3-037 (Raw)

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The discovery of gold in the neighbouring colonies exercises an injurious effect upon this province, independently of its drain upon the population, in the following particulars.
The gold coin, which is the basis of the paper circulation, being withdrawn directly by the numerous emigrants who leave this province for Victoria, and being also remitted for the purchase of gold dust, the banks from whose coffers the coin is taken are compelled to contract their issues in proportion to the diminished stock of coin.
This contraction of issues causes a corresponding contraction of discounts, the effect of which is to peril the solvency of the mass of the traders, and, indeed, of every person who has money to pay, especially since the same contraction of issue diminishes the money value of all property to an extent greater even than that of the diminution of the circulating medium.
The same cause has already occasioned a depreciation in the value of bills upon England, which are now at a discount of from three to four per cent. instead of at par, as was the case a short time since, and there is every probability that this depreciation will augment at the least to the present amount at Melbourne, ten per cent.
This depreciation is in reality a tax upon exports to nearly the full amount of the discount.
The existence of these evils cannot be questioned, nor that they are becoming gradually more pressing, and it seems clear that they are directly attributable to the circumstance that a new and very profitable article of export has been discovered in the neighbouring colonies, which draws for its purchase the whole available coin of this as well as the other colonies. As gold can be purchased to remit at £3 to £3 5s. per oz., which gives from 25 to 18 per cent, profit upon the remittance, it is so profitable an investment as it is at the same time free from risk, that the banks in the neighbouring colonies are drawing together all the funds they can command in order to employ them in this manner.
It is not merely that there is a period of stagnation owing to the loss of capital and population. There is superadded to this a drain of the coin which forms the basis of our circulating medium, and this drain compels a contraction of the circulation altogether disproportioned to the actual diminution of the capital or of the natural business transactions of the colony.
In so far as other colonies offer a better field for the employment of labour and capital we must submit to the inconvenience which the withdrawal for the time of those elements of production necessarily occasions. But the withdrawal of the basis of our circulating medium may perhaps be prevented. The character of the article of export, the sudden abundance of which has caused this derangement of the monetary system, may afford the means of checking its effects. [87] As gold is the standard, its money value is unaffected by its abundance. The purchasing power of gold as a commodity may be in some degree diminished by an undue increase of its quantity, but the same weight of standard gold will be worth the same number of sovereigns. Its money value is therefore invariable, and it may be safely taken at such a price as will afford a guarantee against the cost of freight and insurance.
It has therefore been suggested to me that a Government assayer should be appointed, who should, for a small agio, receive, melt, assay, and stamp gold, and that the gold thus stamped should be received by weight, in payment for land at the Government land sales, at £3. 8s. or £3. 10 per oz., and should also be received at the same rate at the Customs and the Treasury in, payment of taxes and dues.
With regard to the proposal, so far as it relates to land sales, it would seem that no practical difficulty would arise in the working of it. The gold thus received would be in a very large proportion, if not the whole, required for remittance to England. And as even sovereigns are received at the Bank of England only according to weight, and bullion is received at the same rate, the difference between the price which the gold bears in England, and at which it would be taken under the plan suggested by me, would afford a sufficient guarantee against loss.
With respect to the receipt of stamped and assayed gold in payment of taxes, at a recent interview With the managers of the three banks in Adelaide, the foregoing views were propounded to them, and were regarded by them as well worthy of consideration, although at that moment they were not prepared to give any definite opinion on the subject.
Subsequently to the personal interviewing question, I received an opinion from one of the bankers adverse to the adoption of the plan at this particular juncture, but favourable to it when circumstances were altered. It is to be observed that the plan does not contemplate that the gold in question should be made a legal tender any more than the notes of the bank are at present; but if the gold were authenticated by the Government, and taken by the banks and the merchants, it would secure such a readiness of circulation as would fit it to perform the part of a basis for a paper issue in the same manner as coined gold does now, and to a sufficient extent to free the province from its threatened embarrassments.
The effects of such a plan would be, in the first place, to create a considerable demand for Government land, and to cause probably' large sums to be invested in its purchase from the neighbouring colonies. Moreover, the discovery of gold would then, instead of forming a drain upon the specie of the colony, practically augment its amount, and at the same time, as it is not proposed to make this stamped gold a legal tender, there would be no undue risk of any excessive augmentation of the circulation. [88]
The question of how gold, the produce of the soil of Australia, and likely to become one of its ordinary exports, is to be dealt with by the local Government and the local public, as forming a basis for the circulation of the colony, is one of very serious importance.
On abstract grounds of public convenience, apart from legal technicalities and prerogative rights, it seems but natural that gold, being the standard itself of value, should, when ascertained to be of the requisite purity, be authorized to circulate as freely as coins circulate which are the representatives and equivalent of standard gold.
Whether gold be locally produced, or whether it continue to be raised only in the adjacent colonies in considerable and increasing quantities, it is very desirable that Her Majesty's Government should consider of the expediency - 
1. Of a branch of the British Mint being established in the Australian colonies.
2. Whether local assay offices, in lieu of the above, should be established for the purposes set forth in this despatch.
3. Whether, in lieu of both of the above propositions, local mints may be sanctioned.
I trust the importance of the subject will be my excuse for troubling your Lordship at this great length, and that I may not from uncontrollable circumstances be compelled to take provisionally some definite and immediate action on the subject, at least of an assay office, before I can receive your Lordship's instructions.
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