t seems to me that notes
should not be issued against Government securities which may or may
not be paid off, but against bills of exchange which must be met at
due date." This advantage about a bill of exchange is a very real
one to the individual holder who can always put himself in funds by
letting the contents of his portfolio "run off"; but is there much
in it as a safeguard against excessive issue of currency in times of
exuberance? In such times bills that fall due are pretty sure to
be replaced by new ones drawn against fresh production--since
over-production is a common symptom of commercial exuberance--or
against a resale of the goods on which the original bills were based.
As long as anyone who can show produce can be certain to get credit
and currency, the notion that the maturing of bills of exchange can be
relied to restrict currency expansion within safe limits is surely a
dangerous assumption. The principle of a fixed limit, to be broken in
case of real need, but only after some ceremony has been gone through
giving notice of the fact that a crisis has been reached, seems rather
to be required by the psychology of speculative mankind. But even if
Sir Edward's preference for bills of exchange as backing for notes has
all the merits that he claims that is no reason for urging the repeal
of the Bank Act to secure their use. Because the Bank Act does not
forbid it: it merely says, "there shall be transferred, appropriated
and set apart by the said governor and company to the Issue Department
of the Bank of England securities to the value of," etc. It is the
practice of the Bank to put Government securities into the Issue
Department, but the terms of the Act do not compel them to do so, and
if an excess issue were needed they would seem to be empowered to put
any bills that they discounted into the assets held against the note
issue. On the whole the terms of the Act leaving them freedom in the
matter, except with regard to the "Government debt" of L11 millions,
which is specially mentioned as to be transferred to the Issue
Department, seem to be preferable to a special stipulation in favour
of bills of exchange.

But the most important difference between Sir Edward Holden and the
Cunliffe Committee seems to be in their attitude towards the gold
reserve and the relation between the Bank of England and the rest of
the items that compose the London money market. The Committee, working
to restore the conditions