The Institute of Bankers. DECEMBER, 1884. R. B. MARTIN, Esq., M.P., President, in the Chair. THE GOLD COINAGE: POSITION OF MATTERS AT THE PRESENT TIME. By R. H. INGLIS PALGRAVE, F.R.S., One of the Vice-Presidents of the Institute of Bankers. [Read before the Bankers' Institute, Wednesday, Nov. 19th, 1884.] TABLE OF CONTENTS. 1.-Introduction. 2.-Information on the subject of the Gold Coinage now available. 5.-Mr. Childers' Proposal examined from an actuarial point of view, by Mr. Hendriks. 6.-Elements of uncertainty in any estimate. 7.-Metallic Circulation and Token Money. 8.-Method proposed for regulating the Circulation of the Gold Token Money. 9.-Further considerations on the proposed Token ten-shilling piece. 10. Other methods by which the funds needed to maintain the Gold Circulation at legal tender value might be provided-thus a Seigniorage might be deducted from the value of the coin. 11.-A Seigniorage might be charged to the Importer of Bullion. 12.-The cost of the recoinage of the Gold Circulation might be defrayed out of the profit derived by the Government from the Note Circulation. 13.-Circulation of the Bank of England; against Securities and Gold. 14.-Note Circulation of the country-proportion issued against Gold and not issued against Gold in 1844, and at the present time. 15.-What Increase in the Note Circulation of the Bank of England on Securities might be made without infringing the proportion between the Note Circulation and the Bullion held against it, contemplated by Sir Robert Peel in discussing the Act of 1844. 16.-The Introduction of the Coinage Bill opened the whole question of the circulating medium of the country to discussion. 17.-Cost and Profit of a small Note Issue. 18.-Small Note Circulation in France. 19.-Turnover of Specie in France. 20.-Turnover of Specie in this country. The investigation made by 21.-Some of the advantages which would result from the Gold Circulation Mr. Pownall. being at Standard weight. 22.-Existing trade in light Gold Coin. 23.-Summary of proposals made respecting meeting the cost of Gold Recoinage. 24.-Precedents of 1695 and 1774 as to charging cost of recoinage on the general taxation. B TABLES. I.-Returns as to Weight of Gold Coin, 1884, obtained by the Association of English Country Bankers. II.-Statement showing the proportion of Note Circulation of the Bank of England, covered by securities, and proportion not covered by securities, 1844-1883. III.-Statement of Note Circulation of the Bank of England, and of Bullion held, 1844-83. IV.-Bank Note Circulation of the United Kingdom, 1844-1883. V.-Bank Note Circulation of the United Kingdom, 1844-1883. issued against gold, and not issued against gold. Proportions VI.-The Note Circulation of the Bank of France. Number and Value of Notes of each denomination issued, 1876-1884. APPENDIX. 1.-Statement by Perkins and Co. as to cost of Note issue. 2.-Abstract of Acts of Parliament, and Proclamations issued in respect of Gold Recoinage in 1774. 3.-Memorandum and Calculations on the Equity and Policy of an International Seigniorage of 1 per cent. upon Bullion in exchange for Coin.— Mr. F. Hendriks and Colonel Smith. 4.-Return showing the millesimal fineness of Gold Coins, and amount of Miut charge per centum, in the principal States of Europe. 5.-Circular of enquiry respecting Light Gold Coin-English Country Bankers' Association. 1.-Introduction. URING the last Session of Parliament a serious attempt was made by Mr. Childers, the Chancellor of the Exchequer, to grapple with the question of the condition of the gold coinage. Mr. Childers, in the first place, referred to the subject in his Budget speech, 24th April, 1884, and he afterwards introduced a measure, the Coinage Bill, which embodied the proposals contained in his Budget speech. The Coinage Bill, however, was dropped in consequence of difficulties which arose in connection with the Franchise Bill. Thus, as the Coinage Bill was not proceeded with, the subject was not fully discussed in either House of Parliament, nor did it receive that thorough examination as to detail which so important a matter should have, both from the public and from the bankers of the kingdom generally. Under these circumstances the Council of this Institute has requested me to draw up a statement, showing the position of the question at the present time. I have therefore endeavoured to do this in as adequate a manner as lay in my power. The subject is so large, and embraces so many considerations, that it is hardly possible for any single person to do justice to it, and if I had not received much and valuable assistance from members of this Institute, and other friends, I could not have undertaken the duty which I have endeavoured to perform. It will be a pleasure to me if the statement, which I shall proceed to lay before you, is of any service in explaining a matter which is somewhat intricate, which requires the consideration of a considerable mass of technical detail, but the right understanding of which is of vital importance to the well-being of the monetary affairs of the country. 2.-Information on the subject of the Gold Coinage now available. Three papers have already been written specially on this subject. The earliest in date is to be found in the Journal of the Statistical Society for December, 1868. It is the work of the late Mr. W. Stanley Jevons, and is the basis of all our definite information on the question. The very admirable method of investigation on which it is founded, and the skill with which the information obtained is grouped and employed, deserve the highest praise. The next is the paper in the Journal of this Institute for June, 1882, by Mr. J. Biddulph Martin. This paper contains the record of an extremely careful investigation into the subject, and the results ascertained confirm in a very remarkable manner, by an independent enquiry, the statements made by Mr. Jevons. The third is the paper written by myself, which is printed in the Journal of this Institute, for May, 1883. In this paper I made an estimate, based on the investigations of Mr. Jevons and Mr. Martin, of the cost of the restoration of the gold coinage to full standard weight. This estimate was necessarily rough, for no such estimate can present more than an approximation to the real condition of matters. But I received much valuable assistance in drawing it up, and so much care was bestowed on it, that I propose to employ it as the ground of such further observations on this part of the question as I shall have to make on the present occasion. Before proceeding onwards I desire to observe that while the information gathered, both by Mr. Jevons and Mr. Martin, enables the annual loss by wear and tear of the gold coinage to be computed with great accuracy, the investigation made by Mr. Martin does not extend, and was not intended to extend, into the proportions of the gold coinage now circulating, as divided between sovereigns and half-sovereigns. And neither Mr. Jevons nor Mr. Martin endeavoured to compute the number of British gold coins in existence and circulating out of the United Kingdom. There are indeed no data on which such an investigation could be founded. I mention these matters to remind you that for these reasons, as well as for others, which it is not needful now to recapitulate, the estimate which I laid before you in 1883 must necessarily be a rough one, and that hence, though I intend to follow it now, it must be employed, as it was intended to be, with much caution. 3. Mr. Childers' Proposal for dealing with the Gold Coinage. : Mr. Childers proposed in his Coinage Bill to deal with the gold coinage thus to call in all the half-sovereigns coined before the passing of the measure, and also the sovereigns and gold coin of higher denominations, which either "have been called in by proclamation, or having been in circulation for more than ten years, are below the current weight," provided that such coin had not been illegally dealt with, that is to say, "impaired, diminished, or lightened otherwise than by fair wear and tear, or defaced by having any names or words stamped thereon." Subject to these conditions being complied with, sovereigns and half sovereigns were to be received at the Bank, and exchanged for new legal coins, provided that the loss of weight from the legal standard did not exceed "Three grains of gold in a sovereign, and a proportionate weight in each gold coin of higher denomination, and two grains in a half-sovereign coined before the passing of this Act." The funds needed to meet this expense were to be provided by recoining the half-sovereigns into ten-shilling pieces, each containing nine shillings' worth of standard gold. It will be best to give the computation on which this proposal is based in Mr. Childers' own words : "We estimate that £20,000,000 in half-sovereigns, now in circulation, will be withdrawn and replaced by the new ten-shilling pieces, and that for the next twenty years £250,000 worth will be issued annually. On this re-issue the gross profit would be £2,500,000. Against this has to be set £200,000, the deficiency on the existing half-sovereigns which are below legal tender weight, and perhaps £20,000, the deficiency on those within legal tender weight, which will also be withdrawn. The loss on the sovereigns which are now light I have already estimated at £510,000. The loss on other sovereigns withdrawn during the next twenty years I take as £320,000. The cost of recoinage I take as £70,000. Adding £50,000 for contingencies, the total charges will be £1,170,000, leaving a balance of £1,330,000, besides accumulated interest. This will be sufficient to keep the gold coinage for the future in a satisfactory condition at a cost of about £40,000 a year." By this statement it appears that Mr. Childers considers that forty millions (£20,000,000) of ten-shilling pieces are constantly in circulation now, and that fifty millions (£25,000,000) of ten-shilling pieces will be required for use by the end of twenty years. The working out of Mr. Childers' estimate will be shown more clearly in a tabular form : MR. CHILDERS' ESTIMATE, SHOWN IN A Tabular Form. Say, in 1885, receipts expected from recoinage of 40,000,000 half-sovereigns, to be recoined at nine £2,000,000 £220,000 ... ... 510,000 70,000 Contingencies Add 1,150,000 Receipts expected in twenty years from coinage of ... 500,000 Now we will leave for the present all other considerations except the profit which may be expected to be made from the recoinage of the half-sovereigns at the value of nine shillings each, and endeavour to see how far the expectations held out in the Chancellor of the Exchequer's estimate are likely to be realised. The reason for making the reduction in the value of the ten-shilling pieces was the expectation that the funds needed to bring the coinage in sovereigns up to standard value would be obtained in this manner. It is on this ground, therefore, before going further, that it is desirable to examine into the proposal. The first point to ascertain is the probable cost of restoring the coinage in sovereigns to standard value. My own estimate was made on the basis of the condition shown by Mr. Martin's investigations to exist in 1882; these investigations, which were made early in the year, gave for all practical purposes the state of matters at the end of the year 1881. If the recoinage were commenced at the earliest date possible now, it could not be begun, taking into consideration the inevitable delays in passing such a measure through Parliament, and the state of public business, before a late date in 1885, and could hardly be completed in a twelvemonth. Four years' wear more at least must be added on to my estimate. Now, taken on the basis of the wear, shown to exist by Mr. Jevons's estimate, which is slightly below that made by Mr. Martin, the wear of a gold coinage of £80,000,000 in sovereigns costs about £27,900 a year,* and of £20,000,000 in half * Mr. Jevons's estimate of the annual loss made it 0-08371 penny on each sovereign, which would give £27,903.333 on £80,000,000; or, to put the case in another way, the annual loss is 349 parts out of every 1,000,000 in weight, which would give £27,920 on £80,000,000. |