that so long as all the merchants of a town keep their cash with the same banker, they have no need to handle the money at all, but can make payments by transfers in the books of their banker. Let us imagine, then, that merchants all over the world agreed to keep their principal accounts with the bankers of any one great commercial town. All their mutual transactions could then be settled among those bankers. An approximation to such a state of things exists in the tendency to make London the monetary head-quarters of the commercial world, and the general clearing house of international transactions.

All that is needed to secure economy of money is centralization of transactions, so that there may be the wider scope for the balancing of claims. Before the elaborate system of English provincial banking grew up, considerable economy was effected by the practice of "drawing upon London." In every country town many persons wanted to transmit money to London, and others wanted to draw money from the same place. To vast private trading transactions with the capital and principal commercial towns was added the whole of the payments connected with the collection and expenditure of the public revenue. In each country town some prominent trader discovered that profit was to be made by selling bills on London to those who wished to remit, and buying with the proceeds the bills of those who had claims upon banks or firms in London. The capital thus becoming the monetary centre, it was often convenient to make payments to other towns by bills upon

London. Each person wanting to remit was more. likely to get a bill upon London with ease than upon any other place, and it was likely that the creditor would prefer such a bill to one upon a town with which he had no relations. It is obvious that if every important trader in England kept his principal cash with a city banker, the use of bills on London would have enabled all the commercial transactions of England to be centred in, and cleared through the books of these bankers and the Clearing House.

Centralization of Financial Transactions in London.

There is a similar advantage in centralizing foreign transactions in London. In the absence of any general centre each two commercial towns must settle their mutual transactions directly and separately. A merchant will be receiving bills upon the bankers and merchants of many other towns. There is a double inconvenience in this. The supply and demand for bills upon comparatively small places must be comparatively small and variable, and the bills will be drawn upon minor firms, of the soundness of which it will not be easy to get satisfactory information. Many firms, too, in the present day have houses in several parts of the world, and it would be more convenient that their mutual transactions should be brought to a centre somewhere, just as the transactions of branch banks are brought to a centre in the head office. Thus there arises a tendency to prefer bills drawn upon well-known London banks,

or other great London firms, whose credit is known all over the world, and ceteris paribus, such bills will command a readier acceptance in the exchange market. Persons having to draw bills will get a better price if they can draw upon London, which they can do by opening an account with a London firm, and arranging that remittances due to them shall be deposited to their credit in London. It comes to pass that a merchant in America, Australia, or India, will prefer to receive money in London rather than anywhere else. Everyone wishing to remit money can then do so in the form of a bill upon the holders of these funds in London, and the fund will be recruited from time to time by similar bills received and transmitted to London for collection.

This tendency to the centralization of financial business in London is much promoted by the fact that the largest mass of cheap loanable capital exists there. The general rate of interest in New York is at least 2 per cent. higher than in London, so that a trader who has credit enough to obtain loans in London, will make a profit by borrowing there rather than in New York. Thus, instead of first depositing money in London, and afterwards drawing against it, the more usual and profitable form of the transaction is to get a credit there, that is, leave to draw against a banker, making subsequent remittances to recoup the banker accepting and paying the bills. As regards continental trade, Paris, Berlin, Vienna, Hamburg, and Amsterdam are of course highly important centres, but recent wars have occasioned a considerable transfer of financial business

to London. Moreover, the great foreign trade of England, reaching into every quarter of the globe, and the many distant colonies and dependencies which naturally have financial relations with the capital of the empire, tend to give London a unique position.

Representation of Foreign Bankers in London.

The result of this centralization of banking transactions in London, is that colonial and foreign bankers find it very desirable to have agents, or even head offices in London. At the present time there are no less than 60 important colonial and foreign banks which have their own London offices or houses. These include the principal Australian, New Zealand, and Indian banks, and a number of minor banks, established by English capitalists to cultivate the trade of the minor states of Europe, South America, China, and the East. In addition to the above 60 banks, there are fully 1000 foreign and colonial banking houses in correspondence with London bankers, so that almost every town in the world which can maintain a bank at all, has the means of correspondence with some member of the London banking system. The foreign bankers vary greatly in the importance of their transactions, and some of them would, according to English ideas, be considered merchants rather than bankers; but, in the aggregate, their transactions must be exceedingly large. It must almost inevitably follow that transfers of money will be more and more made through London. Just as this

city is the link of connection between each English country banker and each other one, so it may, and probably will by degrees, become the link between the most distant parts of the world. But the greater becomes the profitable burden of financial business thrown upon Lombard Street and Threadneedle Street, the more it behoves us to take care that our currency system is maintained upon the soundest possible basis. It is requisite, too, that our bankers, financiers, and merchants should regulate their operations with a thorough comprehension of the immense system in which they play a part, and the risks of derangement and failure which they encounter by over-severe competition. No one doubts that alarming symptoms have during recent years presented themselves in the London money market. There is a tendency to frequent severe scarcities of loanable capital, causing sudden variations of the rate of interest almost unknown thirty years ago. I will therefore in the next chapter offer a few remarks intended to show that this is an evil naturally resulting from the excessive economy of the precious metals, which the increasing perfection of our banking system allows to be practised, but which may be carried too far and lead to extreme disaster.