## September 29. 1866. N. 1205.

### Deranged Action of the Eastern Exchange and its Effect upon the Money Market.

Large remittance from India, nearly 1 Mill. l. St. in a single ship, and others beside besides. The common international currency is a Bill Currency. Those who have payments to make from country A to country B buy in country A as cheap as they can good bills – bills sure to be paid – upon country B. When these bills get very scarce, their price rises, or, their „premium“ is augmented, and at a certain point it becomes better to incur the loss of interest, the expense of carriage, and the cost of insurance incident upon the transmission of bullion, rather than to pay a premium upon bills unusually augmented. But such a scarcity of bills and such a premium are exceptional. The balance of international payments is settled in the precious metals; the ordinary current payments are made by bills. But a bill is an instrument based on credit: Its value depends on the fact that the acceptor can pay and will pay. When credit is disturbed, all the first class bills in the market rise in value; everybody knows them and competes for them, but the inferior bills no one touches. Accordingly the premium upon first class bills – upon the only bills practically useful – becomes considerable, and bullion is accordingly transmitted. This happened in America, as soon as the news of the panic here reached that country. Immediately, there was a great demand for bullion as a remittance, and, under ordinary circumstances, it would have been difficult to meet that demand. Just so in the East now. The premium on the best bills has become so great that even the Indian gvt are ready to send bullion. The very same cause, the distrust of longdated bills accepted in England, makes distant countries, as India and America, send us bullion, and makes near countries, as France and Germany, take our bullion.

Generally, if England receives money from India, it is perfectly certain that she will not have to send money to India. But when credit is deranged bullion may easily have to go both ways. The ordinary balance of payments may cause the transmission to the East; the extraordinary perturbation of credit may cause the transmission from the East.

## 17 August, 1867. N. 1251.

### What Bankers should at Present do with their money.

Much of every country bankers business’ banker’s business deposits are employed in his own district at comparatively unvarying rates, and he can now get upon these 4, 41/2, or even 5%. For such old money, so to speak, he can afford to give 2%, or even a trifle more. But nicht upon new money, which he has to send to London to employ. London Bankers only give 1%, and even this rate – miserable as it is to the depositor – is not very satisfactory to the banker. In most parts of England, vestiges of the old „fixed price“ of money. 5% gilt noch als natural rate (in Folge der früheren usury laws.) Die country bankers können daher sich so leicht raise money to 10 or 12%, in times of difficulty, wie at London. Andrerseits brauchen sie nicht so zu reduciren. Aber auch, verglichen mit „London bills“ und the larger bills of all great cities sind „country bills“ the bills of less known people. Der country banker knows them, and charges them more.

### Failures of Three National Banks in the U. States.

2 in State of New York, 1 in Massachusetts, Liabilities 230,000l., including the paid up capital of 82,000l. The causes: advances imprudently made on bad securities, and speculations in land. … Most prolific grain harvest secured, South, North, und West. Guter cotton crop steht before.

Standard Correspondent schreibt New York, 30 July: »Within the past 5 days 3 National Banks have failed: Unadilla National Bank (Unadilla, New York); Newton National Bank (Newton, Massachusetts), Weedsport Nat. Bank (Weedsport, New York)[.] The liabilities of the first at least $750,000 (mit Capital:$,100,000), the liabilities of the 2nd $210,000, of the 3d$200,000; the capital of each of the two last named: $150,000. Ausserdem, the Pegnonnock Nl. Bank (Hartford, Connecticut) has just lost$50,000 by the peculations of an officer. Cause der disasters: reckless speculation, und equally reckless extravagance in living, induced thereby on the part of Bk. officers. In every instance numerous poor depositors ruined.[«]

The Unadilla Bank organised some 12 years since as State Bank, had profitable business. Nach institution des National Bank scheme, its managers deposited $110,000 in Federal bonds und received a charter as a Nat. Bank and$100,000 in Nat. Bank currency. As it had long enjoyed the confidence of the community, it became a sort of savings Bank for the surrounding country; und enabled to carry on a fair business in advancing money, or paper, to the farmers and shopkeepers of the neighbourhood, obtaining the full state rate of 7% upon its loans. Received so not less than 13% upon its capital stock (nämlich ausser den 7% mindestens 6% upon the bonds deposited mit der Gvt.[)] They (its managers) invested a large sum in the purchase of petroleum lands in Pennsylvania, another in real estate in various towns, und another in a scheme for making cheap paper upon a „patent“ process. Endlich its notes protested. Run. Usual closing of doors. Struggling farmers, widows, orphans, small shopkeepers, dealers in produce have become paupers. One man committed suicide; two persons have become insane. … Trade is at a standstill in the east. The losses of some of our New York dealers in dry goods are to be counted by millions. Stewart, Lord, and Taylor, Arnold and Constable, Lake and M’Creary, and other heavy dealers in dry goods, are offering their goods at less than their original cost in Europe, and yet their stores are deserted. The paper money system makes an „easy“ money market just at this time … The advocates of the Nat. Bk. system assert that at all events the notes of Banks, being secured |158 by the bonds deposited with Gvt. bonds in excess of the amount of circulation, will always be redeemable at Par. Dieß only partially true in the cases of isolated failures; for the only value of the currency lies in the public confidence, and if the public refuse to accept at par the notes of broken Nat. Banks the holders must suffer, and the holders are the mechanics und labourers. Wenn aber viele National Banks auf einmal caput gehn, then the value of the notes nur »what the bonds, held as „collateral“ security, will sell for in time of general financial disaster and distress«. But the depreciation in the value of the notes is the slightest disaster of people in connection with Nl. Bank failures. The ruin of 1000nds upon 1000nds of depositors whose money has been used up in foolish speculations by bankers, is a calamity of vastly greater magnitude.