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CORRESPONDENCE BETWEEN THE GOVERNMENT AND THE BANK OF ENGLAND DURING THE CRISES OF 1847, 1857, AND 1866.
On each occasion when permission was given to the Bank of England to suspend the Act of 1844 correspondence took place between the Government and the Bank on the subject. This is given in full here to explain what took place.
There is no complete official statement of the correspondence between the Government and the bank during the crises of 1847, 1857, and 1866. The letters which follow are extracted from the report of the Committee of the House of Lords on the Commercial Distress in 1847, from Tooke's History of Prices and from the Economist newspaper. It must be remembered that when the suspension of the Bank Act has been allowed this has never been at the commencement of a period of stress, but not till the anxiety has gone on for some considerable time. The correspondence between the Government and the Bank which took place on the occasion of the crises of 1847, 1857, and 1866, which I subjoin, shows this very clearly. The periods were marked by great commercial distress, by many failures of banks and of business houses which might in an ordinary way have met all their engagements, and there is no doubt that the length of time which was occupied in the correspondence, joined to a feeling of doubt whether the suspension of the bank act would be permitted, added greatly to the
anxiety. The high rates charged for discounts and advances also tended to increase this. I write as a man who has lived through the crisis of 1866, with some remembrance even of earlier troubles, and I can bear witness to the misery which has taken place at such periods,the distress of the working classes through want of employment,—the destruction of property,—the loss of capital,—and of the lives of friends whose constitutions were sapped by the prolonged anxiety.
CORRESPONDENCE BETWEEN THE GOVERNMENT AND THE BANK OF ENGLAND IN THE CRISIS OF 1847.
DOWNING STREET, October 25, 1847. GENTLEMEN: Her Majesty's Government have seen with the deepest regret, the pressure which has existed for some weeks upon the commercial interests of the country, and that this pressure has been aggravated by a want of that confidence which is necessary for carrying on the ordinary dealings of trade.
They have been in hopes that the check given to transactions of a speculative character, the transfer of capital from other countries, the influx of bullion, and the feeling which a knowledge of these circumstances might have been expected to produce, would have removed the prevailing distrust.
They were encouraged in this expectation by the speedy cessation of a similar state of feeling in the month of April last.
These hopes have, however, been disappointed, and Her Majesty's Government have come to the conclusion that the time has arrived when they ought to attempt, by some extraordinary and temporary measure, to restore confidence to the mercantile and manufacturing community.
For this purpose, they recommend to the Directors of the Bank of England, in the present emergency, to enlarge the amount of their discounts and advances, upon approved security; but that, in order to retain this operation within reasonable limits, a high rate of interest should be charged. In present circumstances they would suggest that the rate of interest should not be less than 8 per cent.
If this course should lead to any infringement of the existing law, Her Majesty's Government will be prepared to propose to Parliament on its meeting, a Bill of Indemnity.
They will rely upon the discretion of the Directors to reduce as soon as possible the amount of their notes, if any extraordinary issues should take place, within the limits prescribed by law.
Her Majesty's Government are of opinion that any extra profit derived from this measure should be carried to the account of the public, but the precise mode of doing so must be left to future arrangement.
Her Majesty's Government are not insensible to the evil of any departure from the law which has placed the currency of this country upon a sound basis; but they feel confident that, in the present circumstances, the measure which they have proposed may be safely adopted; and that, at the same time, the main provisions of that law and the vital principle of preserving the convertibility of the bank-note may be fairly maintained.
We have the honor to be, Gentlemen,
(Signed) JOHN RUSSELL.
CHARLES WOOD. The GOVERNOR AND DEPUTY-GOVERNOR OF THE BANK
BANK OF ENGLAND, October 25, 1847. GENTLEMEN: We have the honor to acknowledge your letter of this day's date, which we have submitted to the Court of Directors, and we enclose a copy of the resoluthereon; and
We have the honor to be, Sirs,
H. J. PRESCOTT, Deputy-Governor.
CELLOR OF THE EXCHEQUER.
Resolved, that this Court do accede to the recommendation contained in the letter from the First Lord of the Treasury and the Chancellor of the Exchequer, dated this day, and addressed to the Governor and Deputy-Governor of the Bank of England, which has just been read:
That the minimum rate of discount on bills not having more than ninety-five days to run be 8 per cent:
That advances be made on bills of exchange, on stock, Exchequer bills, and other approved securities, in sums of not less than £2,000 and for periods to be fixed by the Governors, at the rate of 8 per cent per annum.
The following is the letter addressed by the First Lord of the Treasury and the Chancellor of the Exchequer at midday on Thursday (November 12) to the Bank:
[Taken from "The Economist,” November 14, 1857.)
CORRESPONDENCE BETWEEN THE GOVERNMENT AND THE
BANK OF ENGLAND IN THE CRISIS OF 1857.
DOWNING STREET, November 12. GENTLEMEN: Her Majesty's Government have observed with great concern the serious consequences which have ensued from the recent failure of certain joint stock banks
in England and Scotland, as well as of certain large mercantile firms, chiefly connected with the American trade.
The discredit and distrust which have resulted from these events, and the withdrawal of a large amount of the paper circulation authorized by the existing Bank Acts, appear to Her Majesty's Government to render it necessary for them to inform the Bank of England that if they should be unable in the present emergency to meet the demands for discounts and advances upon approved securities without exceeding the limits of their circulation prescribed by the Act of 1844, the Government will be prepared to propose to Parliament, upon its meeting, a bill of indemnity for any excess so issued.
In order to prevent this temporary relaxation of the law being extended beyond the actual necessities of the occasion, Her Majesty's Government are of opinion that the Bank terms of discount should not be reduced below their present rate.a
Her Majesty's Government reserve for future consideration the appropriation of any profit which may arise upon issues in excess of the statutory amount.
Her Majesty's Government are fully impressed with the importance of maintaining the letter of the law, even in a time of considerable mercantile difficulty, but they believe that, for the removal of apprehensions which have checked the course of monetary transactions, such a measure as is now contemplated has become necessary, and they rely upon the discretion and prudence of the Directors for confining its operation within the strict limits of the exigencies of the case. We have, etc.,
G. C. LEWIS. The GOVERNOR AND DEPUTY-GOVERNOR OF THE BANK
a The rate was 10 per cent; raised to this point November 5.