cheque on the bank and not by the employment of Bank of England notes. The tendency of the deposits of the London bankers to increase while the reserve of the bank itself stands at a low figure, was curiously exemplified in the years 1873 and 1874. In both those years, and in both of them at the same time of the year, the deposits of the London bankers were larger than the reserve of the Bank of England. The details were as follows: It is not immediately obvious what led to this state of matters in the proportion of the London bankers' balances to the reserve on both these occasions. The market value of money will not alone account for it, as this differed very widely in the two years. The average rate of the Bank of England during the year 1873 was £4 16 0 ... The rate in the month of October averaged ... 847 The average rate of the Bank of England during the year 1874 was ... The rate in the month of October averaged ... ... 3 13 9 3 10 3 49 3 The conditions of the money market generally were by no means similar in the two years. But whatever may have led to this state of matters, it remarkably exemplified the opinion that the London bankers' balances are influenced by very different causes from those which influence the reserve of the Bank of England itself. There are at certain times of the year demands for an increased amount of the currency of the circulating medium of the country, totally separate from the demands for banking accommodation. The autumn months are greatly weighted with these demands, the requirements for holidays, and travelling, the supply of coin which the Acts of 1845 compel the Scotch and Irish banks to hold, the sums needed in cash for harvest wages and harvest expenses, for those payments which in the rural districts centre on Michaelmas, all require an increased amount of gold and Bank of England notes to be circulated, and the Bank of England reserve is thus influenced by causes which have no effect on the deposits of the London bankers. Hence, while the bank reserve is diminishing, the deposits of the London bankers may be largely increasing. This leads to the consideration of what a thorough revolution would be caused in the existing arrangements of English banking if the proposal made in a letter to the Economist newspaper, of December 5, 1874, that the clearing banks of London should unite to keep their own cash reserve, and should do so outside the Bank of England, were carried out. If this were done it would still leave the position of the banks who joined in it exactly as it was before in all other respects. The banks would still be subject to the same influence as at present. In times of anxiety they would still desire to augment their reserves as they do now. Indeed as they might think the Bank of England would possibly be disinclined to assist them in any period of pressure, from their having ceased to keep such large deposits there, they would probably be anxious to keep a larger reserve than they do at present, and as this reserve must of necessity be kept in notes of the Bank of England, or in gold which could only be obtained from the Bank of England, it is obvious how very sharply the arrangement proposed last year would influence the reserve of the Bank of England. The bankers who keep their reserves with the Bank of England, do so because they consider those reserves as the equivalent of so much cash. Without debating the question whether deposits can really be considered as the equivalent of cash at a time when they exceed the immediate power of the bank which holds the deposits, to meet them in ready money, it is desirable to keep in our minds how different the state of the money market would be in times of difficulty, if the London bankers resolved to keep outside the Bank of England, and in the form of notes of the bank itself, those very reserves which at present tend to mitigate the effect of the self-same pressure which leads to their augmentation, through being lent in the form of advances by the Bank of England. Within, though a liability, the bankers' balances are in Mr. Hodgson's words, "the safest of any." Without, a similar amount, held by the same persons in the form of notes, would be a liability, and a liability alone. ITALIAN FINANCE. WE extract from the foreign correspondence of the "Economist" the following particulars relating to the currency of Italy and her financial condition : An article of the Italian monetary law of April, 1874, invited the Ministers of Finance and Commerce to draw up an account of the forced paper currency, which had then existed since May, 1866, and to present a report on the best mode of terminating it. That document, which is of great length, was recently presented to the Chamber of Deputies at Rome, and forms a complete exposition of the economic situation of Italy. The Journal des Débats publishes a summary of that paper by M. de Reinach. He shows that when the forced currency was decreed in 1866 the accumulated deficits in the State Budgets amounted to 2,000 millions of francs. Since 1861, a sum of 125 millions of Rente had been created; but the price had fallen to 44 for the Five per Cents., and a further issue had become impossible. By those and other extraordinary resources the deficit had been covered to the amount of 1,700 millions. and a balance of 300 millions remained unprovided for. The ordinary revenue had, however, not remained stationary; the receipts, which in 1861 amounted to 458 millions only, had increased to 637 millions in 1865; but on the other hand, the augmentation in the expenditure had been still more rapid, having advanced in the same period from 812 millions to 1,069 millions. At the same time the commerical balance in the four years showed a deficit of 1,340 millions. The Government had employed all its available resources; the State railways and Crown lands had been alienated as far as was possible, and the establishment of a forced circulation, with the creation of a State paper money, became a matter of absolute necessity. The consequence of the law, and of the requirements of the Treasury, was that the paper circulation, which had been only 247 millions of francs in April, 1866, rose in 1874 to 1,500 millions. During that period the depreciation of the paper money fluctuated between 19 per cent. in 1866, and 3 per cent. only in 1870; at present it is 7 per cent. The price of the Italian Five per Cents. at the same time rose from 40 in 1866, to 70 in 1871, then fell to 59 in 1873, and is now above 72. The frequent variations in the premium on gold was a cause of great uncertainty in trade, as the conditions of a contract made when paper compared with gold was at a discount of 10 per cent. were completely changed when the depreciation rose to 15 per cent., or fell to 5 per cent. only. On the other hand, the régime of the forced circulation produced a great advance in the economic education of the country. Before 1859 bank-notes could scarcely be said to be an instrument of credit or of circulation, being principally employed, from the facility with which they could be secreted, as a security against robbery. The inhabitants of the rural districts in the north recognised no other value than the 20 franc gold pieces, and those of the south only the silver piastre. Between 1866 and 1874 the six banks of issue had increased the number of their offices or branches from 52 to 95, and Italy, with 27 millions of inhabitants, had more facilities for banking than France at present with 36 millions. A fact remarked in countries with a forced paper currency is that, not being subject to the periodical influences of the scarcity or abundance of metal, they are less sensible to changes in the rate of interest. Thus between 1866 and 1874, the National Bank of Italy has only changed its rate three times, not rising above 6 per cent., nor falling below 5, while during that time the rate in Belgium and Holland had changed more than 50 times, ranging from 2 to 7 per cent., and in England the fluctuations had been still more frequent and within wider limits. With respect to the second part of the report the ministers are forced to admit their inability to propose any measures for the prompt termination of the forced currency. All that could be done was to diminish the inconveniences of it, by depriving the notes of each of the six banks of issue of their local character. That object was attained in the Act passed by the union of the six banks into a Syndicate for the issue of the milliard of Government paper, and their own notes to the amount of the triple of the capital, with a reciprocal forced circulation in each of the other provinces. To terminate the forced circulation, the Government would have to first redeem the 900 millions of its notes already issued. To borrow that sum would be to charge the Budget, which already shows a deficit, with an additional sum of 50 millions annually. A proposal supported by several deputies was to redeem a sum of 50 millions annually, but until the revenue leaves a surplus of receipts that measure will be impracticable. When that result shall have been attained, the surplus may be either employed in the amortisation of an equal amount of notes, or in covering the interest of a loan for the entire withdrawal of the State paper money. MARKED INCREASE OF THE BANK OF ENGLAND NOTE CIRCULATION. (From the Money Market Review). ATTENTIVE readers of the Bank Returns must have been somewhat struck by the large expansion of the Bank of England "active" circulation this autumn as compared with last. It is not unusual to find the bank-note circulation larger in dull and difficult than in the most active and prosperous times; but the phenomenon is more striking on this occasion than has been often before observed, extending over a long period, and occurring under circumstances which invite remark. The aggregate return for the four weeks ending September 1, thus including four weeks of the month of August, and covering the period of active harvest operations, showed no increase of the Bank of England circulation as compared with the previous four weeks, but, on the contrary, a decrease of £248,832. This fact at once suggests the conclusion that the usual increase of circulation which marks the autumnal period has nothing to do with the large absorption of Bank of England notes to which we have to call attention. This absorption existed before the harvest period, and it continues to exist after the harvest period has closed. The note circulation of the Bank of England meaning thereby the notes in the hands of the public, whether they can be described in the circumstances as "active" or not-in the four weeks ending September 1 this year, was £1,526,186 greater than in the corresponding four weeks of 1874. The notes of the Scotch and Irish, and English Banks of Issue appear to have followed the same rule, though not in the same degree. The whole note circulation of the United Kingdom in the four weeks referred to is found to have been £2,150,701 more this year than last. Now, the weekly returns of the "active circulation" of the Bank of England since the beginning of September show, as compared with the corresponding returns of last year, the following results : It thus appears that the million and a-half of Bank of England notes absorbed at the end of July, above the amount in circulation at the same period last year, have remained out in the intervening period, and that, on the whole, this excess of note circulation over last year has, so far, rather increased than diminished. What renders this the more remarkable is the fact that, since Midsummer this year there has been a considerable decrease of trade and commercial transactions as compared with last year, and wages and prices in many great branches of production have sustained fresh causes of |