supply all comers who have just claims | equivalent to holding gold and yet receivwith that desirable metal, gold. We are ing interest. All this money due to the generous enough to turn bars of gold, the Continent of Europe, amounting to at raw material, into well-minted coins, with- least £40,000,000, is payable in gold, either out any charge for manufacture. Other on demand, or, what comes to the same nations cover the cost of coinage by a thing, by discounting their bills in our small mintage. We act differently; we market. invite our creditors to take our heavy sovereigns to melt down, and we supply their place by renewed coinage at our own expense.

Foreigners, also gold-workers, here and abroad, melt our sovereigns almost as fast as we can manufacture them, leaving us the light pieces for home circulation, But that is not all; we use a soft metal, less durable than that employed by every other country for coinage, and we not only coin for nothing, but we produce coins which wear away faster than any others. We use a metal eleven-twelfths fine, whereas the United States and Russia, which formerly used the same kind of gold, have discarded it, and prefer, like all the rest of the world, the more durable metal ninetenths fine.

It might be argued, that we could tell the holders that we will pay at the due rate of their bills, refusing to discount even the finest paper in cases where it had been held by foreigners. But such a step would ruin our credit, and bring us to the brink of national bankruptcy. Such a contingency must be avoided at all costs.

We possess certain resources which, if rendered available, would amply provide the means of meeting our engagements. We have our excellent credit, and in ordinary times the bulk of our gold liabilities would be renewed in the usual manner by exchanging short English bills for those of longer dates. We ought, however, to make provision for an extraordinary and sudden demand from the Continent for gold. Austria desires to resume specie payments on a gold basis, and it is openly proclaimed that the £20,000,000 she requires must be obtained chiefly in this, the only country in Europe where gold in quantity can be had. It is further stated that, in order not to strain our resources unduly, it will suffice to acquire sterling bills by the issue of a loan which Austria could easily place. This new demand for gold and for sterling bills will tend to

diminish the power of our neighbors to demand gold, which we can ill spare, and especially as we can only rely for a supply on distant debtors. To meet this large and increasing liability to pay gold we hold the inadequate stock of £22,000,000, against which we have issued £38,450,000 in bank-notes.

But these are minor matters in comparison with the culpable carelessness of making enormous engagements to pay in gold with a wholly inadequate store of that metal. Our country is, without doubt, the richest in the world, and it is the overconfidence begotten by that fact which leads us to think that no mischief can possibly befall us. Moreover, with regard to a metallic reserve, the prevalent idea is, that what is everybody's business in gen-aggravate our danger; it certainly will not eral is nobody's special business. Suppose a banker had large liabilities, which he might be called upon to discharge on demand or at very short notice, and that he persistently left his resources in America and Australia, should we not in such a case prognosticate ultimate failure? That is the dangerous position in which our wealthy country stands at the present moment. We enjoy splendid prosperity, inasmuch as we lend to many nations and require to borrow from none; but, unfortunately, we lend to nations at a distance, while our neighbors insist on lending to us almost without our knowing it. We gium. That is not the case now. cannot prevent French and German bank-German Imperial Bank takes effective ers sending us their money for safe cus- steps to prevent gold shipments to this tody; neither can we hinder Continental capitalists from holding English bills and Treasury bills payable in London in gold. This employment of money in sterling bills and deposits is almost universal, and is an evidence of confidence in our government and in our bankers and merchants. The main reason, however, is that it is

Formerly, in the halcyon days of bimetallism, prior to 1870, there was no scramble for gold; the Continental mints were open for the free coinage of silver; and gold was thus obtainable very rapidly from France and Germany, Holland and BelThe

country by selling the sterling bills it always holds, and by its efficient control over the discount market. Besides, if any banker or merchant in Germany were to send even a moderate amount of gold to this country, he would immediately be called upon to explain so unpatriotic a proceeding, and if he persisted, his name

would be placed in the "black book " of Thus a speculative spirit prevailed in the Imperial Bank. Other Continental 1888, 1889, and the first half of 1890. banks are under no obligation to pay in Shares in gold mines and land companies gold; they would simply offer silver, were eagerly taken; millions were impruwhich we could not use. The United dently lent to Argentina, Uruguay, and States could supply a certain quantity; other South American States. The rebut bad European harvests and the Mc-sulting Baring crisis, with the humiliating Kinley tariff might force the exchange borrowings of gold from the Bank of against us, and render Australia and the France and from Russia, has had a soberCape alone available for supplies of gold. ing influence, and presses upon us the Truly, a large and sudden demand for gold necessity of taking preventive measures might possibly be met by arrivals from in the future. If evidence were needed New York after eight or ten days, if so of the dearth of European stocks in Lonmuch grace were granted to us; certainly don, it can be found in the difficulty of we could not wait for supplies from more obtaining delivery of such bonds on the distant countries. The public might rea- account days. Out of over £500,000,000 sonably think that we could turn adverse of capital debt of Italy this country barely exchanges by the sale on the Continental holds £10,000,000, which small amount is bourses of securities negotiable in Paris distributed among investors who are not or Berlin. Unfortunately, we have little likely to sell even to meet a demand for or no floating stock of international bonds. gold. Another example will confirm the We used to hold a fair quantity of French, fact of the exodus of Continental secuGerman, Dutch, Russian, Belgian, and rities. We used to hold a large amount Italian stocks; but in consequence of our of Egyptian government five per cent. successful conversion of consols, our hold- preferred bonds, and in consequence of ings of first-class European securities have our consol conversion that stock was congreatly diminished. verted into three and one-half per cents. at 91.

Our government is in no way to blame for the conversion which Mr. Goschen carried out so successfully. Hypercritics might say that the country was not ripe for so large an operation, that it was forced through by the then fortunate combination of circumstances, and that this is proved by the low price at which Goschens now stand in the market. Those whose stock was converted either with their consent or without it, if they omitted to object, naturally expected to receive new consols, which, although reduced as regards interest, would be realizable at about par. Had they foreseen so heavy a decline in the Goschens, they certainly would have refused the proffered conversion which has inflicted a loss on the investing classes of many millions.

Our investing public did not find the new bonds attractive; many of them either demanded repayment of the old five per cent. bonds, or sold out the new three and one-half per cent. as quickly as possible. Some investors retained their holdings in inscribed stock, being induced to do so by the facility of transfer at the Bank of England. This was a serious mistake.

The inscribed stock cannot easily be sold on the Continent, and such limitation of negotiability depreciates its value. The price is about 85, as compared with 88& for the same security in international bonds. Three months ago the inscribed stock was about five per cent. below the price of bonds. This experience acts as a further deterrent from holding Continental securities. It is only one instance of the depleted state of our market as regards the

Another disadvantage resulting from this financial coup is, that other European nations either converted their debts or issued loans yielding lower rates of in-floating and available quantity of European terest. Thus these bonds became less attractive to English investors. Another obstacle kept the new bonds from the London market. We suffer under the imposition of stamp duties higher than those which obtain on the Continent.

For these reasons those who held foreign stocks refused to convert, and were paid off, and with those holders of consols, who were forced to seek a larger income, were induced to take Indian, colonial, and American securities.

securities. We hold now minute quantities of German, Dutch, Russian, and Belgian stocks. Our investments consist of Indian, colonial, and American stocks and shares, perfectly good in many instances; but almost all these have no market on the Continent, and cannot be rapidly converted into gold.

Further evidence of the process of depletion of Continental securities in our market may be gathered from the report of a Trust Company which appeared in the

Times of February 1st, from which the | is kept year after year at three per cent.; following is an extract:

The chairman said that the enlargement of their powers of investment had been granted by the Court, subject to a slight alteration in the name of the company. The board had promptly used those powers. They had parted with a large quantity of Italian and in the issue department. A couple of Austrian stocks, and had reinvested the promillions more or less will cause the penceeds in first-class bonds of American rail-dulum to swing between a two per cent. roads.

metallic store in the issue department of the Bank of England and the paper and metallic reserves in the banking department of that institution. The issue department constitutes in point of fact the State bank, and is permitted to issue £16,450,000 of notes against British government securities, while all excess of notes issued must be in exchange for gold. Thus, as the stock of gold is about £22,000,000, the issue at present may reach about £38,450,000. These banknotes are legal tender only so long as the Bank of England pays gold for its notes, and if so great a catastrophe could occur as the suspension of gold payments by the bank every debtor must meet his liabilities in gold. It would, however, be in the power of the government to make Bank of England notes legal tender without limitation, or, in other words, to impose a forced paper currency.

This danger need not be considered, as the Bank of England is so ably managed, and the bank-note issue is so efficiently protected, that no special stress need be laid on the limitation of legal tender quality of the Bank of England notes. We may, however, be permitted to criticise minor points in the management of the banking department of that institution, so that means may be found to lessen anxiety in times of pressure.

pears at first sight, because the moment that it is known that the bank is selling, other holders of bills on London follow suit, thus preventing our receiving even a small quantity of gold.

It might be advisable for our bank to fight the German institution with a similar weapon by gradually acquiring a portfolio of a million or two in sterling value of bills on Germany. If this operation were carefully managed, the bills could be renewed as they became due by utilizing the services of some eminent Berlin banker, and the result could hardly fail to be profitable. The bills would be bought at a time when the exchange on Berlin would be some points in favor of this country, and, whenever it dropped to about the gold export point, the bills could be sold with a profit. Such an investment would also have the negative virtue of diminishing a drain to Germany, whenever it became unwise to let our gold go to that bourne whence no gold returns. Minor improvements of this character might, when combined, do something towards the retention of our stock of gold, and would tend to equalize our discount rates.

But the great blemish of inadequate reserves held by the Bank of England, and by the other bankers and merchants, remains untouched. How can we apply a sufficient remedy which, if accepted by the banking community, would necessarily reduce their dividends? In New York, where there is no State bank, the Associ ated Banks are obliged by law to hold twenty-five per cent. of their net deposits in legal tender. If that margin were insisted upon in this country, we should have too much money lying idle. Possibly an elastic system might be legally imposed upon all banking institutions in England, somewhat upon the following bases. There might be indicated three stages: the danger point, ten per cent. of deposits, below which the cash reserve should never be allowed to fall, under penalty of the bank being eventually wound up; a moderately safe reserve of fifteen per cent.; and a perfectly safe reserve of twenty per cent. of their deposits. These reserves might be regulated somewhat after the following fashion. A bank or banker reducing the reserve below twenty per cent., but not below fifteen per cent., to pay a tax to the government equivalent to the interest for the time being, calculated at the bank rate of discount on the amount ex-withd duc

The Bank of England differs from neighboring State banks in the ineffective influence it exercises over the outside discount market. It therefore is frequently necessary to absorb floating money by the bank borrowing on consols, in order to raise market rates of discount. This condition of things is partially caused by the comparatively small amount of bills held by the bank under discount. In another respect our bank differs from European State banks, which are not allowed to hold securities other than bills of exchange, and the stocks of the State in which each bank is situated. It is currently asserted that only a moderate proportion of the amount published under the head of other securities consists of bills of exchange, and that the bank holds railway securities, a proceeding which diminishes its bill portfolio, and lessens its control over the discount market. Many European State banks hold portfolios of sterling bills, and when the exchange, say in Berlin, approaches the point when gold can be sent to this country, the Imperial Bank sells sufficient sterling bills to dep change below the danger a powerful lever, even s