r6o PRESIDENTIAL ADDRESS SECTION F. 



in issuing against ordinary banking securities instead of Govern- 

 ment securities; it is largely the result of the great difficulty 

 in getting the forms required. 



The paid-up capital and reserve funds within the Union 

 amount to £3,745,400, outside the Union to £4,675,175, a total 

 of £8,420,575. Thus if the Union continues to restrict notes to 

 the amount of capital and reserves, it will soon become impossible 

 supply the paper currency which the country requires. Share- 

 holders are not likely to acquiesce in very great additions to 

 reserve. I do not think, however, that this restriction is neces- 

 sary to prevent overissue. Its advantage rather is that it is an 

 inducement to increase the proportion of capital to other liabili- 

 ties, which are mostly payable on short notice, and so increases 

 the amounts which can be invested in a less fluid form than that 

 in which a banker must keep most of his assets. 



In discussing restrictions on note issues there is apt to be 

 confusion between overissue relative to power of redemption if 

 the bank is wound tip, overissue relative to demands for im- 

 mediate payment, and overissue relative to prices, i.e., such an 

 issue of paper money as will cause a rise in prices. The holding 

 of securities will prevent overissue in the first sense provided 

 the securities do not fall in value. But the need of maintaining 

 immediate as against ultimate convertibility requires that a con- 

 siderable part of the reserve shall be in gold. The danger of 

 overissue relative to the general level of prices is apt to be 

 neglected. Government issues all over the world are to-day a 

 sufificient example of such neglect. When international trade is 

 disorganised, when. gold and commodities cannot move easily 

 to their best markets, an overissue leading to a rise in prices is 

 always a possibility, even though the notes are nominally con- 

 vertible. Even in normal times a large industrial nation may 

 bring about a rise in world prices by increasing its issues of con- 

 vertible paper money, for the gold set free goes to other 

 countries to form the basis for the manufacture of more credit 

 there. But in a country such as South Africa, there is no' danger 

 of an overissue forcing up prices provided immediate converti- 

 bility is assured. Her trade, compared with that of the rest of 

 the world, is so small that prices would continue to.be deter- 

 mined by world forces. The gold set free would be an insignifi- 

 cant quantity when distributed over the rest of the world. On 

 the other hand, if Great iBritain or the United States made 

 some currency change which enabled them to economise, and 

 therefore to export gold, the effect in increasing the quantity of 

 money in the rest of the gold-using world would be considerable. 

 It is for this reason that methods of economising gold, such as 

 the adoption of the Gold Exchange Standard, which have had 

 no evil effects in Greece or India might not be desirable in Great 

 Britain. 



Until South African trade has increased far bevond its 

 present level it will be sufficient if we have lesfislation which 



