According to a statement in 1881 by Mr. Pownall, the following were the proportions of cheques, bills, etc.:

London Clearing Banks

Cheques through the Clearing House .

71.313 per cent.

Cheques and bills not cleared

25.248 "

Bank of England notes ...

2.349 "

Coin .......................................

.956 "

Country bank notes .................................

.134 "

100.000

At the Army and Navy Stores the proportions for 1880 and 1881 were as follows: -

1880.

1881.

Cheques ........................

63.67

67 per cent.

Notes ............................

18.6

13.7 „

Coin ...........................

17.8

19.3 „

excluding postal orders and notes.

The foreign trade of the country has greatly developed during the present century, partly due to an increase of capital and also in consequence of the adoption of free trade principles by this country. Goods purchased abroad were paid for by means of bills drawn payable in London.

The new system of credit shows us that we have banks and paper documents, viz., cheques and bills of exchange utilised for the purpose of transferring capital from one person to another.

So great has been the use of credit documents in recent years, that it was stated by Sir J. Lubbock that 97 articles out of 100 paid into the bank consisted of cheques and bills. The credit documents which concern us, viz., bills of exchange, denote that property is bought and paid for either by the transfer of a debt or a promise to pay later, based upon goods bought or sold. The ability of the banker to lend in reality depends upon the state of trade, and consequently upon these credit documents. For example, bills represent a variety of transactions in every department of trade, and according to the productiveness of these trades the banker has either more or less to lend. By reference to these credit documents we can ascertain whether certain industries are prosperous or depressed. For example, if a trade is thriving we should expect to find in the banker's bill case a large number of bills representing trade transactions in that particular industry; but if on the other hand there is a depression, a less number of bills would be in circulation.

It is sometimes difficult to ascertain what are the purposes of the vast number of bills which pass through the banker's hands. Do they always represent legitimate trade transactions, or are they the result of speculation ? On several occasions in the history of banking, bills have been drawn against fictitious values.

Merchants accept bills drawn upon them for goods purchased, and incur liabilities on the supposition of being able to discount the bills received for goods sold at their bankers. If they are unable to do this, we can see how quickly trade becomes demoralised and the industrial machine thrown out of gear.

Our modern trade, conducted through the medium of banks and bills of exchange, reveals to us the fact that credit is very sensitive. For example, credit may be transferred into bad hands, that is, into those who do not understand how to use it to advantage. Again, it enables an unsound business to be carried on and fresh liabilities incurred, which without the medium of credit documents would cease to exist. We therefore lose in security what we gain in economy by the modern development of credit.

By the system of bills we might say that the whole body of traders become as it were associated with the banking. community. The ability of the banker to lend is largely dependent upon bills being paid at maturity. Banks and the great instruments of credit, viz., cheques and the bills of exchange, transfer the ownership of wealth from one person to another. We might say that bills of exchange and banks are two machines for performing the same kind of work.

London has become not only the great financial centre of this country, but also of the whole world. The surplus capital in the country finds its way to London, and from thence is transferred to places where it can be utilised. All the great transactions of the inland trade are, we might say, concentrated in Lombard Street. The country banks send their surplus capital to the metropolis to be utilised in discounting trade bills. If these banks require additional capital to meet their requirements it is obtained by means of rediscounting these credit documents. London has also become the financial centre of the world. The number of bills drawn upon London surpasses any number drawn upon other countries.

The great metropolis therefore assumes the character of an international Clearing House. Our modern system of capital has laid the foundation of a new business, viz., that of bill brokers.

In the early part of the century, London had become the centre for all banking transactions. In 1810 Mr. Richardson, who afterwards became a partner in the celebrated firm of Messrs. Overend, Gurney & Co., stated that the nature of an agency of a country bank was (1) to procure money for country bankers on bills when they have occasion to borrow on discount, and (2) to lend the money of the country banks on bills on discount. This system really meant the discount and rediscount of bills of exchange.

At first merchants acted as agents for the country bankers, but in course of time the bill transactions became so large that the business assumed a distinct form, and those who carried it on were known as bill brokers. At the same time there was a large increase in the number of country banks which came into existence, partly in consequence of the London bankers, who were willing to act as agents at a less commission than originally paid to the merchants.

Every new bank which started in the country was the means of increasing the circulation of bills. The part played by the country banks was therefore an important one towards developing the bill transactions of the country. The country banker had, we might say, the majority of the bills in his neighbourhood passing under his notice. He was thus able to discriminate between good and bad paper, or legitimate trade transactions as distinguished from accommodation bills. The good paper was discounted by him, and possibly rediscounted in the London market. In this manner large transactions between London and the country were conducted, and business was stimulated by the action of the country bankers.