PRESIDENTIAL ADDRESS SKCTION F. I 6/ 



to private hanks. Tt is sometimes added tliat as coining 

 specie is a sc^verciiJ^n function, so also must be the engraving 

 of notes. But these differ in a very important way; notes 

 are credit instruments, gold is not. To issue notes is to manu- 

 facture credit, and therefore to incur liability. In coining specie 

 Governments incur no liability. The chief objections to State 

 issues are (i) the need in certain circumstances of permitting 

 banks to issue paper so as to encourage an extension of banking 

 facilities; (2) the danger of overissue; (3) the greater knowledge 

 which the banks have of the needs of trade. As regards the 

 first, the establishment of branch banks tjiroughout Scotland was 

 greatly facilitated by the banks' right of issue, because it pro- 

 vided them with cheap till money for such branches. In the 

 Cape Act the tax of i per cent, applies only to notes in circulation. 

 Thus, until the notes have left the bank, and have begun to earn 

 interest, no tax is payable on them. A restriction on banking 

 facilities wotild be too high a price to pay for profits of a State 

 issue. This is certainly a point on which the banks should be 

 consulted before any change is made. But because the issue of 

 notes is highly desirable for the banks, it does not follow that 

 there must not be a Government issue. The interests of existing 

 banks could be protected by having a uniform issue, the obligation 

 of Government, out of which there could be paid to each bank 

 an amount equal to their average issues in 1914, to replace 

 the paper in circulation. The notes would be convertible, so far 

 as the public is concerned, at the same offices and under the same 

 conditions as the remainder of the issue. If the notes were 

 returned to the Government in this way, it would retain the right 

 which the public have at present of demanding gold for them at 

 the bank through which they were issued. To make this possible 

 a distinctive letter must be used, as is done in the United States, 

 in front of the number on notes issued to each bank. The close 

 contact of the banks with business conditions is a relatively small 

 advantage if a i for £ reserve is maintained. The note issue 

 then becomes automatic. The real objection to Government 

 paper money is the danger of overissue. Every writer on 

 currency mentions the historical argument that in a great crisis 

 Governments have not, in fact, been able to resist the temptation 

 to overissue. But the example of England shows that in a crisis 

 such as that produced by the present war, the mere fact that the 

 issue is usually left to the banks will not prevent the State 

 putting into circulation an excessive quantity of its own paper. 

 In the Napoleonic War the Bank of England notes were 

 depreciated. At present the Government currency in India is 

 at a premium, not at a discount. The question is not can over- 

 issue be prevented in times of great crisis. No system can 

 prevent that ; the only check is wise statesmanship. The problem 

 is, can the issue of Government paper be regulated in such a 

 way in normal times that the Minister of Finance will not be able 



