It is important for a banker to know the position and liability of each party to a bill, so that, if necessary, he may be able to sue the right persons.

When an inland bill is unpaid, it is considered advisable to have the same noted, but foreign bills are both noted and protested. The latter course should always be adopted for foreign bills, but there is a tendency for inland bills not to be noted.

Our modern system of credit has been the means of utilising bills in order to obtain capital from the banks. This is effected by means of bills which, as a rule, are drawn by foreign correspondents, who deposit securities to cover the advances so obtained. They are known as acceptances, and are readily discounted by the bill brokers, and are known in the market as bank acceptances.

Mr. Dun has subdivided acceptances into the following classes: 1. Drafts of seven, fourteen, or twenty-one days drawn by country bankers for the purposes of remittance.

2. Acceptances up to ninety days against credits established by banking correspondents in the country.

3. Acceptances on account of foreign and colonial banks having head offices in London.

4. Acceptances to mercantile firms and companies abroad. Mr. Dun believes that the third class ought to be kept within bounds, and that the fourth class ought to be avoided altogether.

With regard to acceptances, there is always an element of danger, especially when a feeling of distrust exists in the mercantile world.

A bank which is perfectly solvent may have accepted a large number of bills against which it holds sufficient cover. When, however, a crisis occurs, the bills which have been accepted by that bank may be refused in the market, especially if there are a large number offered for discount. If this occurred the bank's credit may be materially injured, and, as a natural consequence, it may possibly lead to its failure.

One of the noticeable facts in connection with the City of Glasgow Bank's failure was that within a week after its acceptances had been refused in the market its suspension occurred.

Another risk with regard to acceptances is, that many changes may occur between the interval of acceptance and the day of payment.

The chairman of the London and Westminster Bank stated some time ago that "acceptances drawn by mercantile firms abroad is part of the business that ought to be carried on by a merchant or merchant banker".

It has been represented by those who are in favour of acceptances that if the business is kept within bounds it is perfectly safe, and those banking institutions which have transacted such business have made few losses. Of course, it is important that acceptances should be fully covered by means of the deposit of good securities in case of loss.

Acceptances may be utilised in order to effect Stock Exchange transactions; securities bought on the Stock Exchange being deposited as cover. This kind of business would certainly be discouraged by the banks.

The acceptances of six of the principal London banks show a considerable decrease: -

The acceptances of seventeen metropolitan banks show a great reduction during the last five or six years.

The amount to 31st December, 1894, was as follows: Purely Metropolitan.....£7,334,000

Metropolitan and Country Branches . . 7,348,000

At the present time there seems to be a decrease in the amount of bills in circulation, which is partly due to the fact that modern trade is based principally upon cash transactions; many firms dealing with wholesale houses find it advantageous to pay cash for goods purchased rather than give a three months' bill. The trader then gets the benefit of the discount allowed by the wholesale firm for ready money.

The great increase in the business of co-operative stores, where all sales are for cash, has also been the means of lessening the number of bills. Formerly the trade transactions of the stores were in the hands of shopkeepers who sold goods on the credit system, and therefore were not always able to pay cash for goods bought. Consequently the retail dealer was at times compelled to give bills to the wholesale manufacturer. It has been stated that during the busy season at a London co-operative store the daily receipts amounted to £10,000.

Again, the means of communication are now so rapid that it has materially assisted the present system of cash payments. Instead, therefore, of bills being used we find country cheques form the mode of payment. Cash can be obtained for these cheques through the medium of the Clearing House in the course of a few days.

The Clearing House statistics show a proportionate decrease in the amount of bills payable on the 4ths of the month, but a large increase in country cheques:

Proportion Of 4ths To Total Amount Of Clearing.

There has been a large increase in the use of country cheques. According to the Clearing House returns the amounts were: -

In 1880 Messrs. Glyn, Mills, Currie & Co. cleared 19,950 cheques in one day, of which 2 1/2 per cent were under £1; but in 1887 they cleared 35,090, of which 4 per cent were under £1.

Whilst, therefore, bills have decreased, there has been a large increase in country cheques.

Again, the system of telegraphic transfers has contributed towards decreasing the number of bills drawn.

Mr. Birch gives an interesting account showing how these transfers act as substitutes for bills. "Formerly the banks and great commercial houses in the East, in the United States and elsewhere took as they do now the ordinary trade bills, i.e., drafts against documents of consignments and such like at six, four, three and two months at the ordinary usance, and any one requiring first class clean bills for remittance, either for the purchase of commodities or to cover credits or other purposes, would apply to these banking institutions who would give bills also at usance. Thus there were running two sets of bills representing one commercial transaction. Now these banking institutions continue to take these trade bills as formerly, but instead of drawing at usance they give telegraphic transfers, which enables a merchant in Hong Kong, or in New York, or in any other part of the world, to calculate exactly the cost of his operation, just as if he were sitting in London; no question of discount, of bill stamp or other expense, or whether the bill be a good one. He can balance his operation just as well at these distant places as if he were sitting in Lombard Street."

Bills are utilised in the present day in the manufacturing towns of the North of England for the purpose of settling trade transactions.

Thus the monthly settlements at Bradford, Hudders-field and Leeds are effected by means of drafts drawn upon London.

We have already noticed that the largest proportion of bills in circulation is in the hands of the bill brokers.

This is certainly one of the features of our modern system of finance. The large increase of business on the Stock Exchange has no doubt somewhat increased the number of bills in circulation. There is a less number of inland bills, but foreign bills are increasing. The foreign bills are utilised for the purpose of withdrawing capital obtained in this country for investment abroad.

Again, the payments of interest by foreign countries are made by means of bills of exchange. These payments are very large. For example: -

Although bills have increased for certain purposes, yet on the whole there has been a decrease, and this has somewhat affected the business of the notaries, who in former days were fully occupied in noting and protesting such documents.

It is certainly a cause for regret that the banks of this country do not discount so many bills as formerly. These credit documents are justly considered as one of the best investments for surplus funds. Mr. Hankey says that bills of exchange are the only kind of investments upon which absolute dependence can be placed for a return of capital at a fixed date.

Good commercial bills of short dates have this advantage over Government stock or exchequer bills, that a banker is sure to receive back the same amount of money which he advanced.

The high value set upon bills by bankers is shown by the large amount held by them as security against advances to bill brokers.

Again, they can be utilised for the purpose of rediscount in cases of emergency or other reasons. Some bankers of the present day prefer keeping their reserves in bills rather than in Government stocks; for various reasons, therefore, a decline in the bill transactions of the banks is to be deplored.

In consequence of a decrease in these documents, the banks are increasing their loans on the Stock Exchange, but it is questionable whether this is a change for the better.

From the published reports of certain banks we find that advances which are largely made up of loans on the Stock Exchange have increased by 52 millions, and their proportion to the total assets has risen from 34 per cent, to 38 1/2 per cent.

If all the banks separated their bills discounted from their advances, we should be able to form some idea as to the changes in the bill transactions of this country.

In the course of this inquiry we have endeavoured to show how bills were introduced into this country, their utility as a circulating medium for the purposes of trade, and how they came to be associated with banking.

In conclusion we may state that as instruments of credit they have contributed largely to promote the prosperity of the banking institutions of this country.

Bills have also assisted materially to promote the growth of English commerce, and have been the means of placing English credit at the highest standard in the civilised world.