From this table it is evident that many of the influences affecting the rate of discount operate through the bank reserves and are identical with those which cause these reserves to fluctuate. On account of differences in the nature of the business transacted in different communities and the changes which are constantly taking place these influences vary considerably among different banks and with the same bank at different times. We shall, therefore, discuss only those which are most frequent and most nearly universal in their operation.

International movements of the precious metals affect the reserves of banks engaged in international commerce, and through their connections those of other banks as well. This is especially true of England and Germany, and in a less degree of the United States and France. For example, it is impossible that any large amount of gold should leave the British Isles without diminishing the reserve of the Bank of England. The demand might fall in the first instance upon the foreign bankers of London, but it would be speedily shifted to the institution in which all the surplus reserves are kept. As we have previously shown, the usual effect of this is a rise of the bank rate above those ruling in the neighbouring countries, for the purpose of checking discounts on the one hand and of attracting foreign capital on the other. A movement of gold from Germany would in like manner diminish the reserve of the Imperial Bank, since that is the source from which the precious metals needed for foreign shipments are regularly drawn, and would be similarly checked by a rise in the rate of discount. In the United States the connection between the bank reserves and the exports of gold is not quite so direct and immediate on account of the gold reserve of the treasury upon which the banks can draw in time of need. The Bank of France has also special means of protecting its reserve in the option which it enjoys of paying in depreciated silver five-franc pieces, thus compelling the withdrawal of gold from the general circulation. In all probability, however, it has ultimately to bear the drain due to large shipments abroad, because in one way or another it will be compelled to supply the country with the currency needed.

Bank Of England

Date.

Annual Average Reserve.

Annual Average of Minimum

Rate of

Discount.

s.

d.

1844.............................

8,500,000

2

10

0

1845.............................

8,516,000

2

13

8

1846.............................

8,539.000

3

6

6

1847.............................

5,291,000

5

3

6

1848.............................

9,784,000

3

14

5

1849.............................

10,694,000

2

18

7

1850.............................

11,219,000

2

10

1

1851..............................

9,103,000

3

0

0

1852.............................

12,764,000

2

3

0

1853.............................

8,907,000

3

13

10

1854.............................

7,290,000

5

2

3

1855.............................

8,366,000

4

17

10

1856............................

5,772,000

6

1

2

1857.............................

5,347,000

6

13

3

1858............................

12,037,000

3

4

7

1859.............................

11,076,000

2

14

7

1860.............................

8,451,000

4

3

7

1861..............................

7,611,000

5

5

4

1862.............................

10,194,000

2

10

7

1863............................

8,536,000

4

8

2

1864............................

7,478,000

7

8

0

1865...........................

8,089,000

4

15

4

1866...........................

6,745,000

6

19

0

1867.............................

12,906,000

2

10

9

1868.............................

11,903,000

2

1

11

1869.............................

10,320,000

3

4

2

1870.............................

12,435,000

3

2

0

1871...............................

14,162,000

2

17

8

1872.............................

12,122,000

4

2

0

1873.............................

12,051,000

4

15

10

1874............................

11,035,000

3

13

10

1875.............................

11,597,000

3

4

8

1876.............................

15,962,000

2

12

1

1877.............................

12,478,000

2

18

0

1878............................

10,879,000

3

15

8

(Table I. Bank of England Annual Averages, pp. 8 and 11 of "Bank Rate in England, France, and Germany, 1844-1878," by R. H. Inglis Pal-grave. London, 1880. Effingham Wilson.)

A more nearly universal cause of changes in the rates of discount is the seasonal fluctuation in the demand for currency. Everywhere in Europe the rates are higher in the winter than in the summer months. The table on p. 280 prepared by Mr. Inglis Palgrave shows this very clearly.

The reason for this is the fact that the autumn and early winter are the seasons of the greatest business activity. Agricultural products are then coming to market and most of the supplies from abroad arrive during these seasons. It is then, too, that farmers and other people, who make little use of banks, make most of their purchases. The demand for cash is thus greatly increased at this time, and the reserves of banks correspondingly diminished. In England these influences are intensified in the fall by large shipments of grain from the United States, by the English habit of taking holidays at this season of the year, and by the fact that in Scotland payments of rent, interest on mortgages, servants' wages, and many salaries, as well as the settlement of important transactions on heritable property, are usually made in November and May. The special Scotch demand for currency at that time, and the increased activity in those lines of business which have been quiescent during the winter, account for the rise of the bank rate in England in the month of May which is so clearly indicated in the above table. In the United States the same phenomenon is observable, especially in the case of the reserve banks of the city of New York, which are obliged to meet large demands for currency from the West and the South during the fall and early winter when the farmers' crops are placed upon the markets.

Annual Average Variations In Rates Of Discount For The Banks Of England, France, And Germany For The Years 1885 To 1891

Bank of England.

Bank of France.

Bank of Germany.

Date.

Actual Rate.

Rate on Scale of

100.

Av. Rate for 7 yrs. 3 8s. 4d.

= 100

Date.

Actual Rate.

Rate on Scale of

100

Av. Rate for 7 yrs.

3 os. 6d.

=100.

Date.

Actual Rate.

Rate on

Scale of

100.

Av. Rate for 7 yrs.

3 14s. 7d.

= 100.

s.

d.

s.

d.

s.

d.

Jan.

4

9

2

130

Nov.

3

4

3

106

Dec.

4

6

10

117

Dec.

4

7

9

128

Oct.

3

3

10

106

Jan.

4

3

4

112

Nov.

4

6

9

127

Jan.

3

2

6

103

Nov.

4

2

10

III

Oct.

3

18

7

115

Sept.

3

0

2

99

Oct.

4

0

9

108

Feb.

3

11

10

!05

Feb.

2

19

7

98

Sept.

3

13

I

98

Sept.

3

8

3

100

Mar.

2

18

7

97

Feb.

3

12

7

97

Mar.

3

2

2

91

Apr.

2

18

7

97

Mar.

3

10

9

95

Aug.

2

18

I

85

May

2

18

/

97

Apr.

3

10

1

94

Apr.

2

16

0

82

Tune

2

18

7

97

June

3

8

7

92

May

2

15

II

82

July

2

18

7

97

July

3

8

7

92

June

2

12

9

77

Aug.

2

18

7

97

Aug.

3

8

7

92

July

2

II

6

75

Dec.

2

4

10

74

May

3

8

1

91

Difference between Highest Month and Lowest Month 1 17s. 8d.

Mean of the extreme variations during period 1885-91 27.5%.

Difference between Highest Month and Lowest Month 19s. 5d.

Mean of the extreme variations during period 1885-91 16%.

Difference between Highest Month and Lowest Month 18s. 9d.

Mean of the extreme variations during period 1885-91

13%.

(Pp. 17, 18, 19 of Palgrave's pamphlet, "Bank Acts and Bank Rate," London, 1892.)

In England a quarterly fluctuation in the bank rate is observable, which is explained by the payment of dividends of large corporations and by other settlements placed by custom upon those particular dates.