Great Britain—A Money Stringency^[a]

London, Nov. 10, 1860

An event long ago predicted has set in, a drain of bullion, and, consequent upon it, a rise in the rate of discount. Yesterday the Bank of England raised the rate of discount from 4 to 4½ per cent. In the corresponding month of 1859 the bank rate did not exceed 3 per cent, despite the then enormous shipments of silver to the East, amounting to £13,234,305. The obvious object of the Bank was to put a check on the drain of bullion from its vaults, which, amounting to £16,255,951 on the 26th of September last, is now reduced to £13,897,085, not including £43,000 taken from the Bank yesterday. The drain, beginning on Sept. 26, has been constantly on the increase until it has reached this week almost £300,000. The large imports of corn were, of course, sure to lead, sooner or later, to an emigration of the precious metals, but the payments of the corn bills being not yet due, the present drain cannot be accounted for in this manner, and, moreover, it takes place concurrently with a rate of discount higher in London than in Paris, Amsterdam, Brussels and Hamburg, while simultaneously the gold export leaves no profit as an exchange operation.

Whither, then, does the gold go? To the vaults of the Bank of France. The present discount rate of the Bank of France is only 3 per cent, although that concern has lost about £4,000,000 since the end of August, while its discounts for August and September have increased by about £3,000,000. Any vulgar bank would, under such circumstances, have raised its rate of discount, but Louis Bonaparte, afraid to cause a visible disturbance of the money market, orders the Bank to purchase gold at a loss, and will force it to continue proceeding with this certainly not mercantile operation. On the other hand, the Bank of England proves that it is unable to check the present drain by the rise in the rate of interest. Yesterday, for instance, no bullion was taken from the Issue Department of the Bank, but a considerable quantity in sovereigns was drawn from the Banking Department. It is one of the necessary consequences of Sir Robert Peel's blessed bank acts of 1844 and 1845[355] that the mercantile public are constantly misled as to the real amount of the precious metals exported, since the Banking Department furnishes no public returns of the sovereigns withdrawn from its chest.

The rise in the official discount rate of the Bank of England, especially if continuing, will, of course, impose upon the Bank of France the necessity of following in the same direction, and thus prevent Louis Bonaparte from any longer commanding the Bank Directors to buy gold at a loss, in order to hide a visible derangement of the money market. Still, the English drain of bullion will not be stopped by that eventuality, since, in proper time, the corn bills must fall due and be paid for in cash.

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