chapter  Chapter XII
13 Pages

Discounts: The Bank Rate

ByRobert E. Wright, Richard Sylla

Bankers habitually lend a large proportion of their funds to producers on the security of bills of exchange. The final result is that several millions of coins, which would otherwise have lain idle in bank vaults, have been sent abroad, and stocks of materials and of other commodities have been obtained in exchange. The re-importation of gold to fill the void in the circulation was effected by the action of bank suspensions on individual interests. Producers must always have cash in hand, or practically so, with which to carry on their businesses. An excessive accumulation of bullion in the vaults of the Bank of England, far from being an increase of the nation’s riches, is a symptom of languid production. When it happens, there will probably be at the same moment a similar accumulation in the Bank of France and other monetary centres, showing that fewer coins are required to carry on the diminished business of the world.