demands upon the Issue Department for gold for purposes of export. When this happened, instead of an addition to its deposits being shown, a decrease in the cash holding of its banking department would follow and the proportion between its reserve and its liabilities declined. Its reserve consists of the last two items on the assets side, by far the larger one being composed of notes—its own notes issued by the Issue Department. Anybody who, by borrowing from the Bank of England, secures credit in its Banking Department can exercise that credit by taking out some of the notes held in that Department's assets. Before the war, he could then go to the Issue Department and take out gold in exchange for his notes, which were forthwith cancelled, because their gold backing had gone. The consequent reduction of the Bank of England's reserve, and of its proportion to liabilities would immediately be noted by the market as likely to cause the Bank, if the process went further than it thought prudent, to raise, by an advance in Bank Rate, the price at which it would grant credit. Bank Rate is the official minimum rate at which the bank will discount bills; and the rate at which it will make advances is usually ½ per cent. above.
