PRESIDENTIAL ADDRESS SECTION F. 1O5 



secure the earliest possible retirement of the excess issue. The 

 Committee considered the proposal that increases beyond the 

 maximum fiduciary issue should be permitted upon payment of 

 a tax by the Bank, as in the German and American systems ; but 

 it was rejected in favour of the scheme to take over the profits 

 of the issue. The difficulty of the tax method is simply the 

 impracticability of fixing what should be the rate of tax until 

 there is more certainty as to the future course of interest rates. 

 If the tax is to act as a deterrent it must be sufficiently high 

 to secure that no profit should accrue to the Bank. To fix 

 a rate now would involve the danger either of permitting 

 emergency issues when they were not required, or of restricting 

 them when they should be made. The German system, the 

 Committee remind us, has been criticised as lending itself "to 

 the development of crises which more stringent safeguards might 

 have averted altogether." " We are not clear," the Committee 

 says, " how the arrangements recently adopted by the United 

 States, which have not been tested by experience, will actually 

 operate." 



If South African banking conditions were to remain as they 

 are, only minor alterations would be required in our banking law, 

 for good banking traditions, such as the South African banks 

 have created, are the greatest safeguard. But the opening of 

 the Mint, as has been shown, may increase the strain on the 

 reserves of existing banks, and must almost inevitably lead to 

 branches of foreign banks being established here. Even those 

 who are opposed to the regulation of ordinary banking must 

 admit that the right of issuing notes cannot be extended to 

 every bank which may be established here. In the two leading 

 countries which have recently considered their currency systems 

 we have found widely different methods of control. The United 

 States notes are the obligations of the Government itself ; in 

 England it is proposed to go back to notes guaranteed only 

 by the Bank of England. The former are protected by a 

 percentage reserve of gold, the latter by a £ for £ gold reserve 

 on issues above a. certain amount. In the United States the 

 reserve against ordinary banking liabilities is also secured by 

 a percentage holding of gold. In England the Committee 

 recommend continued reliance on the bank rate as the best 

 machinery to check foreign drains when they threaten to deplete 

 the gold reserves. 



As regards the first point, by whom our paper currency 

 should be issued. South Africa has a choice of three courses. 

 We may permit issue by any bank, we may restrict it to existing 

 banks, or if may be handed over to Government. Even with 

 the small number of banks now carrying on business in the 

 Union the want of uniformity in the note.s is a serious evil in 

 a country with a great illiterate native population ; how great 

 is shown by the ease with which some stolen Portuguese notes, 

 worth about 2^d. were passed of( as los. notes on the natives 



