Lombard Street : a description of the money market eBook






Now, the only source from which large sums of cash can be withdrawn in countries where banking is at all developed, is a ‘bank reserve.’  In England especially, except a few sums of no very considerable amount held by bullion dealers in the course of their business, there are no sums worth mentioning in cash out of the banks; an ordinary person could hardly pay a serious sum without going to some bank, even if he spent a month in trying.  All persons who wish to pay a large sum in cash trench of necessity on the banking reserve.  But then what is ‘cash?’ Within a country the action of a Government can settle the quantity, and therefore the value, of its currency; but outside its own country, no Government can do so.  Bullion is the cash’ of international trade; paper currencies are of no use there, and coins pass only as they contain more or less bullion.

When then the legal tender of a country is purely metallic, all that is necessary is that banks should keep a sufficient store of that ‘legal tender.’  But when the ‘legal tender’ is partly metal and partly paper, it is necessary that the paper ’legal tender’—­the bank note—­should be convertible into bullion.  And here I should pass my limits, and enter on the theory of Peel’s Act if I began to discuss the conditions of convertibility.  I deal only with the primary pre-requisite of effectual foreign payments—­a sufficient supply of the local legal tender; with the afterstep—­the change of the local legal tender into the universally acceptable commodity cannot deal.

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