(5) Finally, all the laws which restrained the exportation of gold were abolished, and it was allowed to be exported or melted without incurring any liability.

The Bank of England commenced paying off its notes under £5 in 1821, and the country bankers were allowed to issue notes under £5 until 1833. The Restriction Act mentions the price of gold as £3 17s. 10 1/2d. per oz.

Now, as this concerns the metallic currency of the country, perhaps it will be more convenient to consider the relation of banking to this subject at once, before stating the still greater changes in the paper currency.

In the year 1816 it was enacted that gold alone should be the legal standard of value, and that silver should be the legal tender of value to the extent of 40s. only. From the reign of William I. to that of Henry III. we had in this country a silver currency. Gold coins were then gradually introduced as the wealth of the country increased. The value of the guinea was fixed at 21s. in the year 1717, but the sovereign took its place on 1st July, 1817.

The weight of the English sovereign is 123.27447 grains of English standard gold, there being 1 part of alloy to 11 parts of fine gold. From the weight of the sovereign we get the Mint price of gold, viz., £3 17s. 10 1/2d. per oz.

The Mint cannot issue a coin of less weight than 123.074 grains, or of a greater weight than 123.474 grains.

The quantity of gold which the nation ought to have in reserve to meet sudden demands is a question of considerable difficulty.

Bronze coin is only a legal tender for 1s; country bank notes are not a legal tender.

The late Mr. Bagehot advocated the keeping of a large . reserve of gold by the Bank of England. He showed that the Bank is now the only place where gold can be obtained in large quantities to meet any sudden demand. All the surplus gold coming into the country finds its way into the vaults of that institution, because the other bankers do not keep any appreciable reserve of the metal. The London bankers can always obtain gold from the Bank of England, because they keep banking accounts with that institution.

The Bank of England is thus called upon to meet the requirements of the United Kingdom, and also to settle the differences of international trade. Whenever we experience a bad hardest there is generally a sudden drain of gold to pay for foreign corn to make up the deficiency of our harvest. All the spare money of the country bankers and of the Irish and Scotch banks is sent to London. This money is lodged with their London agents, who keep their cash reserves with the Bank of England, and consequently the latter institution becomes the final cash reserve of the country.

It has been stated that the bankers' balances at the Bank of England ought not to be utilised in the same manner as ordinary deposits by that institution, because of this system.

The following table shows the metallic reserve of the Bank of England from the year 1850: 1850 = 1,500,000 1855 = 11,000,000 1860 = 13,000,000 1865 = 14,000,000 1870 = 23,000,000 1872 = 24,000,000

1874 = 21,500,000

1875 = 22,000,000 1880 = 27,663,000 1885 = 24,173,000 1890 = 21,818,000 1895 = 35,645,000

Mr. Jevons stated in 1875 that the metallic circulation was as follows, viz.: -

Although Mr. Bagehot insisted upon a large cash reserve, we must remember that the country only requires enough gold to interchange commodities, etc. If ever there exists a want for the circulating medium, it can, as a rule, be obtained by raising the rate of interest, and thereby attracting gold from abroad.

Another remedy may be found in a greater use of cheques for small amounts, temporarily, until we obtained our usual reserve of gold.

Sir John Lubbock has shown that gold is very little used in comparison with cheques. A sum of £19,000,000 paid into the Bank was made up as follows: -

Thus the cash was only 3 per cent and the coin only 1/2 per cent. of the total transactions.

If we compare the metallic circulation of the country with the note circulation, we find that the former has increased rapidly in comparison with the latter.

In the year 1844 the gold circulation was £36,000,000 and the note circulation £37,000,000, the notes therefore being slightly in excess.

The use of cheques has increased to an enormous extent in recent years : for example, in the year 1844 the Clearing House returns were equal to 40 times the note circulation, in the year 1872 the returns of the Clearing House were 135 times more. This tends to show that a less amount of gold is now required in consequence of its being superseded by cheques, combined with other economical methods such as the use of telegraphic transfers. Again, the greater rapidity in the circulation of money tends to lessen the amount of coin required. We must always consider gold as a tool required to do certain work in the interchanging of goods. At present it is the best metal because of its great value, but if large quantities were found it would, like silver, depreciate in value. This depreciation might so increase that it would be the means of raising the value of other commodities measured by gold.

The country is not benefited by the import of large quantities of gold, unless required for the purpose of circulation. If there is a very large amount at the Bank of England, it shows that there is very little demand for capital.

Of course it is very important that the Bank of England notes should always be convertible into gold, and for this reason a fair reserve is necessary; but it must be remembered that the Bank has never been called upon to discharge its liabilities on notes, even at the most critical periods in the history of banking.

With these few remarks upon the gold currency we will now return to our former subject, viz., the note circulation.