War-time financial problems

234 THE CURRENCY REPORT

to judge to what extent legal tender currency may in
fact be depreciated in terms of bullion. But it is
practically certain that there has been some de-
preciation, and to this extent therefore the gold
standard has ceased to be effective/' Very well,
then, what has to be done to get back to the old state
of things under which there was a more or less auto-
matic check on the creation of credit and the issue of
currency ? This check worked by a system which
was elastic and simple. It was not entirely auto-
matic, because its working had to be controlled by
the Bank of England, which, by the action of its
discount rate, could, more or less, quicken or check
the working of the machine* Legal tender currency
could only be increased by imports of gold; and
exports of gold reduced the available amount of legal
tender currency; and since a stock of legal tender
currency was essential to meet the demands upon
them that bankers made possible by creating credits,
there was thus an indirect and variable connection
between the country's gold stock and the extent to
which bankers would think it prudent to multiply
credits. If credits were multiplied too fast, our
currency was depreciated in value as compared with
those of other countries and the exchanges went
against us and gold either was exported or began to
look as if it might be exported. If it was exported
the legal tender basis of credit was reduced and the
creation of credit was checked. If the Directors of
the Bank of England thought it inadvisable that gold
should be exported they could, by raising the rate
of discount and taking artificial measures to control