International Finance

which this process of investment is carried out, and international finance

into as many different countries as possible, so that the risk of loss owing to climatic or other disturbances might be spread as widely as possible. So here we have this quiet country doctor spreading all over the world the money that he gets for dosing and poulticing and dieting his patients, stimulating industry in many climates and bringing some part of its proceeds to be added to his store. Let us see how the process works. First of all he has a bank, into which he pays day by day the fees that he receives in coin or notes and the cheques that he gets, each half year, from those of his patients

h it is drawn, and "accepted" by it, that is signed across the front to show that the firm drawn on will pay the bill when it falls due. These bills of exchange, when thus accepted, are promises to pay entered into by firms of first-rate standing, and are held as investments by English banks. Bills of exchange are also drawn on English houses to finance trade transactions between foreign countries, and also as a means of borrowing money from England. When they are drawn on behalf of English customers, the credit given is given at home, but as it is (almost always) given in connecti

eet it and defeat it. If the war teaches us to work hard and consume little, so that when peace comes we shall have a great volume of goods to export, there is no reason why the bill on London should not retain much if not all of its old prestige and supremacy in the marts of the world. For we must always remember that finance is only the handmaid of industry. She is often a pert handmaid who steals her mistress's clothes and tries to flaunt before the world as the mistress

was created only to a small extent by any supremacy in London's financial machinery; it was based chiefly on the supremacy of England's world-wide trade, and on our readiness to take goods from all nations. The consequence of this was that traders of all nations sold goods to us, and so had claims on us and drew bills on us, and bought goods from us, and so owed us money and wanted to buy bills drawn on us to pay their debts with. So everywhere the bill on London was known and familiar and welco

has grown up in almost complete freedom from legislation, and it has consequently been able to grow, without let or hindrance, along the lines that expediency and convenience have shown to

that note issuing was already becoming a comparatively unimportant part of banking, owing to the development of the use of cheques. Nowadays, when borrowers go to the Bank of England for loans, they do not want to take them out in notes; all they want is a credit in the Bank's books against which they can draw cheques. A credit in the Bank of England's books is regarded by the financial community as "cash," and this pleasant fiction has given the Bank the power of creating cash by a stroke of its pe

of so many millions to its holding of securities and a similar addition to its deposits. It may sometimes happen that the borrowers may require the use of actual currency, and in that case part of

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14,553,000 Government

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485,605 Gold and S

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llowed, if they have an office in London, to issue notes at all, but in all other respects they are left free to conduct their business along the lines that experience has shown them to be most profitable to themselves, and most convenient for their customers. Being joint stock companies they have to publish periodically, for the information of their shareholders, a balance sheet showing their position. Before the war most of them published a monthly statement of

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tock Exchange, the bills of exchange that it holds, its investments in British Government and other stocks, and the big item of loans and advances, through which it finances industry and commerce at home. It should be noted that the entry on the left side of the balance sheet, "Acceptances," refers to bills of exchange which the bank has accepted for merchants and manufactur

ith connections in foreign countries, and at home, through which they place their names and credit at th

e, to whom the English merchant is liable for its due payment. The Argentine merchant, having drawn the bill, sells it to the Buenos Ayres branch of a South American bank, formed with English capital, and having its head office in London. It is shipped to London, to the head office of the South American bank, which presents it for acceptance to the accepting house on which it is drawn, and then sells it to a bill broker at the market rate of discount. If the bill is due three months after sight, and is for ￡2000, and the market rate of discount is 4 per cent. for three months' bills, the present value of the bill is obviously ￡1980. T

ge in this business), is the fact that they are assisting trade, and could not live without trade, and that trade if deprived of their services would be gravely inconvenienced and could only resume its present activity by making a new machinery more or less on the same lines. The bill whose imaginary history has been traced, came into being because the drawer had a claim on England through a trade transaction. He was able to sell it to the South American bank only because the bank knew that many other people in Argentina would have to make payments to England and would

TNO

2

and putting every pound that he can save into the hands of the British Government by subscribing to War Loans and buying Exchequer bonds. He