Under this arrangement the Banking Department carries on its business of buying securities and using its credit in the form of deposit accounts, on the same general principles on which any bank of deposit and discount is conducted. It is bound to meet all its demand liabilities in cash, and for this purpose it habitually maintains a reserve, consisting either of specie or of notes issued by the Issue Department, which are convertible into specie. It is bound to make its payments in gold, if so required, like other banks; but it may make payment in notes with the consent of the payee; and if, for the convenience of its customers, it finds occasion to pay out a greater amount of notes than it receives in payments made to it, or in deposits, it must procure such notes, as any other bank or any private person must, by taking an equivalent amount of gold to the Issue Depart ment and procuring notes therefor. Indeed, so completely is the Banking Department deprived of all special facilities or privileges in dealing with the Issue Department, that it has often been said that, for all practical purposes, the notes might as well be issued by a public office at Westminster as by a department of the Bank itself.1 The second purpose of Peel's Act is accomplished by a series of provisions which prevent any increase of the note issues of joint-stock and private banks, beyond the average at which they stood for the twelve weeks preceding April 27, 1844. No bank not then engaged in the issue of notes is allowed to issue them, and no bank then existing can carry its issue beyond the limit thus fixed for it. It is provided, however, that if any bank issuing notes at the time when the act was passed shall close its business, or become bankrupt, or discontinue its issues by agreement with the Bank of England or otherwise, then the latter may add to the amount of securities held in its Issue Department, or in other words to the amount of notes for which it holds securities and not coin, to the extent of two thirds of the amount of the joint-stock or private bank-notes thus withdrawn from circulation. The act thus plainly looks forward to the ultimate withdrawal of all other notes than those of the Bank of England, and to the filling of the vacant place by the latter, in a certain measure.1 No new issues being permitted, every change, however brought about, diminishes the amount of country bank-notes left in use. The progress towards extinction has been slower than was expected. Still since 1844 the authorized country bank issue has been reduced, by the winding up of banks or by the surrender of the right, from £8,648,853 to £335,000 in March, 1917, issued by nine banks and the Bank of England has added, under the authority of the act, to its own issues covered by securities only, until the limit has risen to £18,450,000. But it is plainly not the policy of this legislation that there should ever be a large circulation of bank-notes. The smallest note issued by the Bank, indeed the smallest lawfully issued by any bank since 1829, is for £5, a denomination too large to make its way far from cities and large towns, and of but limited use even in those places.2 A large circulation of

1 The Issue Department is also made an intermediary between the public and the Mint, being required to buy all gold bullion offered at 77s. 9d. per standard ounce. The ounce is coined into 77s. 10 1/2d., the difference being the estimated equivalent for a loss of interest, caused by the delay incident to the actual coining at the Mint. Hankey, On Banking, p. 98.

1 In Ricardo's pamphlet, A Plan for a National Bank (Works, p. 499), it is proposed that notes should be issued to the Bank by public commissioners, holding securities and gold substantially as at present. This pamphlet, left in MS. at Ricardo's death and first published in 1824, is the first distinct proposition for the separation of the issue and banking departments. Public discussion of the subject seems to have begun as early as 1837.

1 For some comments on the intention of the act of 1844 in this respect, see Economist, 1889, pp. 505, 697. Some intimations of measures for ending the issue by country banks were given by Mr. Goschen in his budget speech, April 15, 1889. Hansard's Debates,

P. 535.

2 The Bank issued no notes so small as £5 until 1795. Francis, History of the Bank of England (Amer. ed.), p. 110. In 1797, after the suspension, it was authorized to issue notes of £1, but withdrew them after the return to specie. It made a temporary sovereigns, affording a solid basis of specie in the hands of the people, with a small amount of convertible notes for convenient use in the larger cash transactions, is the ideal condition towards which the uniform current of English law has been directed for nearly fifty years. In this matter Scotland with its convenient one-pound note, which has so long been safely issued, presents a striking contrast, and Scotch example has been frequently appealed to by those who have urged the issue of such notes by the Bank of England. The substitution of one-pound notes for sovereigns on any large scale would change materially the practical conditions under which the Bank of England has long issued its circulation. Legislation for that purpose in the near future may be adopted to take the place of the one-pound and ten-shilling currency notes issued by the British Government during the European War.

To illustrate more clearly the operation of the act we will take the account of the Bank as it stood September 7, 1844, being the account on which the act first took effect. The situation of the Bank at that date1 was as follows: issue of them during the crisis at the end of 1825 and in 1826, but these also were withdrawn before 1829, in conformity with an act passed in 1826. The issue of £1 notes by country bankers was forbidden as early as 1777, but was permitted from 1797 to 1829. 1 In the Bank of England statements, Rest (i. e., the balance of the account) means the net profits on hand; Other Deposits comprise individual deposits and deposits by banks; Seven-day Bills are post-notes, still issued to a small amount; Government