Currency and credit by Hawtrey R. G. (Ralph George) 1879-

Author:Hawtrey, R. G. (Ralph George), 1879-
Language: eng
Format: epub
Tags: Money, Credit, Currency question -- Great Britain
Publisher: London, New York [etc.] Longmans, Green and co.
Published: 1919-06-15T16:00:00+00:00

is an option to buy gold at any time; a loan or bill is an undertaking to deliver gold at some fixed future date. If, then, the banker is given the right to pay in paper instead of gold, he is thereby enabled to avoid the fulfilment of his engagements, unless the paper itself is convertible into gold. But if this is the correct theory the banker is exposed to the same dangers as any other dealer in futures and options. If the state of the gold market makes it profitable for his customers to exercise their " options," in other words, if the market value of gold tends to rise above its coinage price,^ he may be called upon to find more gold than he possesses or can lay his hands on. At such a time he cannot get it from his fellow-speculators because they are in the same difficulties as he. Neither he nor they are necessarily to blame; the gold market may be influenced by conditions abroad, over which they have no control and of which they have no direct knowledge. It seems, therefore, that on this theory the risks of the speculator are inseparable from banking, unless the practice of the old banks of Hamburg and Amsterdam be adopted and the whole of the deposits be covered by bullion or specie.

But in reality this is not a tenable theory of banking at all. If the banker's obligations are payable in gold, that is because all debts are payable in gold. If the law makes them payable in gold, the law can at any time make them payable in something else. It is vain to say that it must not do so ; in practice it frequently does. There is much to be said for the view that all currency systems ought to be based on a metallic standard, and that once the standard is chosen it ought to be adhered to at all costs. But however firmly the standard may be entrenched in the law, the law always can be altered, or even broken. The power of issuing paper money always exists in the background, even if it be expressly forbidden by law. The State cannot divest itself of this power or of the responsibility attached to it.

When in the throes of a crisis all the banks are faced with

1 The option entitles the customer to receive the gold from the banker at the coinage price, paying for it by a cancellation of the banker's debt to him, which like all debts is computed in the legal money of account.

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