|An inquiry Into The Currency Principle|
DISTINCTIVE PROPERTIES ASCRIBED TO BANK NOTES.
Mr. Norman, after noticing what he calls the contrivances usually resorted to for the purpose of either dispensing with the use of money altogether, or of diminishing the quantity of it, which is absolutely required for the adjustment of existing transactions, observes,
"On these contrivances one general remark may be made, as it affords a ready and practical, if not a strictly scientific distinction between such substitutes for money, and that which, as I conceive, really constitutes money, viz, coin and bank notes. If bank notes are withdrawn from circulation, their place must necessarily be supplied by an equal amount of coin; but the abolition of any, or of all of the contri- vances for dispensing with the use of money, will not necessitate the introduction in their place of an equal amount of coin or bank notes."Letter to C. Wood, Esq., p. 34.
In dealing with this proposition, let us try it by putting the case in the strongest way, and suppose that the Bank of England has the power, and is disposed to withdraw all its notes from circulation; or, in order to obviate the objection, that in such case other banks might supply the vacuum, let us suppose that all promissory notes, payable on demand, were suppressed by act of parliament. Would Mr. Norman contend, that the whole amount must of necessity be replaced by coin? Most assuredly such would not be the effect.
A moment's consideration must be sufficient to satisfy any one that it would only be the smaller denomination of notes, which, if suppressed, would require to be replaced by coin; the whole of the 1 l. notes which still circulate in Ireland and Scotland, would require to be so replaced, and the greater part of the 51. notes, and a small part of the 10 l. notes, in the United Kingdom.
All the larger amounts might be, and most probably would be, supplied by cheques and bills of exchange and settlements.
The employment of the higher denominations of Bank of England notes is chiefly for the following purposes:
1. Collection of the public revenue, and the payment of it into the Exchequer.
2. Payments on sales and mortgages of landed and other fixed property. Till lately the rule in trans- actions of this nature, was almost uniformly that the payment, on conveyance of the deeds, should be made in bank notes. But there has of late been a tendency to relax this rule, and cheques are now not unfrequently received in payment on such occasions.
3. Dividends and rents received by persons who do not employ bankers.
4. Payments for debts in cases in which the debtor has not a banker, or in which he would not be trusted so far as to have his cheque received in satisfaction of the claim.
5. Payments into Court in litigated claims.
6. Reserves held by bankers, and especially those of the west end of the town, and by the joint-stock banks in the city who are not admitted to the clearing-house.
7. Settlements at the clearing-house.
Now these are peculiar purposes, most or all of which might be answered by other means than bank notes, and most assuredly not by supplying their place by coin.
1. The public revenue is, in an increasing number of instances, paid into the Exchequer by drafts on the Bank of England.
2. Payments for landed and fixed property are in an increasing number of instances paid by cheques.
3. Dividends to persons not keeping bankers, might be retained by them in the shape of warrants.
4. and 5. Involve so small an amount, as not materially to affect the question.
6. The circulation of Bank of England notes among bankers, whether between the Bank of England and the west-end bankers, and the city joint stock bankers, and the circulation of country bank notes, in settlements among each other, are mere conventional transfers of capital, which, with
7. The clearings among the bankers of the city of London, might all be effected either by Exchequer bills, as in the case of the banks of Edinburgh, or by cheques on the Bank of England.
The country bank notes above the lowest denominations, (which are in use in the retail trade, and in the payment of wages,) are mostly employed in the provision markets, and in cattle and horse fairs, purposes for which, as I shall proceed to show, bills of exchange were formerly, and might be again very extensively employed.