Certain general regulations adapted the thirty-two existing independent1 banks of issue to the new system. The exclusive right of issuing bank-notes was then given to them and to the Reichsbank, with a provision for transferring to the latter any right of issue which may be surrendered by any of the others. No limit was fixed for the aggregate circulation, but the possible aggregate of notes which could be issued without being covered by cash in hand was fixed at 385,000,000 marks. This total was then apportioned among

1The banks which are here called "independent" are often designated as "private banks," to distinguish them from the Reichsbank. But as they are incorporated, the term "independent" appears less likely to be equivocal for American readers.

1 As to this apportionment see Soetbeer's Bankverfassung, in Bezold, as above, p. 273.

The application of these provisions is best seen by reference to the accounts of the Reichsbank. The limit of uncovered issue allowed to the Reichsbank by the original apportionment was 250,000,-000 out of the total 385,000,000 marks. Fifteen other banks, however, declined to issue notes under the conditions required by the law and ten more withdrew their issue before 1894; so that by the transfer of these abandoned rights of issue, the uncovered limit of the Reichsbank was raised to 293,400,000 marks. The significance of the limit may be understood easily by taking any account of the Reichsbank, as for example that of March 23, 1900. As the notes then outstanding were 1034.4 millions, and the cash reserve 895, the notes exceeded the cash by 139.4; but as the allowed limit of uncovered notes was then 293.4, the Bank could still increase its issue by 154 million marks, without subjecting itself to the five per cent. tax. It should further be noted that the circulation could have been increased by more than 1600 million marks before encountering the absolute limit of the one third rule. The distinguishing novelty of the German law, however, is the important provision by which the tax of five per cent. is imposed upon any excess of notes above the uncovered limit, not offset by cash in hand. The law makes clear the general design of the lawmaking power, to secure the protection of all issues beyond a certain point by cash, and the tax of five per cent. was designed to effect this object, under ordinary circumstances, by taking away the inducement for carrying the issues beyond the line at which taxation begins. But the law has at the same time left open the possibility of an extension of circulation beyond the line thus indicated, whenever the reasons for such extension are strong enough to outweigh the tax. A certain degree of elasticity is thus gained at the point where, under the English law, the rigidity of the line drawn by Peel's Act has sometimes presented a serious dilemma. In the familiar case then of a commercial pressure, when the demand for loans is imperative and the market rate is high, it is possible for a bank, under this regulation, to meet the necessities of borrowers and thus to relieve the public apprehension, although it is practically forbidden to reap any important profit from this action. In the absence of any such pressure it was anticipated that the issues would be kept within the line, and that the business of issuing notes as gold accumulates, and of paying out gold as notes come in for redemption, would go on naturally and automatically.

In these provisions for the issue of notes are easily traceable the general outlines of the English Bank Charter Act of 1844. The suggested absorption of the entire right of issue by the Reichsbank, emphasized as it is by a provision that the government upon giving due notice may withdraw the right from any bank in 1891, or at the end of any decade thereafter; the fixed limit of notes to be issued without specie; and the automatic arrangement for the issue of notes against cash above that limit, - all are closely copied from the English model. But there are striking differences which are of fundamental significance.

The requirement that the cash shall amount in any case to one third of the notes is unusual, although the ratio thus insisted upon has long been familiar in discussions of banking. The notes of the German bank unlike those of the Bank of England are not secured by any special pledge of the specie or discounted paper which the law requires to be held for their protection. Not only does this paper as well as the specie remain in the possession of the issuing banks, but the law gives to the note-holders no special lien upon the paper or specie or right of payment in preference to other creditors. The law in short has simply provided by suitable measures that the affairs of each bank, including its issue of notes and the money and securities held by it, shall meet certain tests of soundness, believing that both the ultimate solvency of the bank and the prompt payment of its circulation are thus made secure. The credit of the notes is maintained by their strict convertibility and by the law which makes them everywhere current in payments to any bank of issue Every bank is required to pay its own notes on presentation; the Reichsbank also, under ordinary circumstances, pays its notes at its branches; and every independent bank is required to redeem its notes at an agency in Berlin or in Frankfort, as the government may determine, in addition to redeeming at its own counter. Every bank of issue is also required to receive at par in payment the notes of every other bank, with the provision that all notes thus received, except those of the Reichsbank, must be either presented for redemption, or used in payments made to the issuing bank or in the city where it is established. This provision, which imposes a safe restraint upon the smaller banks, is also significant from its tendency to allow the Reichsbank alone to obtain anything resembling a national circulation.