THE modern system of banking in England is still regulated by the principles laid down in the Bank Charter Act of 1844, though in some respects the working of the Act has been modified by changed conditions. The Bank of England has become, as it was clearly intended by the Act that it should become, practically the sole bank of issue. By the end of the nineteenth century only thirtythree private banks and twenty-seven joint-stock banks with the right of issuing their own notes remained in existence, and the total value of the notes issued by them only amounted to £1,169,760-less than half the amount they were authorized to issue by the terms of the Act. The note circulation of the country now is supplied entirely by the Bank of England and its branches; notes issued at a particular branch are payable in cash only at that branch or in London, and bank-notes issued at the head office cannot be cashed on demand at the branches. The branch banks carry on all the ordinary business of local banking. They receive deposits payable on demand, and they lend money in various ways-by opening credit accounts in their books, by discounting bills, by purchasing or advancing money on securities, etc. One of the most important services they perform is the remittance of the revenue which is paid in to them, credit being then immediately given for the amount in the Exchequer account in London. Private and joint-stock banks now

treat bank-notes-that is, the credit they have at the Bank of England-as their capital, and depend upon the Bank of England for their gold reserve, keeping only enough cash in hand to supply their current needs.

One great change that has taken place in the financial world since 1844 has been the enormous development of credit, in which the banks have played an important part. Formerly on making deposits, people used to lodge coin in a bank, the bank allowing them notes to the amount of the money deposited. Now the money placed in the banks consists for the most part of some form of credit; the bank lends money, discounts bills, etc., and takes in exchange for the money it hands over some sort of paper security, while debts are generally paid by the transference of credit from one person to another. Bagehot notes the great extent to which English trade was, when he wrote, carried on with borrowed capital: "In modern English business, owing to the certainty of obtaining loans on discount of bills or otherwise at a moderate rate of interest, there is a steady bounty on trading with borrowed capital and a constant discouragement to confine yourself solely or mainly to your own capital," and he notices that one result of this is what he describes as the increasingly democratic character of English trade-the substitution of a large number of new firms with small capital for the long-established firms of earlier days. The banks, by the facilities which they have given for the distribution of capital, have had great influence in bringing about this change, though they have not, as is sometimes supposed, any direct influence on the formation of capital; by the extension of credit they can make a given amount of capital go a great deal farther than it would go otherwise, because they can keep it continuously employed, and prevent it from lying idle.

The instruments of credit, by means of which this work, is carried on and the use of coin economized, are notes,

cheques, bills of exchange, and other forms of securitiesall, however, having this feature in common, that they are dependent for their value and acceptability on the facility of their conversion into coin, or on the certainty that coin can eventually be obtained for them.

A bank-note is a "promissory note, made by a banker, payable to bearer on demand and intended to circulate as money" (Chalmers). The special feature of notes is that the responsibility for cashing them rests entirely with the bank of issue, quite regardless of the solvency of the individuals who hold and pass them. At the present time, when the only notes in circulation are the legal tender notes of the Bank of England, people are accustomed to regard them as actual money, and there is a tendency to overlook the fact that they have a credit aspect as well, for they represent credit at the Bank of England, and are only accepted as money because the public has absolute confidence in the power of the Bank to cash on demand any notes that may be presented to it. A cheque is a draft or a bill on a banker payable on demand. In this respect cheques are like notes, but they differ from them in the following ways:-(1) they are not legal tender, and hence they need only be accepted in payment of a debt at the pleasure of the creditor, and cash for them can only be legally demanded at the bank which issues them; and (2) the convertibility of cheques into legal tender money depends upon the solvency of the drawer of the cheque as well as on the solvency of the bank. The bank is under no obligation to cash a cheque if the drawer of the cheque has overrun his account, and so has no money in the bank to meet it; or, in other words, the money used to cash the cheque is not taken from the general funds of the bank, but merely from the money placed to the account of the individual who draws the cheque. Thus there is not the same certainty of or facility for obtaining money in exchange in the case of cheques as in the case of

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notes, but for that very reason there is less chance of fraud and robbery, for they can be more easily traced, and a cheque is in itself a receipt and record of payment. Moreover, cheques are more convenient, for they can be made out for any amount, whilst notes are only issued for round sums, and a cheque is more easily and safely carried about than a roll of bank-notes. The use

of cheques has increased greatly since 1844, and, as has been already explained, has prevented the inconvenience that would otherwise have arisen from the restriction of note issues. By far the greater number of cheques are never presented for payment at all, but are crossed off against one another in the Clearing House.

A bill of exchange is "an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person, or to bearer (Byles). Bills of exchange are used to transmit money from place to place and to transfer debts from one person to another, and, like all other forms of credit, they economize the use of coin. Bills of exchange, as credit instruments, are not so distinctly money as either notes or cheques, for they are issued not always against actual money, but against produce "on the point of passing into consumption," or, in other words, against goods ready for sale, but not yet actually sold; hence, as the transaction which gives rise to the bill is not completed when the bill is issued, it is only convertible into money at a future date. It is generally possible, however, to convert it into money at once, but not for the full amount, for it is necessary to pay for the accommodation of getting ready money for a future claim; so when a bill is discounted-that is, when ready money is paid for a bill due at a future date-a percentage is

deducted according to the time that it has still to run before falling due. This facility for obtaining ready money on debts due at a future time enables a trader to carry on a much more extensive business than he would otherwise be able to do. Bills are also of use in fixing definite periods for the payment of debts and affording easy proof of the debt in a court of law. the other hand, the facility with which they can be drawn involves in itself an element of danger, for it has been found possible to carry on a profitable business by issuing them not only against actual produce but in anticipation of produce-to issue them, for instance, against goods not only unsold, but not yet ready for sale; or, by a further step, to create bills out of nothing at all for the mere purpose of discounting them and getting ready money. The name of finance bills is given to a large class of bills issued on securities only, which often cannot be easily converted into money, and it is very difficult to tell from the form of a bill whether there is any real value behind it. In dealing with bills the bill brokers form an intermediary class, whose work it is to buy bills from those who have them to sell and to dispose of them to bankers or to other merchants. In modern times the credit of the bill broker is a matter of the first importance, for the broker, in accepting a bill and passing it on, endorses it as a guarantee of its ultimate payment; his name often bears more weight than that of the original drawer of the bills, and instead of relying, as in former days, on the value of the bill itself, people rely now on the judgment and good faith of the broker who guarantees and passes it.

Other forms of security which are used as credit are promissory notes, Exchequer bills, bonds of foreign Governments, shares in companies, etc.; in fact, acknowledgments given on money invested in any form of public or private enterprise. Government securities