BY F. STRAKER FELLOW OF AND LECTURER TO THE BANKERS’ INSTITUTE AND LECTURER TO THE EDUCATIONAL DEPARTMENT OF THE LONDON CHAMBER OF COMMERCE THIRD EDITION METHUEN & CO. LTD. 36 ESSEX STREET W.C. LONDON...

The present position of the Money Market in this country so enters into the life of the people as a thing that is , that few trouble themselves to inquire how our monetary system came to be what it is, how it was founded, grew, and developed into its present state. Whether people are aware of it or not, the stability and condition of the Money Market of a country influences the lives of all—rich and poor alike—and the material well-being of all is largely dependent upon it. Before proceeding to

In tracing the history of our financial system we now come to the important event of the establishment of the Bank of England. About the year 1691 the Government of William and Mary experienced considerable difficulty in raising the necessary funds to prosecute the war with France; but “the hour brings the man.” The man on this occasion was William Paterson, a merchant of Scotland, who had been educated for the Church, but had led a varied and adventurous life. The scheme he presented for the co

We have already seen that elementary banking operations in the country were carried on by the Jews, who in course of time were succeeded by the Lombards, and that then the business, such as it was, drifted into the hands of the goldsmiths. During the more settled years of the Commonwealth the need of banking accommodation was keenly felt by merchants and traders to enable them to carry on their business, and as demand creates supply, the goldsmith bankers increased in number—and in wealth. There

After the renewal of the Charter in 1833, the directors of the Bank of England laid down as a principle on which their future operations were to be guided, that one-third of their liabilities should be kept in cash and bullion, and the remaining two-thirds in securities. If this principle had been acted on, the Bank would have been saved from many of the troubles which shortly assailed it; but though the intentions of the directors were good, circumstances were too strong for them, and the actua

Before proceeding to examine the Money Market and banking system of more modern days, it will be well to glance at the causes which contributed to the predominance of London among international financial centres, and made it the clearing house of the world. At the present time this predominance is being assailed from several quarters—notably Paris, Berlin, and New York—but there is no doubt that London still holds a good lead, and with knowledge, activity, and perseverance there appears to be no

Having now surveyed the history and development of our financial system up to a point when “system” can really be said to have started, and also having glanced at the causes which have placed London in the forefront of all financial centres, we will consider the formation, as a whole, of what is called the “Money Market”; and then more carefully examine certain of the more important factors which help to form that market. There is no definite “market” for money in the sense of a “place of purcha

In a previous chapter we saw that under the Act of 1844 the Issue Department was to be separated from the Banking Department, and that it was at liberty to issue £14,000,000 of notes against securities, of which the Government Debt, amounting to £11,015,100, was to form a part. Any issue of notes above this amount of £14,000,000 was to be secured by an equal amount of coin or bullion, with the proviso, however, that the issue of notes against securities might be increased from time to time to th

Turning now to the return of the Banking Department, the first item which appears is Proprietors’ Capital , which stands at the enormous figure of £14,553,000—enormous in itself, and enormous in comparison with the capitals of other and competing banks. From the original sum of £1,200,000 with which the Bank commenced business in 1694, the capital has gradually increased until it amounted to the present figure in 1816, since which year there has been no alteration. The Rest in the Bank of Englan

We have already seen in dealing with the Bank of England that the formation of a bank with more than six partners was supposed to have been expressly prohibited by the Bank’s Charter. The direct result of this presumed prohibition was the establishment throughout the country of a large number of small private banks. Many of these were institutions of credit, ably managed and backed with a fair capital; but the majority of them were weak, and in times of trouble proved a source of danger and loss

The object of a joint-stock bank is to pay a dividend on its share capital at a rate as high as can be earned consistently with the performance of the main obligations of such a bank, that is, the safeguarding of moneys deposited with it by customers, and of capital subscribed by shareholders. With regard to moneys deposited, it must be borne in mind that the relation of banker and customer is that of debtor and creditor; and as the bulk of a banker’s liabilities is repayable in cash on demand,

The business of the bill-broker is one that has grown up during the past century—chiefly during the latter part of it. A bill-broker acts the part of an intermediary between banker and merchant. At first glance the need of such an intermediary is not very apparent, considering the large number of banks now in existence which keenly compete for business. On looking further into the matter, however, the importance and utility of the bill-brokers, both to banker and merchant—that is, to those who w

A work dealing with the subject of the Money Market would not be complete without reference to the Clearing House—the institution by which our enormous financial operations are adjusted. Without such arrangements as are carried out so practically and automatically by the Clearing House, it would be impossible to carry on our present trade, and our banking system could not have developed into such a high state of efficiency as we at present find. Although our Clearing House has now been establish

in the course of this book reference has been made on several occasions to the influence on the Money Market of the foreign exchanges. It will be impossible in the course of a short treatise such as this to enter fully into details and technicalities. Anyone wishing to obtain a fuller explanation of the subject cannot do better than study Mr. George Clare’s book entitled The A B C of the Foreign Exchanges . Bills of exchange have been used in settling commercial transactions since very early tim

the Money Article of the daily Press is regarded so much as a part of the usual information provided for the public, that few readers pause to consider the large amount and far-reaching character of the information which is supplied therein: information gathered from all quarters of the globe—sifted, summarised, and placed before the public in a concise form. The amount of practical and useful knowledge derived from a perusal of Money Articles depends entirely upon the reader. Without some knowl

In the course of this book we have briefly surveyed the rise and development of the banking system of England. We have studied the establishment and growth of the Bank of England, the gradual elimination of the private banker, and the wonderful development of joint-stock banking, and we have noted the causes which led to London becoming the financial centre of the world, and also the various factors which constitute our Money Market. From a weak beginning we have seen our system of finance devel

Since the remarks concerning the Gold Reserve were written ( chapter xiv .) much interest has been aroused in the matter by a suggestion made by Mr. J. Herbert Tritton, the President of the Institute of Bankers. At the opening of the last session of the Institute (November, 1903) the President, in his inaugural address, after referring to many current and important topics, passed on to the subject of the visible gold reserves, and made the following novel suggestion. By Mr. Tritton’s courtesy hi