APPENDIX 1 
113 
redemption of paper currency is made difficult by the 
fact that when the arrangements with the bank were 
made, it was usually forgotten to provide that if the 
State repaid any of the advances, the issue was to be 
reduced par? passu. So if the government raises money 
from the public by borrowing or collecting taxes from 
them, and repays some of the advances made by the 
bank, the bank is apt to merely lend what the govern- 
ment has repaid to its other customers under the pretence 
that *‘ commerce requires it ’’ and not reduce the currency 
at all. 
The plan of the British Currency Notes issue was inter 
mediate between the two simple plans. The Currency 
and Bank Notes Act, 1914, and the subsequent arrange- 
ments of the Treasury set up a kind of bank, very like 
the Issue Department of the Bank of England, for the 
issue of £1 and 10s notes, but without any provision 
for “ cover,” and it called this bank ‘ The Currency 
Note Account.” The bank thus constituted proceeded 
to sell its notes to the Bank of England in much the 
same way as dealers in gold used to sell gold bullion to 
it. For £56,250,000 of notes the Account took Bank 
of England notes, and from these it got no advantage, 
as they were stored away as cover. (The Bank of 
England also got no advantage, because it was obliged 
to hold gold against these notes: it would really have 
been simpler if the Bank of England notes had been 
cancelled and the gold itself put in the Account instead.) 
With five and a half million more of the notes the Account 
acquired that nominal amount of silver coin, holding 
that too in store, and getting no advantage from it. 
The remainder, about £235,000,000 towards the end, 
was paid for by the Bank of England from time to time 
crediting the Account with that amount in the aggregate 
in its books (which it was able to do because it paid out 
the Currency notes to its customers, including the govern- 
ment itself). The Account in turn withdrew the sums 
credited and advanced them to the Exchequer at the 
market rate of interest. Up to this point there is no trace 
of benefit to the Exchequer except that it has found a 
new lender—it paid interest to this lender just as it