The success of this course of action has been, in part but not mainly, due to the advantage enjoyed by the Bank of France, as a debtor, under the bimetallic system of the Latin Union.

Having the legal right to make in silver any payments which it does not care to make in gold, the Bank is able to protect itself against any demands for the latter. The harshness of this policy, which if strictly carried out would isolate the interests of the Bank to the great inconvenience and disadvantage of the community, has been softened by the practice of making gold payments at a premium in cases where such concession appeared advisable. The line which separates such a practice from a depreciation of the local standard is narrow, but the Bank of France appears to have managed this delicate business with such caution as to be able to satisfy the occasional strong demand made upon it for gold, without disturbing in any serious degree that sensitive index, the rate of exchange upon London.1

1 "La Banque de France, grâce à notre régime monétaire qui permet de payer en or ou en argent, a pu réduire les sorties d'or a ce qui àtait réellement nécessaire aux besions legitimes du commerce international.

"La prime defensive sur l'or a montré une fois de plus son efficacité, elle nous a permis de maintenir le taux de l'escompte le plus stable et le plus modéré du monde entier, sans gêner en variable and on the average somewhat higher discount rates in Paris than it has been found possible to maintain through the protection afforded by the premium on gold.

This gold premium device is an effective means of preventing withdrawal of gold for export at any given moment. It has also been one, though by no means the most important, of the influences which have occasioned the inflow and retention of the additional gold which has been acquired by the Bank of France. The share of France in the distribution of the world's stock of gold is a resultant of all the various influences which have shaped the economic situation and determined the financial position not only of France but of all other countries as well. If Paris had maintained a free gold market, it would have experienced a far more considerable demand from foreign borrowers for short-time loans. On the assumption that such accommodation had been granted to the extent of many hundreds of millions of francs and to an increasing extent during the last twenty years or more, it is certain that gold would have been somewhat differently distributed throughout the world, a little less in France, a little more elsewhere. To check this tendency it would have been necessary in periods of intense demand for loans to advance discount rates. By this means virtually the same result could have been reached, but it would have involved more aucune façon les affaires puisque le change sur Londres ... est tou jours rest6 trés voisin du pair." - Compte Rendu au Nom du Conseil Général de la Banque, 1897, p. 12.

For some account and criticism of this policy, see George Clare, Money Market Primer, pp. 110-115.

It has not been possible to maintain an invariable rate of discount, but changes have been far less frequent and rates have not been advanced so far as in London or Berlin. In those countries the policy of a low. stable discount, rate could hardly have been adopted with safety owing to the spirit of active enterprise which pervades the business community. In France with its stationary thrifty and, generally speaking, financially conservative population, the policy has not been out of accord with the business situation. But the obvious advantages of relatively low and stable rates for loans to the industry of the country have not been secured without loss of other advantages. The gold premium policy has deprived Paris of the place which it would otherwise occupy among the international money markets. This consequence of the gold premium policy is recognized, but opinion is widespread in France that it is not too high a price to pay when account is taken of the benefit of the low stable rates to the large number of small-scale producers and dealers which is still a characteristic feature of French economic organization.

A large part of the loans made by the Bank of France upon commercial paper take the form of a rediscount of paper, on which advances have already been made by the banking houses which are the immediate customers of the Bank. The endorsement by the banking house offering such paper gives the third signature required by the statutes,1 and the difference between the rate charged by the endorsing names to the original borrowers and that charged by the Bank for rediscounting is the profit reaped by the intermediaries, who thus give the paper the added strength of their names. It is a natural, if not a necessary, result of this system of operation, that the Bank, both in Paris and in the country, is a lender on a large scale to the class of small traders, as is shown by the vast number of bills of exchange discounted, by it, and by their small average amounts.2 The rate charged by the Bank for advances made upon collateral security is higher by one per cent, than its published rate of discount, but even of the advances a considerable fraction is made up of sums not exceeding 500 francs, the minimum being fixed at 250 francs. Experience has shown that the business thus carried on with the class of small dealers is singularly free from loss, and generally steady in its movement, and it is for the interest of all concerned, as well as a matter of some moment to the general public, that the vast body of actual borrowers thus ultimately depending upon the Bank should be as little disturbed as possible by changes of rate and uncertainty of accommodation.

1 In 1897 a motion to authorize the Bank to discount paper with two good signatures was rejected after debate in the Chamber by a vote of 295 to 255. - Journal Officiel, June 16, 1897, p. 1540.