MR. COWELL'S PLAN FOR THE REGULATION OF THE CURRENCY.
TO THE EDITOR OF THE SPECTATOR.
Birmingham. 26th September 1843.
SIR—Being a constant and an eager reader of your influential journal, I have perused with attention the notice contained in the Spectator of the 23d instant of Mr. COWELL'S plan for giving us a paper currency which shall be an exact representative of gold, fluctuating as gold would fluctuate, and "automatic" or self-regulating in its nature. It appears to me that the arrangements proposed by Mr. COWELL, instead of effecting this most desirable object, would have a directly contrary effect, and would give to the oscillations of the circulation a range and a velocity threefold greater than those which could occur were the currency purely metallic. With your permission, I will explain soy reasons for holding this opinion. Were the currency purely metallic, it would contract and expand under the action of the foreign exchanges; an influx of gold to the amount of 1,000,000/. causing the circulation to increase by the amount of 1,000,0001.; and an efflux of gold to the amount of 1,000,000/. causing the circulation to diminish by the amount of 1,000,000/. Now it is obvious, that in order to obtain a paper currency which shall be an exact representative of gold, it is essentially necessary that the bank of issue should enlarge and contract its paper circulation by the exact amount to which a favourable or an adverse exchange may increase or diminish the gold in its coffers. But if the paper circulation be made to expand and contract as gold flows into or out of the coffers of the bank of issue, it is self-evident that the proportion between the amount of the paper circulation and the amount of the bullion in the bank of issue must vary with every variation in the foreign exchanges. The converse proposition is equally selfevident. If the proportion between the amount of the paper circulation and the amount of bullion in the bank be prevented from varying in exact conformity with the ebbings and flow ings of the foreign exchanges, it is impossible that a *paper currency should be made an exact representative of gold. This impossibility, however, Mr. COWELL undertakes to perform. He proposes that when the exchanges are favourable, the Bank shall reissue, in the purchase of securities, two-thirds of all the gold which it may receive, and retain only onethird in its coffers; and that when gold is withdrawn from its coffers, it shall withdraw, by the sale of securities, as much of its paper as will establish the exact relation of one to three between its reserve of gold and its outstanding circulation. Now it can be demonstrated by figures, that the establishment of this proportion would cause fluctuations in the amount of the circulation threefold greater than those which would occur were the currency purely metallic. Let us assume that the bank of issue has put into circulation 18,000,000/. of paper; and that it holds securities to the amount of 12,000,000/., and bullion to the amount of 6,000,000/. This being the previous state of things, an unfavourable course of exchange, causing 1,000,000/. of paper to be returned upon the bank for gold, would have the effect of contracting the circulation by the exact amount of 1,000,000L, provided the bank continued to hold the same amount of securities as before. The state of the bank would be—securities, 12,000,000/., circulation 17,000,0001., bullion 5,000,000/. But though this contraction of the circulation would be exactly identical with that which would be produced by a similar efflux of gold were the currency purely metallic, yet Mr. Cowell's proportion of three to one between the circulation and the bullion would be destroyed. Let the bank reestablish this proportion by selling, in conformity with the proposed rule, securities to the amount of 2,000,0001, and thus withlrawing 2,000,000/. of its paper. After the performance of this operation, the status of the bank would be as follows—securities 10,000,0001., circulation 15,000,000/., bullion 5,000,000/. Here, then, we have Mr. COWELL'S proportion of three to one between the circulation and the bullion in the coffers of the Bank perfectly restored ; but have we a contraction of the circulation identical with that which would have occurred from an efflux of 1,000,000/. of gold had the currency been metallic? Quite the contrary. An efflux of 1,000,000/. of gold under a metallic currency would have reduced the circulation from 18,000,000/. to 17,000,000!.; under the action of Mr. Com-ELIA rule for rendering the paper currency an exact representative of gold, an efflux of gold to the amount of 1,000,000/. causes a contraction of the circulation to the amount not of 1,000,000/. but of 3,000,000/. I entertain a strong suspicion that you are misinformed when you state that this rule has received the sanction of the Chancellor of the Exchequer ; and I feel a perfect conviction that the First Lord of the Treasury, who is known to have given assiduous attention to the proceedings of the Parliamentary, Committee upon the affairs of the Bank of England, before which Mr. S. J. Loyn and Mr. GEORGE NORMAN
gave so much valuable evidence, would never entertain a proposition for regulating the currency upon the principle of maintaining a fixed proportion be• tween the amount of the circulation and the amount of the treasure in the coffers of the bank. I have the honour to be your obedient servant,
A BIRMINGHAM BULLIONIST.
Our correspondent has misunderstood us in reference to the present Chancellor of the Exchequer. We said that the speciousness of Mr. CowEies plan "appears to have imposed upon a Finance Minister,"—meaning Mr. Bautzen, with whom he seems from his opening to have been in personal conference, and who has sanctioned the public address of the scheme to himself. This is not much proof of opinion perhaps, and less as to the course of conduct Mr. BARING would follow ; but if Mr. BARING really disapproves of the scheme, or has not given it any consideration, it adds another to the many instances of the looseness with which public men nowadays allow their names to be need.—En.]
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