The advantages of the system are evidently of enormous magnitude. All the larger payments are made with a minimum of risk, loss of time, trouble, or use of the precious metals. While the cheque representing a payment is travelling about the country, the money which it is transferring is reposing in the vaults of some bank, or rather, not being needed in the operation at all, is lent or sent out of the country, so that its interest is saved. We found in p. 165 that the loss of interest upon the metallic money now circulating or stored up in the United Kingdom, amounts to between four and five millions annually. If payments were now made by coin only, many times as much metallic money would be needed.

The security with which the payments are effected is also an element of importance. Specie when transmitted in large sums, is always a temptation to thieves, and has usually to be accompanied by one or more guards. Through the agency of banks, whether by crossed cheques or credit notes, the largest payments may be made with almost absolute immunity from risk. The cheques, bills, and other documents transferred in the clearing houses are, as a general rule, so crossed or endorsed as to be of no value to any one but the legal owners, and in any case are regarded by thieves as duffer," with which they dare not meddle.

66

Proportion of Cash Payments.

It is surprising to find to what an extent paper documents have replaced coin as a medium of exchange in some of the principal centres of business. In the Statistical Journal for September, 1865, Sir J. Lubbock published some particulars concerning the business of his bank during the last few days of 1864. Transactions to the amount of £23,000,000 were effected by the use of coin and documents, as shown in the following statement:

PER CENT.

Cheques and Bills passed through the Clearing House 70.8
Cheques and Bills not cleared

23.3

The sums of money paid in by town customers amounted to £19,000,000, and when analysed gave the following results:

It is not for a moment to be supposed that these figures represent the average use of coin in banking transactions. The proportional amounts of different kinds of

money and commercial documents used in different parts of the country, in different trades, or in banks of different size and character vary widely. It is much to be desired that bankers and others who have the facts before them should publish more copious information on the subject. In Manchester the use of Bank of England notes appears to be much more extensive than in London. Mr. R. H. Inglis Palgrave gave in the Statistical Journal for March, 1873 (p. 86), an estimate prepared for him by Mr. Langton, the Managing Director of the Manchester and Salford Bank, of the proportion of cash payments made in that bank. It appears that coin and notes formed 53 per cent. of the total turn-over in 1859, 42 per cent. in 1864, and only 32 per cent. in 1872, so that a rapid decrease has been going on. But we find that in 1872 the amount of notes was still large, the turn-over of customers' accounts being thus composed :

1

I have endeavoured to form some notion of the comparative amounts of cheques and bills which are cleared off at successive points in the organization of the banking system. It is very desirable that we should learn what proportion the transactions of the Clearing House bear to the whole transactions of the banks of the kingdom. There would not be much difficulty in forming a fair estimate if we had from one or more banks

in each of the principal towns a statement of the comparative amounts of cheques dealt with in various manners. According to information kindly furnished to me by the authorities of one of the principal banks of Manchester, I find that, during the months July to October, 1874, the cheques and bills on demand presented on or through the bank were disposed of as follows:

Cheques paid in Coin and Bank-notes over the
Counter

PER CENT.

34.2

Cheques on Selves paid to Credit of Account
Cheques presented through Manchester Clearing

25.4

House

22.5

Cheques and Bills on demand on London presented
through London Clearing House

10.8

Cheques on Country Bankers presented through
the London Clearing House

3.5

Cheques on Country Bankers presented direct

3.6

100.0

Although considerable trouble has been spent in the preparation of this account, it seems doubtful whether the items are complete and correct, and I give it more as a specimen of the kind of information which is much wanted than as a reliable statement.

Cases to which the Clearing System is inapplicable.

It will now be sufficiently apparent that, so long as trade is reciprocal, the cheque and clearing system can arrange all exchanges without the use of coin. The values of goods are estimated and expressed in terms of

gold, which acts as the common denominator of value, but metallic money ceases to be the medium of exchange. The banking organization effects what I have heard Mr. W. Langton describe, as a restoration of barter. But it happens in some cases that transactions are not reciprocal, and cannot be made to balance. In certain trades there is a permanent set of the goods in one direction. In the Manchester cotton trade, for instance, the manufacturers in purchasing cotton from the Liverpool merchants, pay with cash or short credits. The goods when completed are often shipped again at Liverpool for foreign consignees at long credits, but are not generally purchased by the Liverpool merchants. Consequently, while the Manchester manufacturer owes the Liverpool merchant for the whole cost of the raw material, and for the shipping charges and freight upon the goods sent abroad, there are no equivalent claims of Manchester merchants against Liverpool. The foreign consignees of the goods pay for them by bills upon London. Now if the Manchester manufacturers held their funds in Manchester, and the Liverpool merchants their funds in Liverpool, there would have to be a constant current of money from London to Manchester, and from Manchester to Liverpool, whence it would go abroad to pay for the raw material. This inconvenient state of things is remedied to a certain extent, as we shall see in Chapter XXIII., by making London the head-quarters and clearing house both of home and foreign transactions. But there is always a liability that claims expressed in metallic money, and actually capable of being de