THE GOLD DISCOVERIES 35 
as the effects of the new gold production could be expected to 
reveal themselves. From a credit balance of £6,086,000, there 
1s an abrupt change to a debit balance of £6,601,000in the follow- 
ing year, that is a swing of nearly £13,000,000 following the 
wonderful year that yielded £19,000,000 of new gold. With the 
exception of one slight recovery in 1855, the excess of imports 
continued until the community had, by severe crisis and sus- 
tained depression, been brought to 2 realization of the over- 
trading which had occurred. (Fig. II, p. 36.) 
The course of exchange during the early years of this golden 
age affords unique testimony to the unusual circumstances of the 
time. The graph (Fig. I, p. 36) will indicate the extent to 
Which the sensitive foreign exchange will respond to changes 
In the complexion of trade, and the handicap imposed upon a 
community by such high charges as £12 for the transfer of £100 
to London needs no further comment. 
Examination of the banking statistics for Victoria and New 
South Wales, for the periods immediately before and after the 
inflation due to the gold discoveries, has a particular relevance 
to the matter under discussion. The chief factor which accen- 
tuated the inevitable pinching of the financial shoein the moment 
of crisis is exposed ; and the partial, even if involuntary, abandon- 
ment of the principles of sound banking stands revealed as one 
of the elements of the unsatisfactory trading position. Whether 
we have regard to the ratio of reserves to liabilities, the cover 
of coin for notes, or the ratio of reserves to total deposits, there 
does appear to have been a serious disregard on the part of the 
bankers of what might be considered, especially under most 
unusual circumstances, to be the necessary policy of safety and 
caution. By 1853, when the full effects of the gold discoveries 
Were making themselves felt, the position of the banks was, on 
Paper, a very strong one indeed. But, after that date, the drain 
upon their resources to cover commitments of Australian 
merchants to British consignors caused a rapid decline in the 
ratio of reserves to both liabilities and deposits, to a point 
below the normal for the years preceding the inflation, i.e. 
32 per cent. and 26 per cent. Tespectively below the ratio held 
in 1853. Between 1853 and 1855 the ratio of notes in 
circulation to the reserve of coin rose from 37 per cent. to 
75 per cent.