The much more important question of allowing the issue of fiduciary notes without limit, subject only to a fixed percentage of the total issue being held in gold, was argued as follows by the Committee. "If," it said, "the actual note issue is really controlled by the proportion, the arrangement is liable to bring about very violent disturbances. Suppose, for example, that the proportion of gold to notes is actually fixed at one-third and is operative. Then, if the withdrawal of gold for export reduces the proportion below the prescribed limit, it is necessary to withdraw notes in the ratio of three to one. Any approach to the conditions under which the restriction would become actually operative would then be likely to cause even greater apprehension than the limitations of the Act of 1844." It therefore unanimously decided that there were substantial objections to basing the note issue of this country on any proportionate holding of gold.
With regard to the plan of fixing a maximum absolute limit subject to the condition that this limit might be exceeded on payment of a tax, the Committee argued that unless the tax were fixed at a sufficiently penal rate to secure that the normal fiduciary issue is not exceeded except in the circumstances of real emergency,
