1 In 1895 the tax was paid for three weeks, in 1896 for six weeks, in 1897 for nine weeks, and in 1898 for sixteen weeks.

The act of 1909 also made the notes of the Reichsbank a legal tender. This attribute of notes issued by a central bank has little positive importance of a purely banking nature. In the experience of the Reichsbank the notes had been taken as readily as if they had been a legal tender, and although in discussions of the subject much was said of the importance of strengthening the Bank, it is certain that military considerations prompted the change. Upon the outbreak of the European War in 1914, the redemption of Reichs-bank notes was immediately discontinued, and every effort was made to substitute the notes for the coin in circulation. The making the notes a legal tender in 1909 was unquestionably a wise measure paving the way for the monetary arrangements which were to be adopted if the country should engage in a great war.

It was expected when the system was established in 1875 that the Reichsbank would ultimately absorb the issues of all the other banks, either through the relinquishment of these rights by the banks or in consequence of the intervention of the imperial government, but the seven independent banks which continued to exercise that privilege after 1893 did not appear likely to give up their issues. The Bank of Frankfort alone excepted, they were all outside Prussia, each in one of the other states of the Empire,1 holding a sort of territorial position, and sustained by the same influences which in so many other directions oppose the complete unification of the Empire. Their aggregatc-note-issue was small in comparison with that of the

1 They were the banks of Saxony, Bavaria, Baden, South Germany (Hesse), Württemberg, and Brunswick. The notes of the last could circulate only in Brunswick, since the bank refused to subject itself to the general restriction of the law of 1875.

Reichsbank, amounting to less than 200,000,000 marks, and their operations did not affect seriously its leading position among German banks. At the renewal of the charter of the Reichsbank in 1899, however, these banks were subjected to an entirely novel measure of restriction which at once led three of them to relinquish the privilege of issue.1 They were forbidden to discount at a rate lower than that of the Reichsbank when its rate is as high as four per cent., and were allowed to discount but one fourth of one per cent.2 below its rate when it is under four per cent. For an understanding of the purpose of these restrictions, it must be remembered that an increase of the rate of discount by a central bank will not accomplish the end in view unless the general rate for money in the outside market goes up as well. The rate of discount of the banks which issue notes had ranged somewhat below that of the Reichsbank, and their operations had no doubt rendered somewhat less effective its control of the market. But that the restriction upon their action greatly helped the Reichsbank may be questioned, as the general market rate of discount in Germany is chiefly influenced by the action of banks which do not issue notes, and whose operations have not been regulated in this matter by law.

1 The banks of Saxony, Bavaria, Baden, and Württemberg continued to issue notes.

2 The Reichsbank must not cut its official rate when it is as high as four per cent., and when below four per cent. must publish its actual as well as its official rate, and then the other banks may discount one eighth of one per cent. below its actual rate.

The use of notes is still far more important in Germany than in English-speaking countries, though deposit banking has been increasing rapidly in recent years. A considerable number of joint-stock banks, many of which were originally established primarily to facilitate the organization and development of large corporate enterprises and the sale of their shares to the public, have developed the business of deposit banking upon a great scale. The relations of these banks to the Reichsbank are analogous to, though in some respects strikingly unlike, those of the London joint-stock banks to the Bank of England. The German deposit banks do not maintain large reserve balances with the Reichsbank but resort to it for re-discounts whenever they experience any considerable demand for money. The Reichsbank possesses the only available store of specie in the country upon which the German banking world can rely to meet any extraordinary demand.1 The policy of the Bank is therefore primarily determined by the necessity of guarding its reserve, not because it issues notes, but because the credit system of the country is built uponthe foundation of specie in its vaults. The right of issue has given the Bank prestige, and has been an important factor in the accumulation of the large store of specie in its possession; but the dangers of its depletion, against which the Bank must be ever on its guard, do not come from the note-holders, but are due to its central position in the German money market. Like the Bank of England, the Reichsbank resorts to the variable rate of discount to protect its reserve, raising its rate in times of danger in order to restrain the extension of credit and check the outflow of specie. The importance of the action of the Bank in this matter is clearly-recognized in Germany, though at times, like the Bank of England, it experiences difficulty in bringing the outside rates of the general money market up to a close approximation with its own rate. The French method of the premium on gold, though strongly urged upon the Bank, has never been adopted, its managers pointing out that the present policy has been successful in the past for the accumulation and protection of its stock of specie.1

1 The other note-issuing banks must, to be sure, keep their own reserve against their notes, but their aggregate holdings of specie do not commonly rise much above 80,000,000 marks.