The first and most important point that I would impress upon the authorities and the new banks is that on no occasion should any Chinese institution dabble in exchange, at least for the present. Two of the principal restrictions of the Presidency Banks in India are that the banks may not draw, discount, buy, or sell bills of exchange or other negotiable securities unless they are payable in India, or in Ceylon - thus cutting them off completely from dealing in sterling drafts or in any kind of foreign exchange; secondly, that they may not borrow or receive deposits payable outside India, or maintain a foreign branch or agency for this or similar purposes - thus preventing them from raising funds in London for use in India. How important such or similar regulations are for the new Chinese banks can only be understood by those who have experience of Chinese affairs. These two restrictions are inter-related. If a bank has no branch outside China then it would be silly on its part to deal in foreign exchange. Foreign exchange is a business which needs a capital training and confidence enjoyed only by the powerful foreign banks - capacities not likely to be available in China for possibly decades to come. Moreover, exchange is not always a profitable proposition; therefore, it is best that the Chinese keep out of it. As for preventing Chinese banks from raising funds in foreign countries, no more salutary restriction could be imagined. I do not want to be misunderstood as opposing the bringing in of foreign capital; but by no means should an institution of the kind of the proposed district bank engage itself in speculative enterprises. Capital for industrial purpose may either be raised by Chinese themselves or through the exchange banks or other foreign syndicates. But when an institution has the control and regulation of currency, it should scrupulously avoid any kind of speculation.
Four other restrictions, which the District Banks might be put under, as in the case of the Presidency Banks in India, are: (1) that they may not lend for a longer period than six months, or, if possible, it would be more advantageous to restrict the period to three months; (2) that they may not lend upon mortgage, or in any other manner upon the security of immovable property; (3) that they may not lend upon promissory notes bearing less than two independent names both well known to the management of the bank; in any case the more the bank refrain from lending on personal security the better for all; (4) that they may not lend upon goods unless the goods or the title to them are deposited with the bank as security - this purpose being best served by the bank, like the Customs, establishing a kind of bonded warehouse for the acceptation of merchandise.