Defective Circulation.

The banks in this colony having the domestic circulation entirely under their control are responsible for the situation in which we are placed. Actuated by fear, they restricted accommodation, with the usual results following a short-sighted course. They precipitated a lowering of values, and in consequence they have been obliged to make large advances in the way of dead loans to avert loss to themselves in the depreciation of their securities. I know one instance where a bank has had to take over a run at £82,000 to save itself, and I believe the greater part of recent advances by the banks have been so applied. This is not legitimate banking, and is of no service to the commerce of the country. I have already said the amount of discounts in 1879 was £6,725,726. A reduction of discounts took place in two years of 2½ millions. For the year ending March 31st, 1884, the amount was only £4,444,299, being 2½ millions below what was found necessary in 1879. The disease under which we labour being defective circulation, the remedy is obvious: there must be an increase in the circulation. This is the proved remedy in the case of commercial panics in England. An able writer on banking and finance says :—"It must be kept in mind that notes possess value as being the to presentatives of material wealth: and at page 7 such time as we have described (that of a panio) note issues should be based, not upon gold, but upon material wealth itself. How can this be effected? We think in the following manner: That, on the Bank of England rate for money rising to 7 per cent., every joint stock bank should be permitted, on depositing with the Government a preferential bond on a fixed amount of its uncalled-up capital, to issue notes to that amount; that these notes shall be so issued until the bank rate falls to 4 per cent, when these special issues shall cease, and the amount be repaid by the various banks to the Government within three mouths afterwards. That these notes shall be issued only at the Bank of England, and bear the name of the bank on whose behalf they are given out; that they shall be issued for so small a sum as £1; that the bank issuing shall be liable for converting them into gold; that the Government shall charge a small commission on the total amount of such notes issued by each bank; and that private bankers depositing deeds of real property shall also possess this privilege. Panic or pressure could not then continue, for this general issue would at once relieve the circulation : such a note issue would have a real as well as a preferential value, being guaranteed by the banks' shareholders, and their property the base on which it would securely rest." All experience proves that if the circulation can be relieved by an additional issue the evils of a panio are quickly alleviated. We now arrive at the important question : How is this relief to be attained here? From the history of the "wretched past" we know that we cannot trust our existing banking institutions. With one or two exceptions, they are not native-born, or indigenous to the soil. They are branches of foreign companies, settled here to make the best of the colony as a happy hunting ground, without any sympathy for us, or our trade, or our enterprise, or our local institutions. There are not even local directors to whom application can be made in an emergency. The local managers may be kindly genial men, but they are under the page 8 control of an invisible inspector, who again is guided by policy prescribed by gentlemen thousands of miles away, who often are incapable, from ignorance, of judging the best course for either themselves or the public. It appears to me to be an not of monstrous folly to commit the control of our national life-blood to such parties, who if their bank is safe do not care whether we are depleted to death or not. The issue of and control over our paper currency has been quietly seized by them, and made the best of, not for our advantage, but their own. This is contrary to all sound policy.