The Otago Witness, WITH WHICH IS INCORPORATED THE SOUTHERN MERCURY. (WEDNESDAY, JANUARY 8, 1903.) THE WEEK.

Otago Witness, Issue 2808, 8 January 1908, Page 51

The Otago Witness, WITH WHICH IS INCORPORATED THE SOUTHERN MERCURY. (WEDNESDAY, JANUARY 8, 1903.) THE WEEK.

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The most welcome news that has reached us for' several weeks past The Fall is contained m the intelliin the gence that the directors of Bank Bate, the Bank of England have decided to reduce the Ibank rate of discount to 6 per cent. It will be remembered that the raising of the rate to the abnormal level of 7 per cent, was a defensive measure rendered necessary in order to stay the drain of gold to America. As a result of the adoption of this policy the reserve of gold in London was fully maintained at an amount sufficient to inspire English investors with .every confidence and thus prevent the spread of the American financial panic across the Atlantic. The discount rate has stood at 6 per cent. in the open market for some time, and the Bank of England has naturally' taken the earliest opportunity consistent with safety to bring its own rate down to the same level. This lowering of the rate is already reflected in the improved tone of the produce markets, a point at which

the American paniJ? closely affected tho Dominion. The wool and wheat markets show a firmer tone, and so soon a% stability is restored the conditions maj be expected to still further improve* There are not wanting those who pro. phesy that the financial panic will ba followed by a severe period of cominer.. cial depression in the United States, bufc we are inclined to think that these Jeremiahs are somewhat beside the mark and! that they do not sufficiently take into account the wonderful elasticity of temperament and the extraordinary recuperative powers of the American people. At any rate, there appears no reason to believe that the gloomy predictions indulged in by the London Economist will be at all verified. That financial authority most emphatically says :—": — " A long and miserable period marked by general distrust, unwillingness to lend, .inability to borrow, and a scarcity of money often' approaching famine, is now before the United States. The financial crisis is merging into an economic crisis." For a real and comprehensive idea* -jt the exact conditions which American - now obtain in America it Finances. is better to go to reputable American- journals/ which, although fully ajiye' to the gravity .of ,the crisis through which the country is^ passing, at the same time are not forgetful' of the necessary paliative measures ,witb, which to meet the situation. For instance, one journal of authority , % writing under date November 9, says :—": — " The banks throughout the country are exercising .great care over the currency at their command. Clearing House certificates j and other forms of credit tokens ar& being used in New York and other large centres; and in some instances it is probable that gold and currency notes ara being withdrawn from banks and hoarded in safe-deposit boxes and other private hiding places. But there is no real currency famine, and interest rates hava gone down. If there is combined with" proper caution, economy, and sound judgment, a reasonable confidence in the in* nate honesty and ability of the bankers, merchants, and industrial managers ofi the country, there is . no reaso*n why that country * should not successfully pass; through the present disturbance ancf arrive at a state of <more genuine, be* cause ju'ster, and more healthful pros< I perity than it has known for a long time. I It appears to us that two legal steps and one moral step are needed to prevent the recurrence of a general breakdown in! confidence such as we have been passing, through the past 10 days. First, there > must be some prompt and effective legislation which shall provide the country^ ' with a safe and elastic currency. 'Second,* there ought to be -some revision of ouij banking laws. The State should not per^. Mit, as it does at present, two kinds ofi deposits to exist. •„ 'National and' State 1 banks to-day in New "York are required? to maintain a reserve of 25 per <jent* and to make weekly and public" state/ ments of their affairs. .The trust com* panics, on the other hand, while's they; are permitted to receive deposits a* freely as the banks, need only to main* tain a reserve of 15 per cent, and maktf only voluntary statements. The trust i companies were originally invented, a$ the term implies, to act as trustees and agents for estates, corporations, or im dividuals. They have gradually assumed the functions of banks of discount and deposit. Some of them, taking advantage of their freedom from legislative restriction, have invited large aeposits by tha offer of comparatively large rates of interest to the depositor, and have used these deposits in industrial and financial enterprises, often of a very risky nature,, with the hope of getting large profits.,, Is it not perfectly obvious that all banks of discount and deposit should be carried on under the -same legal restriction? In' the third place the moral reform needed is the bringing of all bank directors to a [ belief ihat they are trustees -for their? depositors just as truly as the trustees' of an estate or a. philanthropic institu-. tionare responsible for the' welfare andi protection of their beneficiaries." Continuing in the same strain a week? later, £he same authority C3-ndeiJce and enlarges on the fact thafcl Co-operation In never before *in the hisBusiness. Tory of the United States have all classes of men so. thoroughly learned the lesson that permanent business success is based upon mutual confidence, service, and co-opera-tion. "No section of the country is independent of other sections, and no? group or clique of banks or bankers can 1 be so rich or accumulate such- enormous profits as to escape bearing their share of financial disorders which 'affect ffie entire country." After a reference to the opinion held by men like Andrew Carnegie and James J. Hill that general! trade conditions are good, the same journal points out that one serious embarrassment to industrial activity is the scarcity of currency. The means by which this scarcity may be alleviated are then referred to. " The first and most ready means can be and ought to be provided, not by the banks and not by^ the Government, but by the average citizen. Conservative estimates place the amount ofcash which has been withdrawn from banks and hidden for safety in private! receptacles at many tens of millions of dollars. The result is that business, concerns which have ample balances cannot get the cash with which to pay their employees, and recourse is taken to bank cheques- and other forms, of lOU's. It is the absolute duty of ' hoMers ' of'currency or cash to redeposit it in the banks, of business * men to pay their- bills promptly, and of every one to do all in, his power to 'put into circulation the visible tokens of restored trust in - one another's business honour. When the business men and householders through' out the country have performed this'duty, the next step' will be the serious consideration by Congress, of the various

plans for so-called currency reform. Three important pronosals have been made' of methods for providing elastic currency;. There is first the plan suggested by the New York Chamber of Commerce which would permit banks to issue additional notes based on approved commercial paper. Second, the plan of the American Bankers' Association which would permit banks to issue additional notes under certain conditions and on the bonds which they have already deposited with the Government for their present circulation; and third, "the plan proposed by Mr Trent, the Treasurer of the "United States, which would permit banks *o • issue additional notes based on approved investment securities, such securii'f for example, as savings banks are now permitted to purchase. It should bo borne in mind that each of these plans, in order to furnish a genuine elastic currency of universal circulation, must absolutely insure in its provisions two things — a guarantee by the United States" Grovernment. which all National Bank notes now possess;, and a method of easy automatic redemption, which shaf] bring the notes back for cancellation to the banks of issue when they are no longer needed in the natural transactions of- commence. Besides this currency legislation, the time is ripe for the establishment of postal savings banks. If this recourse to the safe keeping of the United States Government were made • simple and comfortable to small depositors, and the ca-sh received wexe placed in* local and approved National Banks, bills and coin would certainly be in more general circulation."