The War and Our Financial Fabric

It may now pertinently be asked: Is it possible to keep high gold reserves in the joint stock banks, taking them as a unit, and simultaneously a high reserve in the Bank of England? By high reserves I mean, of course, a high proportion, for this is what we all mean. What is the test of a high reserve? There is no other test than the ratio of the gold reserve to the liabilities. We cannot test it by a quantity of gold _per se_. We cannot say that a hypothetical quantity is sufficient and a hypothetical quantity insufficient. A reserve must be related to something. When we speak of gold reserves we speak correlatively. They are not something standing apart, in the air, as it were, an independent quantity.

If, then, when we speak of gold reserves, we are conscious of their relation to something, what is this something? Is it their relation to the nation's commerce as a whole, the nation's needs as a whole, or merely the restricted relationship to bank liabilities? What critics mean is the relation between them and the bank liabilities. But banks are units of a system. They are not a whole in the same sense as the Bank of England is. They are independent entities. There are large banks and small banks and medium-sized banks, and they have liabilities corresponding to their size. Must the small bank have in its safes exactly the same _quantity_ of gold as the large bank, irrespective of its liabilities? Or must the small bank have, not the same quantity, but the same _proportion_? Or are we to aggregate all the liabilities of the banks of the kingdom and all their gold reserves and say whether or not the total quantity of gold is sufficient or insufficient? Even then we must ask: Sufficient for what? Sufficient to meet the total liabilities in a time of crisis? This is what we mean. We mean a ratio, a hypothetical ratio that is to save us from disaster.