Notes under £5.
Notes of £5 and upward.
1815 . . .
1816 . . .
Here we find that the notes under £5 were about half the amount of those of .£5 and upwards. This was in 1815 and 1816, when the notes were issued only in London. Supposing, therefore, in round numbers, that the Bank of England circulation is now £20,000,000, then in the same proportion it might maintain a circulation of £10,000,000 of small notes. But we must remember that during the last sixty years the population, the trade, and the wealth of the nation has vastly increased. And if pecuniary transactions were conducted in the same way, the notes in circulation must have increased in proportion. But, in consequence of the more general use of bills of exchange, the extension of banking accounts, the more frequent exchanges between country bankers, and the operations of the Clearing House in London, a smaller amount of bank notes is now necessary. All large transactions are now settled, not by notes, but by bills and cheques and transfers. But these banking facilities which diminish the demand for large notes do not in the same proportion diminish the use of small notes. On the contrary, from the great increase in the labouring population, and the consequent increased extent of retail trade, the demand for small notes to pay wages and to settle small transactions must, during the last sixty years, have greatly increased. Seeing, then, that the demand for large notes has diminished, and the demand for small currency has increased, it seems reasonable to suppose, that were the Bank of England now to issue small notes, the amount in circulation would bear a higher proportion to the large notes than was the case sixty years ago.
I have already stated that we have no returns of the amount of the country circulation previous to the year But we have the number of notes stamped of different denominations, and we find that in the years 1820 to 1825, the amount of notes stamped under £5 varied from 37 to 50 per cent., making an average of 44 per cent. of the whole circulation. This makes the small notes nearly equal in amount to the large ones. But here again it is probable that the small notes remained out longer than the large ones. A greater proportion of the large notes were probably in the banker's till, and a larger proportion of the small notes in the hands of the public. It seems probable, therefore, that the amount of small notes in active circulation was usually higher than the amount of large notes. And if the Bank of England, whose issues were made only in London, and whose circulation was chiefly in London and Lancashire, maintained one-third of its circulation in small notes, it seems likely that the country banks, whose notes were issued in almost every town and village in the country, would maintain a much higher proportion than even one-half.
If we look to the present state of the circulation in Ireland and Scotland, we shall find that the small notes form the larger proportion, and the amount furnishes no confirmation of the doctrine that small notes diminish in wealthy countries. Scotland is a wealthier country than Ireland, yet has a larger proportion of small notes. And the north of Ireland is wealthier than the south, yet the banks of Belfast have a larger proportion of small notes than the banks of the south.
From the former circulation of the Bank of England, the stamps issued to the country bankers, and the present circulation of Scotland and Ireland, we have then materials for forming an opinion as to the amount of small notes that might be maintained in circulation in England; and though we cannot fix the amount with that precision which the science of statistics requires, yet after putting the facts and reasonings together, we seem warranted in drawing the conclusion that the amount would not be less than thirty millions; and, consequently, we have the power, when necessary, of releasing from their present duties thirty millions of sovereigns, and employing them for national purposes elsewhere.
Suggestions on the Country Circulation.
It is not my object to examine here any of the enactments of the Act of 1844 that have a reference to the Bank of England; but when the subject is brought under consideration, means should be employed to obtain some modification of those clauses that have a reference to the country banks. The country circulation should be preserved in its integrity-should be rendered capable of expansion, so as to meet the demands of a more numerous population, extended commerce, higher prices, and increased taxation-its issues should be allowed to he regulated by the demands of trade and agriculture in the respective districts in which the banks are established, and should be rendered as much as possible free from the operation of the foreign exchanges.
We find that in 1844, when the country circulation had greatly declined, we took the actual circulation of the then existing country notes, and made it a maximum circulation -an arrangement which, necessarily, from the fear of incurring penalties, reduced the amount of the actual circulation below the maximum. We apply this maximum to a circulation that fluctuates very much in different parts of the year. If, then, we keep below the maximum in April, we necessarily fall much lower in August. We divide this maximum among 277 banks, and impose heavy penalties upon every one that shall exceed his portion of the maximum,-a circumstance that tends to reduce still farther the actual circulation. No one is forbidden to reduce his issue as low as he pleases; and if he abandons it altogether, only two-thirds can be supplied, and that by permission of the government; and then only upon the application of a bank whose head-quarters are in London, who is to get nothing by the operation, and whose issues are governed by laws which have been declared by the country bankers to be inapplicable to the operations of a local currency, and unsuitable to the requirements of domestic industry. This maximum must never be exceeded, while those banks that previously issued Bank of England notes are not allowed to resume their own circulation, and no new bank of issue is allowed to be established. The result of this arrangement has been, that an authorized issue in 1844 of £8,648,853 is now reduced to an authorized issue of £7,942,466,1 and that the actual circulation is generally below £7,000,000, and has been below £6,000,000; while every banker, in certain seasons of the year, has been compelled to watch the issue of his notes, lest he incur those enormous penalties which attend even the accidental violation of the Act.