ally pays one-half of 1 per cent above Bank rate; and since Bank rate is, except on quite rare occasions, above the rates for loans and discount current in the outside market, it will be seen that this transfer of revenue funds to the Government's balance normally raises the current value of money during the period in which it is proceeding.

Dealers in credit, who are pinched in pocket by this habitual decrease in the supply of money at this season, cry out against the system, and maintain that the revenue ought to be distributed among the other banks until it is required for government disbursements at the end of the quarter, in the same manner as the United States Treasury deposits, when placed with the American banks, are divided among many. Such a change, however, would obviously strike at the very basis of the English system, which has grown up with all its anomalies into a very practical and trustworthy instrument. If the Bank of England were deprived of its privilege of holding the revenue as paid in, it would have to be remunerated more highly, not only for the other work that it does for the Government, but also for performing other functions for the community, which, as will be seen later, throw onto it responsibilities which hamper its earning power as a banker. If any alteration is necessary of an arrangement which causes chronic inconvenience to dealers in credit during the greater part of a quarter of the year, it would more naturally be found in a reorganization of the system under which most of the direct taxes are paid in one quarter. It has already been shown that the position of the Bank of England as government bank gives it a prestige in the eyes of the public, which it passes on to the

other banks which are its customers; and a banking system is so largely a psychological matter that the most radical reformer would hesitate before making any alteration which would tend to shake the basis of this prestige.

2. The second of the Bank of England's distinctive functions-its acting as banker to the rest of the English banking community-is the one which throws upon it its most serious responsibilities and gives it most of its actual power and ease in working. The Government gives it prestige in the eyes of the multitude, which considers that governments are omnipotent; the other banks give it the power of providing emergency currency by making entries in its books, and so acting as the easily efficient center of a banking system in which elasticity and the economy of gold are carried to a perfection which is almost excessive. Nevertheless, it pays heavily for its apparently privileged position as bankers' bank. At first sight it would appear that these customers, keeping a regular balance of twenty-odd millions, which varies little and on which the Bank of England pays no interest, were a source of comfortable income and no anxiety to it. But in the first place it is obvious that a liability which is regarded as cash by the rest of the banking community requires special treatment by its custodian, and in practice it is so specially treated that the Bank of England maintains a proportion of cash to liabilities which is fully twice as high as that of the strictest of the other banks. This proportion rarely is allowed to fall below 33 per cent and generally ranges between 40 and 50 per cent, and it need not be said that this high level of cash holding tells heavily on the earning power of the Bank of England.

Moreover, it is its position as bankers' bank that exposes the Bank of England to the responsibility of maintaining the gold reserve for English banking and being prepared to meet, in gold, any draft on London that anyone abroad who has acquired or borrowed the right to draw wishes to turn into metal to be shipped to a foreign country.

The amount of the bankers' balances is not separately stated, but is wrapped up in the total of the other deposits in the Bank of England's weekly return. It is believed to average about 22 millions in these days, and it is often contended that valuable light would be thrown on the monetary position if this item were separated from the balances of the other customers of the Bank. Many of the outer bankers are in favor of this change, but there is a serious practical objection to it, in that a dangerous impression might be created in the public mind if at any time it were seen that the Bank's cash reserve was below its liability to its banking customers; and the separate publication of the bankers' balances might thus check the readiness with which the Bank of England creates emergency credit. Another suggestion that is sometimes made by the many critics of the existing order of things in English banking is that the banks should keep their cash reserves themselves; but this very revolutionary change would deprive the system of its two great advantages, a centralized organization with a center which specializes on the duties involved by acting as center, and the extreme elasticity with which the present arrangements work. At the same time it must be admitted that the system by which the other banks treat their balances at the Bank of England

as cash leads to the existence of a vast amount of "cash" in England which on being looked into is found to consist of paper securities or promises to pay. If we assume that the proportion of cash held by the Bank of England is 50 per cent of its liabilities—it does not always stand so high-the other 50 per cent being represented by securities, this at once shows that only half the bankers' balances are backed by cash. And we shall see when we look into its weekly return that its cash in its banking department, of which the bankers' balances are a liability, consists largely of its own notes; and its own notes are backed, to the extent of about one-third, by securities. So that the actual gold held against these bankers' balances consists roughly of about two-thirds of a half of them, or one-third of their total. And when it is considered that these bankers' balances are treated by the bankers as equal to cash in hand and are made the basis of credit, on which they build liabilities ranging from five to ten or even in extreme cases to fifty times their extent, it becomes evident that the critics who maintain that the multiplication of credit and the economy of gold are carried too far in England have a solid foundation for their contention.

3. The Bank of England's monopoly of note issue, which once gave it the monopoly of joint-stock banking in London, is now a matter of comparatively minor importance, owing to the change in English banking habits by which the check has ousted the bank note for the purpose of daily commercial payments, and the regulations which were imposed on the note issue by the bank act of 1844. Its monopoly lay in the provision, which was one of its

early privileges, that "it shall not be lawful for any body politic or corporate whatsoever, or for any other persons whatsoever, united or to be united, in covenants or partnerships exceeding the number of six persons, in that part of Great Britain called England, to borrow, owe, or take up any sum or sums of money on their bills or notes payable at demand." This monopoly was conferred on the Bank in 1706 and was maintained until 1826, when the implied monopoly in joint-stock banking was restricted to a 65-mile radius around London. In 1833 joint-stock banks were established in London itself, since it had been discovered that the Bank of England's alleged monopoly only reserved to it the privilege of note issue, and the private bankers in London had already found that it was more convenient to banker and customer to work by the system of deposit and check. By this system a customer who took a loan from his banker did not carry away with him in the form of notes, but was given a deposit or credit in the bank's books and the power of drawing checks against it. The development of this system has made money in England mean, as a rule, a credit in the books of a bank which enables its holder to draw checks, and has made checks the chief currency of the country.

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The development of this system was quickened by the provisions of Peel's Act of 1844, which, under the influence of banking disasters that had arisen out of reckless note issuing by private banking firms in the counties, laid down an iron rule for the regulation of note issues in England. None of the other note issuers were allowed to increase their issues under any circumstances, and the Bank of