7 a-Of the amount of tlie issue at the end of 1919, only £E. 3,330,000 was represented in gold, the cover for thic remainder being held in the form of securities, mainly British Treasury bills.

This very large issue of notes has no analogy with the excessive issues which have been made in other countries in connection with Government requirements during the war. The notes have afforded the only means of remunerating producers and others for the goods and services which they have supplied for the use of other countries. The pToceeds of these latter having been converted into tangible securities in the shajie of British Treasury bills, the notes may be considered as an indirect form of foreign investment. The bulk of them is not in active circulation but is hoarded. Had gold been freely available, imports of gold coin would have taken the place of the issue of notes, as was the case before the war, when gold coin was imported annually, and found its way to a considerable extent into hoards.

The policy of issuing notes against cash in London at par was inaugurated, as already mentioned, at the beginning of the war, when the gold basis of British currency was unquestioned, and the only liability attaching to the acceptance of cash in London was the small expense of transporting gold to Egypt at some future date. By the time when it became evident that British currency was being seriously mtlated, many millions of money had already been remitted by bankers and others from Egypt to London and there invested in shoi’t-term securities on the strength of what had come to be regarded as a .settled policy of exchange. x\ny departure from this policy in the direction of lowering the amount of Egyptian piastres issued against the pound sterling would therefore have involved the remitters in heavy losses on their liabilities in Egypt and have, caused the greatest perturbation on the markets. Moreover hr the absence of any free market in gold, it would have been dillicult to find a standard by which to regulate the exchange so as to keep the Egy])tian currency on a gold parity, and any standard adopted would have been, therefore, more or less arbitrary. Bankers, traders and others would in practice have been subject to unknown vicissitudes depending on the policy of the issuing authorities, instead of enjoying the great advantage of a stable exchange with 'L)ndon. Investment in London was practically the only outlet available for the surplus funds arising out of the favourable balances of "trade, and it was of the utmost importance to the commerce and finance of the country that remittances in either direction should be effected without risk of fluctuations in exchange. These considerations constituted the strongest possible case in favour of the maintenance of the existing parity with the pound sterling.

The situation has now become clearer since the export of gold from the United States has been permitted, and, theoretically, it would be possible to place Egyptian currency on a gold parity by issuing notes at a rate based on the American exchange with London and depositing the corresponding cover in New York. But the amount of Egyptian liabilities represented by investments abroad has now expanded to so great an extent that such a step, taking into account the heavy fall in the American exchange, would expose bankers and others to losses which would be far beyond their power to meet. The note issue alone, in which the responsibility of the Government is involved, represents an immense liability, apart from that which would be incurred in other directions through a measure which would, in effect, enhance by many millions the value of the "claims of creditors to the detriment of debtors. This practical aspect of the question must evidently outweigh in importance the considerations in favour of a reversion to the gold parity in the present state of the world’s exchanges. The only course which commends itself as reasonable in the general interest of the country is the maintenance of the present policy in the confident hope that exchange conditions in Great Britain will gradually return to the normal.

The advantage which might be derived from placing the exchange on a gold parity is, moreover, susceptible of exaggeration. A stable exchange with America would imply at present instability of exchange with the United Kingdom, which is the centre of the world’s exchanges and the largest exporter and importer in relation to Egypt. Stability of exchange with London is, therefore, a matter of greater importance for trade and banking than stability of exchange with New York.

The greatest advantage, however, which may be claimed for a readjustment of the exchange is that it would reduce the price of commodities in Egypt. It is undoubtedly the case that such a readjustment would react on the price of articles which are freely exported or imported. The price of cotton in particular should fall in an exact ratio to the difference in exchange. But a similar fall could hardly he expected in the price of commodities which are locally produced and consumed.

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