PRIOR to 1875, the Bank rate had only on four occasions been brought down to 2 per cent. Since then it has touched this low-water mark seven times, and it would be interesting if these who are prone to attribute the depression in trade to a gold scarcity would explain how it is that we have had more frequent intervals of extremely cheap money since the alleged scarcity developed itself then ever before.
The causes of the present decline lie on the surface. From the commencement of the year, and, indeed, for some weeks prior to that, gold has been steadily flowing hither from abroad. Since the beginning of December last the influx has amounted to fully 5 1/2 millions, and as this influx has been supplemented by a contraction of the internal circulation, the stock of coin and bullion, which at the beginning of December stood at £20,180,000, now amounts to £26,842,000, while the reserve during the same period has risen from £11,194,000 to £18,359,000.
Alike, in the amount of its reserve and in the proportion which that bears to its liabilities, the Bank, it will be seen, is now much stronger then it was at any of the previous dates on which it moved down to 2 per cent. There is every probability also that during the next week or two it will become stronger still, for although the movement of gold hither from the Continent has been arrested, and may be reversed, supplies are on their way from Australia, and the gold coin recently taken by the Scotch, banks will now be returned to the Bank. Hitherto, the effect of this accumulation of idle money in the Bank vaults has been to some extent neutralised by political uncertainty. Now, however, that the danger of war appears to have been averted, its full influence is felt, and the Bank has not a day too soon moved its rate into closer accordance with the condition of the market.
Judging from the exceptional strength of the Bank, the probability would seem to be that the period of very cheap money upon which we have now entered will last for some time. But it would be unwise to reckon too confidently upon this. For one thing, although the political horizon has brightened, it is still far from clear, and there are several quarters in which serious difficulties may develop themselves at any moment. Currency difficulties, moreover, both in the United States and in the Continental nations constituting the Latin Monetary Union are threatening, although probably they will be smoothed over. And, finally, it must be remembered that the extreme cheapness of money is constantly tending to work its own cure. It imparts a fresh stimulus to enterprise, a stimulus which may be all the more decided, because there are some signs of an improvement in trade, which many of our closest and shrewdest observers expect soon to become much more marked. Even at the best, however, a trade revival must move slowly in its earlier stages and consequently, given political quiet, the probability, as we have said, is, that money will continue exceptionally cheap for some time to come.
Economist, June 2, 1885
Two Per Cent
The Gordon Memorial
Table of Contents
Miracles of healing - Christian Miracles or Healing
History of Russia: Christian Versus Barbarian
History of Japan: Early Christian Martyrs
The Jesus of History
The Assyrian Origin of Devil Worshippers
The Christ Of Dogma
The early history of Constantinople
