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if Government is empowered to reduce the ratio in time of
emergency, the use of that power will have the same effect
on the confidence of depositors as if Banks themselves had
otherwise fallen below the statutory ratio. In fact the
only measure which would be of radical effect in time of
crisis is a moratorium, so long as reserves held are less
than one hundred per cent. of deposits; and in the
general interests of the country it cannot be desirable
to allow panic withdrawals in times of crisis when the
depositor will remove his money from the Bank only to
hoard it. The purpose of a reserve is that it should be
used in the circumstances for which it has been created.
A Bank does not keep its liquid assets to show that it
has them but in order to pay out its depositors. In
actual practice, therefore, a fixed ratio of liquid
reserves to deposit liabilities will not prove effective
in attaining its object.
50. It is also difficult for the legislator to
define liquid assets generally as the varying circumstances
of individual Banks influence the degree to which assets
can be converted into cash. Moreover, however gilt-edged
the security in normal times, such securities may not be
readily convertible into cash in abnormal times. They
might however for instance in such times be more readily
convertible in the hands of Banks which had arrangements
for depositing securities with the Currency Board against
payment in cash on demand by the Currency Officer or
which could make arrangements in the City of London or
with other Banks for accommodation against such securities
than in the hands of a Bank which had no such arrangement.
It must be remembered that in Palestine at present the
smaller Banks hold practically no marketable securities.
Bills