"The authorized issue of Bank of England notes based on Government securities, which was fixed at £14,000,000 by the Act of 1844, and which having been increased in 1855 and 1861 respectively, by the sums of £475,000 and £175,000, now stands at £14,650,000, is to be further augmented by £350,000, which will raise the total to .£15,000,000. The process is in conformity with the provisions of the law, and is perfectly simple. The basis on which the amount of purely paper circulation was fixed at the date of Sir Robert Peel's measure was as follows:-Long experience has shown that whenever the note circulation of the country declined to a point approaching £22,000,000, through the contraction forced upon bankers by an adverse state of the foreign exchanges, the scarcity of currency was so felt in its action upon prices as to cause invariably a strong turn of the tide. That total of .£22,000,000 was, therefore, fixed as the safe amount at which paper, secured only by the credit of the Government, might be allowed to pass as a legal tender, and was made up by .£14,000,000 issued by the Bank of England, and .£8,000,000 of issues of private and joint-stock banks in the provinces. At the same time a provision was made, that if any of the latter establishments should fail or withdraw from business, then in each such case the right of issuing notes should be forfeited; and that it should be competent for the Government, by an order in council, to authorize the Bank of England to supply the deficiency thus created.
"To effect that purpose, it would not be necessary for the bank to issue more than two-thirds of the amount of the circulation that had been forfeited, because it wastaken for granted that every issuing bank would keep at least a reserve of gold, equal to one-third of the notes it had issued payable on demand, and which might therefore be presented at any time; and that, consequently, the actual currency which each had put out was practically only two-thirds of its nominal amount, since to the extent of the remaining third, other currency-that is to say, gold-was withdrawn from use and locked up in their tills. Accordingly, the new issues of the Bank of England, in supplying the deficiencies from any such failures or withdrawals, were to be limited to two-thirds.
"Gradually, after the passing of the Act in 1844, individual country banks broke down or died out, but it was not till 1855 that the vacuum thus occasioned attracted much public attention. At that date it was found that issues had during the preceding eleven years been extinguished to the extent of £710,000, and an order in council was then put forth for an increase of £475,000 in the notes of the Bank of England. Between 1855 and 1861 further lapses occurred to the amount of £262,500, and these were made up by a new order in council for an additional issue of £175,000. Thus the total paper circulation of the bank was increased from its original sum of .£14,000,000 to £14,650,000, the amount at which it stood up to Thursday last.
"The process by which the new issue is effected merely consists in the purchase of Government securities to the required amount. Stocks may be bought in the open market, or an advance made to Government on Exchequer bills. The gain from this investment in the present, as in the previous instances, after deducting the annual expense for the manufacture of the notes, etc, will be placed to the credit of the Government, the bank being only an agent in the business. The actual amount of the country circulation that has lapsed since the last filling up took place in 1861, is £739,965, of which £442,000 was from a voluntary surrender on the part of the National Provincial Bank, when it determined to change its character from that of a country to a London bank. Two-thirds of this amount of =£739,965 would be £493,310, but the present order is limited to £350,000, a circumstance for which no other reason can be conjectured than a desire to take the opportunity of fixing the Bank of England circulation at the symmetrical figure of £15,000,000.1 The amount was included in the account published for the week ending 21st February."
The Bank of England is a bank of deposit, of loan, and of discount as well as of issue. It allows no interest on any portion of its deposits, nor permits any account to be overdrawn. It charges various rates on the bills it discounts, but does not often go below the rate it announces to be its minimum. It does not act as the London agent of country banks; but is the agent of the Bank of Ireland, and the Royal Bank of Scotland. It does not accept any bills that may be drawn by those banks, or by its own branches-they are all drawn without acceptance. It does not issue any circular notes on foreign countries, nor grant letters of credit on foreign banks. It remits money to and from its branches, and from one branch to another, and issues at the London office bank-post bills, drawn at seven or fourteen days after sight.
The profits of the bank are derived from its capital, its rest, public and private deposits, bank-post bills, its agencies, and its circulation. From these funds it makes investments in public securities and private securities.
1 The authorized issue of the Bank of England of £15,000,000 was increased on the 1st April, 1881, by order in Council, by the sum of £750,000, under the clause in the Act of 1844 respecting lapsed issues as described above.
These bring dividends and interest. It also has a profit on the £15,r50,000 of notes in circulation. This profit is the difference between the expense of maintaining the circulation, and the interest received on the securities set apart to meet this circulation. The bank has an annual payment from the Government for managing the National Debt. It also receives a commission from those banks to which it is the London agent. A profit is also supposed to be obtained on bullion transactions. Against these profits the bank has to place the expense of conducting the establishment, and the losses incurred by bad debts, forgeries, and unfortunate investments.