time the most improved part of the north of Europe; and, after the siege and capture of Antwerp in 1585, the removal of many of the principal merchants of that city to Amsterdam. The foreign parts-with the Baltic, the Mediterranean, and the consequence was a great extension of the Dutch trade with central part of Europe; so that, in buying and selling, much inconvenience was experienced from the number and diversity of foreign coins. Hence the establishment of a bank, on a plan similar to that of Venice, viz., giving credit to depositors for specific sums in the books of the bank; hence, also, regulations on the part of the magistracy, calculated to enhance the value of bank-money, compared all bills of exchange, payable in Amsterdam, should be to metallic currency. With that view, it was enacted, that acquitted in bank-money; also, that coins, when deposited at the bank, should be entered to the credit of the depositors, in a manner which rendered bank-money more valuable than the metallic currency. ORIGIN OF BANKING AND EARLY BANKS. All banks were originally for the purpose of deposit; money, jewels, and other portable effects of great value for the space they occupied, being lodged there for safe custody. The directors thus attained their object of inducing depoBy degrees, the value of the deposits increased, and banks sitors to make payments by cheques or written transfers, became useful for mercantile and financial purposes. In instead of actual removal of the money or effects. From these, as in other commercial institutions, the Italians these and other regulations, the bank acquired the complete took the lead of the rest of modern Europe, in conse- confidence of merchants and the public; bank-money bore quence, not as some writers imagine, of any particular a regular premium or agio; and, during the seventeenth intelligence or power of invention in the inhabitants of century, the period of a great extension of the trade of HolItaly, but of the earlier progress of civilization and trade land, the deposits in the Bank of Amsterdam were succesin that country. A commercial intercourse was main-sively on the increase. tained on the part of Venice, Pisa, and Genoa, with Constantinople and Alexandria in Egypt, in an age when transactions with foreign countries were, in a manner, unknown in the north and west of Europe. Italy thus derived advantage from two causes; she preserved the remains of the civilization of antiquity, and was in a fit state to profit by intercourse with her contemporaries when, in the eleventh and twelfth centuries, the dawn of improvement appeared in Germany, France, and England. Hence, a considerable increase in her town population at a time when, in the rest of Europe, nine-tenths of the inhabitants lived in the open country. Bank of Venice. Of the commercial towns of Italy, Venice was the first to attain wealth and a large population, in consequence of the security from attack afforded by her peculiar position. It was in the latter half of the twelfth century (in the year 1171) that the Bank of Venice was founded, and received a regular constitution from the government of the republic. The first point was to provide for the security of the deposits, whether of coin, bullion, jewellery, or bills of exchange; the next, to make it the interest of the depositors that the money or effects should remain in the bank. This could be done only by enabling the depositors to transfer their property by orders, in writing, without an actual removal of the articles. With that view, the bank opened an account in its books with each depoVOL. I. Bank of Hamburgh.-Hamburgh, like Amsterdam, was a place of trade in the middle ages; but, notwithstanding its spacious river, it was much longer in acquiring extensive commerce, in consequence, doubtless, of the poverty of the adjacent country. The Bank of Hamburgh was established in 1619 under the guarantee of the magistrates, two of whom are ex officio members of the bank direction. It has been all along a well-conducted establishment, accommodating the public by discounts, as well as by loans on deposits of gold, silver, and jewels. The rule is, to advance to the depositor three-fourths of the value, and continue the loan from six to twelve months. BANK OF ENGLAND. The Bank of England received its first charter in 1694, in the midst of the arduous contest maintained by England, Germany, and Holland, against the restless ambition of Louis XIV. The finances of government being straitened, a loan of 1,200,000l. was made by respectable merchants in London, on condition of receiving interest at the rate of 8 per cent. and a charter of incorporation as a bank, under the title of Governor and Company of the Bank of England. The charter specified, at some length, the fundamental duties and privileges of the corporation; and was drawn in such a manner as to indicate a considerable advance in the knowledge of commercial principles. Thus, instead of ob E taining exclusive privileges in trading,-which a century before would have been an object of ambition with a society of merchants, the bank was limited to a specific department of business, viz., dealing in bills of exchange and in gold and silver. It was prohibited from taking part in any mercantile concern; but it was authorized to make advances, like the Bank of Hamburgh, on the security of merchandise lodged with it, or pledged to it by written documents. Loans on goods, which in later times have been so seldom required from the bank, would, it was then thought, form a principal part of its business; so limited in those days was the monied capital of bankers, brokers, or merchants. One part of the functions of the new association was the management of the public debt; for which (the amount being then very small), the allowance from government was fixed at 40007. a year. Such was the original constitution of the Bank of England. The merits or demerits of such an establishment being then very little understood, the first charter was limited to eleven years; but the reign of Anne being, like that of King William, a period of war, and of war on a very expensive scale, the bank directors had little difficulty in obtaining its renewal. This took place in 1708, in the midst of the successes of Marlborough, when government and the public accounted a loan of money the greatest service that patriotic subjects could render to their country. In that year the bank added about 2,000,000l. to their original advance to government, making their total advance 3,375,000l. -in return for which, their charter received an extension of upwards of twenty years, viz. to 1732. The current rate of interest having fallen during the fifteen years that had elapsed since the establishment of the bank, the charge to government was now reduced from 8 to 6 per cent.; which, high as it now seems, was a more moderate rate of interest than then prevailed in any part of Europe except Holland. The extent of the advances to government now made it necessary for the bank directors to increase their capital; that is, to call on the persons holding bank stock to advance more money, receiving stock in return. Thus, in 1708, the capital was doubled; the holder of 1007. bank stock being offered a further 1007. stock, if he thought fit to advance to the bank a further 1007. in money. As to such an exchange, there was and could be little hesitation on the part of the proprietors, the affairs of the bank being prosperous, and yielding a yearly dividend of 8 or 9 per cent. Its stock was consequently at a premium; that is, a person acquiring 1007. bank stock could readily dispose of it on the Stock Exchange for more than 1007. in money. The long war, caused by the ambition of Louis XIV., came at last to a close: England, Holland, and Austria, all laid down their arms; and financiers as well as merchants calculated on a long continuance of peace. The bank now received a further extension of its charter; and in 1717 increased its advances to government by 2,000,000l., reducing, at the same time, its yearly charge to the Treasury from 6 to 5 per cent. Sir Robert Walpole was driven from the ministry in 1741 by the clamour of faction and the impatience of the public for a war with Spain. The contest soon extended to France; and in 1742 the aid of the Bank of England was again called in by government. The result was, on the one hand, an increased advance by the bank to the Treasury; on the other, a continuation of the bank charter to the year 1764. This war was of very varied success: by sea, our countrymen maintained their accustomed superiority; by land, the French, commanded by Marshal Saxe, had, in general, the advantage of the allies. Money, abundant during the early part of the war, became scarce as it proceeded, and as the scale of our expenditure increased. In 1746 the bank advanced nearly 1,000,000l. to government, and raised the money from the proprietors of bank stock, by giving them, as before, the option of receiving 1001. stock for 1007. money. At last came peace and a returning abundance of capital, which enabled government to reduce the interest payable to the bank, first from 4 to 3 per cent., and eventually to 3 per cent. The next war, begun in 1756, was conducted, under the able administration of Lord Chatham, with vigour and success: the credit of government with the mercantile body stood high; there was little difficulty in raising money by public loan, so that it was not necessary for ministers to call on the bank for any permanent loan. Besides, the amount already lent by the bank to government (above 11,000,000.) was as great as was consistent with prudence, or with the means of the proprietors of bank stock. Next came, in 1775, the war with our American colonies, which extended, in 1778, to a war with France, Spain, and eventually Holland. Still no advance beyond the usual amount took place, on the part of the bank, till towards the close of the war (the year 1781), when a temporary loan was made to government in consideration of an extension of the bank charter to the year 1812. The peace of 1783 relieved this country from a most arduous and expensive contest: a state of confirmed peace directed to a productive purpose the thousands of men and millions of capital lately wasted in destructive hostility. The public recovered gradually from the apprehension of loss of power caused by the separation of the North American colonies; our town population increased; our manufactures extended, favoured as they were by the easy conveyance of fuel, raw materials, and bulky goods, on canals. Add to this the animating effect of the increase of country banking, which at this time was extended without being abused. The revenue improved slowly but progressively; and Mr. Pitt was enabled to conduct our finances during ten years without any aid from the bank beyond that of temporary advances. The years 1720 and 1721 were the æra of the South Sea Company; the career of which, when compared with that of Such was the condition of the country until the close of the Bank of England, afforded a striking proof of the supe- the year 1792, when the affairs of France unfortunately riority of careful management, and limited profit, over blind assumed an aspect which led to the relinquishment of a state confidence and sanguine speculation. The distress, conse- of peace, and of the various reforms for which that state quent on the failure of the South Sea Scheme, was general was indispensable. The transition from peace to war was and great: government and the bank now came forward to unexpected, and the shock to our productive industry was relieve the unfortunate shareholders. The bank had money great. The circulation of our country banks had increased, to advance; and government, by obtaining an Act of Parlia- and a number of manufacturing and other establishments ment to secure the payment of the interest on a given sum had been formed on the faith of the continuance of peace, and of South Sea stock, was able to render that stock of equal of a low interest of money. All this was now reversed. value with other funded property. This was accordingly Hence that succession of failures among merchants and done: the bank bought South Sea Stock to the extent of country bankers, which gave so gloomy a colouring to the 4,000,000l., on the responsibility of government, and paid early part of 1793, and led to a heavy drain of specie from the that large sum by calling, as before, on its proprietors; viz., Bank of England. During three years, the advance of the bank by giving to those who chose it, 1007. of bank stock for 1001. to government averaged eight millions; in 1795, our subsidy in money; an exchange very readily accepted, because the to Austria was increased, and the advance of the bank in that former was, as on the preceding occasion, at a premium-year, and in 1796, rose first to ten, afterwards to twelve mil1007. bank stock selling on the Stock Exchange for more than 100%. money. We are now arrived at the administration of Sir Robert Walpole in this country, and of Cardinal Fleury in France; a period marked by more than twenty years of peace, and by an anxious attention, on the part of either minister, to financial reform and the reduction of the public burdens. The sinking fund, instituted by Walpole, paid off in 1727, 1,000,000, of the debt of government to the bank; and if lions. This produced the greatest inconvenience to the bank, because a deficiency in our crops had, at that time, rendered necessary the purchase and import of foreign corn, to pay for which required large sums in gold and silver. The export of these sums reduced the bullion reserve in the bank, and prevented the directors from increasing their discounts to merchants. To this was added, in the beginning of the year 1797, a general apprehension of invasion, and a further drain of specie from the bank on the part of country bankers, so that, towards the end of February, the bullion in the bank coffers was reduced to little more than 1,200,000l. sterling. A further drain being apprehended, ministers took a step which formed a memorable æra in the history of our trade and finance, we mean exempting the bank from paying in cash, and authorising it to issue small notes (of 17. and 27.) in lieu of gold. Our war expenditure, hitherto kept within bounds by pecuniary difficulties, now increased every year, rising from thirty to forty and even fifty millions. These very large sums were raised without much pressure on the bank by the Treasury, because the general ease in regard to money consequent on the exemption from cash payments, was for a time highly favourable to the circumstances of individuals, producing that progressive rise of prices, wages, salaries, and incomes generally, which facilitates the payment of taxes, and admits of a progressive addition to their amount. The peace of Amiens was signed in May, 1802, and the existing law required a resumption of cash payments six months after that date. This was postponed for a year, on account of the serious inconvenience it would have caused to trade, and after the rupture, in 1803, the public called loudly for a continuance of the exemption from cash payments. In fact the ease with which that exemption enabled us to meet our expenditure, was a main cause of the popularity of the war with the government of Napoleon. It continued during twelve years, and throughout that long period our financial means continued abundant, enabling ministers to give an unexampled latitude to our operations, both by sea and land. In those days of excitement and sanguine expectation, the abundance of money was ascribed to an increase of national wealth: but the painful experience of nearly twenty years has shown that it was in a great measure artificial and temporary. 66 In 1810, when the Bullion Committee was appointed, the exemption of the bank from paying in cash had lasted twelve years, and to men of reflection it had often been a matter of surprise that our paper currency should have been so long inconvertible without incurring any serious depreciation. Our public expenditure, during the period in question, took place almost wholly at home, and was defrayed in bank paper, which being returned to government in loans and taxes, the whole was little more than a circulation. Bank notes were put to the test only when sent to the Continent; and for some time certain favourable circumstances, principally to be ascribed to the neutral commerce of the United States, prevented their sudden and violent depreciation. Our war expenditure in Spain and Portugal, and the necessity of purchasing foreign corn, occasioned, during the years 1811, 1812, 1813, a very serious depreciation of our bank paper abroad, to an extent exceeding 15 and even 20 per cent. Resumption of Cash Payments; Act of 1819.-So early as the year 1815, an Act of Parliament passed, declaring in the preamble, that it was highly desirable that the Bank of England should return as soon as possible to the payment of its notes in cash." But the year following (1816) being one of great commercial distress, the return to cash payments was, by a further act, postponed during two years, at the end of which the resumption was fixed to take place in July, 1819. In the years 1817 and 1818, the bank directors made a partial trial of the practicability of returning to a gold currency, having in those years issued above 6,000,000l. in guineas and sovereigns. But this was productive of no permanent good, the chief part of this large sum having soon disappeared from circulation, and been exported to the Continent in consequences of a fall in the exchanges. In 1819 a committee of the House of Commons was appointed to inquire into the subject generally, of which committee Mr. Peel was chairman. Upon the recommendation of their Report, an Act was passed enjoining the bank to make arrangements for resuming cash payments, at the expiration of three years, viz., in 1822. The directors of the Bank of England considered themselves bound by this Act, (Evidence of the Governor, page 69,) to provide gold to the amount of no less than twenty millions sterling. Discounts by the Bank to Merchants.-We have already stated in what manner the permanent capital of the bank, or the sums raised by calls on the holders of bank stock, was lent to government. The amount thus lent is, in all, 14,686,8007.; and the rate of interest paid by government is, since the year 1757, not more than 3 per cent. With this large amount the bank directors have nothing to do, except receiving the interest from government and paying it to the proprietors. It may, therefore, be called the fixed part of the bank capital; the loan of which to government, in an age when it was difficult to effect a loan, was the inducement to confer on the bank the exclusive privilege of circulating paper money. This loan will be repayable by government only when the Bank of England charter shall expire and not be renewed. The disposable capital of the Bank is larger than the permanent, and consists of the Amount raised by the issue of notes; Amount held by deposit from government and individuals; and lastly, Profits realized, but not divided among the proprietors. These form the capital under the management of the directors; of which part is vested in coin and bullion, but a larger part in securities producing interest, such as Exchequer bills and mercantile acceptances. The Appendix to the Report of last year's Committee contains an official return of the assets of the bank, and of the mode of employing them, since the year 1778, being somewhat more than half a century. The average annual amount of mercantile bills discounted by the bank has greatly varied in 1809 and 1810 they rose to the very large average of seventeen millions. During the last six years, we mean from 1827 to the present time, the amount of discounts at the bank has averaged only the comparatively small sum of a million and a half. The decrease of discounts since the peace is a consequence of the abundance of money in the hands of individual banking-houses, and of their charge for interest being lower than that of the bank. Quarterly advances made by the Bank.-The issue of the dividends on government stock makes money plenty in January, April, July, and October; but the preceding months, being the time of making payments into the Exchequer to prepare for the dividends, have, till lately, been periods of scarcity of money. During the last three years, the bank has come forward to meet the wants of the public in a very plain and easy manner, viz. by making advances on the deposit of Exchequer bills, bills of exchange, and other securities, during the interval of scarcity, and resuming these advances as soon as money became plentiful by the issue of the dividends. This course has been followed every three months, and has been found completely to answer. The discount charged by the bank on these temporary advances varies, according to the market rate of interest, from 3 to 4 per cent. The applicants are, in general, merchants or brokers, and the securities tendered must amount to 20007. or upwards. Assistance by the Bank on financial emergencies.-The directors have at different times, particularly during the panic in December, 1825, issued their notes largely for the purpose of relieving individuals, considering themselves bound to come forward in a season of distress, and assist the public, even at a degree of risk to their establishment. The amount of Bank of England notes in circulation on 3d December 1825, was not 17,500,000l.; but on the 25th of that month it exceeded 25,500,000l. This arose from an issue of no less than 8,000,000l. to bankers and merchants; made in the case of merchants in the discount of bills of exchange; in the case of bankers on the deposit partly of bills, partly of title deeds and other securities. At such a time of alarm no notes except those of a body of undoubted stability like the Bank of England would have been current; and large issues of them were required to replace the void caused as well by the discredit of country bank paper as by that hoarding of gold, on the part of timid persons, which always takes place in seasons of alarm. On one memorable day, the number of mercantile bills discounted by the bank was 4200. On a former emergency in the history of the bank, viz., in the year 1745, when the Pretender was marching towards the capital, at the head of his Highland followers, the bank had sought to gain time by making its payments in silver; but in 1825, gold was handed over as soon as called for, and in the quickest manner; not by tale, but in bags of twenty-five sovereigns each. The run on the bank for gold, in December, 1825, was the greatest that had taken place since February, 1797. Comparing the two occasions, we find that in 1797, the directors lessened their discounts, and withheld their issues, apprehending that to continue them would lead to the exhaustion of their treasure; but their successors, in 1825, took the bold course of continuing their advances. Advances by the Bank of England to Government.-The | ing the price of commodities and producing a general dulladvances made by the directors out of their disposable ness in markets. capital, half a century ago, averaged 8,000,000l., and continued to increase in succeeding years, particularly on the exemption of the bank from cash payments, in 1797. After that remarkable event, the bank advances to government rose to 14,000,000l., continued at that sum or upwards during the war, and are at present considerably above it; because in a time of profound peace, the bank leave the discount of mercantile bills to individual banking houses, and invest their money in government securities. The following is a summary for the last thirty-five years. Average of the advances of the bank to government, on the security chiefly of Exchequer bills. During the ten years, from 1797 to 1807 do. do. do. do. do. from 1807 to 1817 from 1817 to 1827 14,000,000l. 22,000,000 19,000,000 five years, from 1827 to 1832 19,000,000 It thus appears that the bank advances to government are as large since the peace as during the war, but at a very different rate of charge, Exchequer bills bearing now only 24 instead of 5 per cent. interest. A somewhat higher interest might be obtained for the bank, by vesting money in the public funds, but these necessarily vary in price, and it is a rule in banking to avoid investing in a security of fluctuating value. Foreign Exchanges; their Effect on the Bank.-Although the bank has no commercial transactions, not even in drawing or receiving bills from abroad, it is incumbent on the directors to look attentively at the exchanges, from their influence on the export and import of the precious metals. The mercantile intercourse between places of such magnitude as London, Paris, Amsterdam, Hamburgh, implies the frequent transmission of money and bills of exchange; and the rate of exchange is, of course, regulated by the nature of the existing transactions. In time of peace the value of specie is nearly the same in all parts of Europe, because the transmission of gold takes place at a very small charge, less than 5s. per 1007. The rate of exchange varies very little in peace, for whenever it exceeds per cent., the merchants who are desirous of remitting, draw coin or bullion from the Bank of England, and send it abroad through the medium of those who make the conveyance of the precious metals a branch of business. In the year 1823, the exchanges were favourable to this country, and large sums of gold came in; in the autumn of 1824, they turned against us, and exports of coin and bullion took place on a large scale. After the panic in December, 1825, there was a general fall in the price of merchandise; and the exchanges turned once more in our favour, according to the law in mercantile intercourse, that a decline in the price of goods tends to bring gold and silver into the country of the decline, for the plain reason that merchandise can be bought more cheaply there than elsewhere. Again in the autumn of 1828, our harvest being partially deficient, the foreign exchanges turned, in some measure, against us, it being foreseen that money would be required on the Continent to purchase corn for this country. To all such circumstances the bank directors are obliged to attend, and to limit their circulation accordingly. This forms the difference in the situation of the bank now, and at the time of the exemption from cash payments; a time when it was unnecessary to watch the exchanges, because the bank could not be subjected to any drain of bullion or coin. The difference is very great; for in the one case the bank is under a direct and peremptory check; in the other, it was wholly independent, and, the currency being in paper, the directors could with ease furnish the advances required by either government or the mercantile body. The Bank of England possesses the power of expanding or contracting the amount of its notes in circulation; but, in the exercise of that power, the directors act with great caution. Thus, when the foreign exchanges are likely to fall, and it appears incumbent on the bank to contract its paper, the directors do not act on opinion, but wait until an actual demand for gold has been made on the bank. Even then they do not make a direct contraction of their circulation; they merely forbear to issue notes in the place of those which have been paid in by the public for gold. They (the directors) are aware, that, under any circumstances, a diminution of the currency is unfavourable to trade, lower The price of gold in the bullion-market of London varies very little in time of peace, being regulated by the rate at which the bank makes its purchases: at present, that rate is 37. 178. 9d. per ounce. The price of silver depends on the foreign exchanges, and rises or falls with them. The bank seldom attempts to influence the rate of exchange; but on particular occasions, when it seemed of consequence to prevent a fall of the exchange with Paris, the bank has sent abroad a quantity of silver, as a means of lessening the number of bills to be drawn on London. Such exports are seldom large, not exceeeding a few hundred thousand pounds; and they take place either in bullion, foreign coin, or bar-silver. The Cash Reserve at the Bank.-It is a rule at the bank to keep in treasure a sum equal to a third, or nearly a third, of the amount of their notes in circulation. Thus when the amount of the latter is eighteen millions, six millions form a fair proportion for the cash reserve, and twelve millions are vested so as to produce interest. Such a reserve has almost always been found sufficient; for even in the latter part of that year of wild speculation, 1825, the gold drawn from the bank had paid for all our foreign purchases, and the exchanges were turning in our favour; when, unfortunately, the failure of a number of country banks caused a farther drain of gold from the Bank of England to the extent of several millions, and brought the reserve very low. After that came a long interval of tranquillity, for there was no serious drain of gold from the bank during four or five years; till, after August, 1830, the troubled state of France and Belgium made money scarce in those countries, and obliged foreign merchants to apply to their correspondents in England to obtain loans of money. The sums thus required were drawn from the bank, so that in less than a year the gold in the bank was reduced from eleven to six millions. These examples of sudden drain make it incumbent on the directors to keep a considerable reserve in coin and bullion. They reckon on having to supply the money market of London with coin, as well as to be provided against the possible occurrence of a commercial panic, which would force both town and country bankers to drain gold in large sums from the bank. With that view most of the disposable capital of the bank is invested in securities, which can, if required, be brought to sale on the Stock Exchange; such is the case, not only with exchequer bills and government stock, but with the greatest of all their assets, the annuity on the dead weight. That annuity might be divided or subdivided, so that portions of it might, if necessary, be sold to public companies or individual capitalists. Moneys deposited in the Bank.-The public consider the Bank of England chiefly as a bank of issue, as the quarter for supplying paper money to the metropolis, and in some degree to England in general. That is, doubtless, its most important function; but it has transactions also on a very large scale as a bank of deposit. It receives, in this manner, for safe custody: Money from bankers whether in town or country. Money from merchants and others in London, who are not bankers; and, above all, The money of government; rendering to the Treasury and other public offices, in daily paying and receiving sums of money, the same services as a banking-house in LombardStreet does to its mercantile connexions. Deposits by Merchants and Private Individuals.-The amount of notes deposited in the bank by merchants and others for safe custody was at all times considerable, but not great until of late years. Before the war of 1793, the amount varied from one to two millions; during the war, it continued nearly the same; also during ten years of peace, merchants having, in general, great confidence in their respective bankers. But this underwent a change after the panic in December, 1825, when four banking-houses in London, and twenty in the country, suddenly stopped payment. Many persons now considered their money safe only in the Bank of England; they removed it thither; and the result was, that the deposits in the bank by individuals increased gradually from two to three, four, and eventually to six millions, which is their present amount. Deposits on Account of Government.-The balances remaining at the bank on account of the government offices are, in general, large. Before the war of 1793, the amount of |