The constitution and functions of native banking need to be modified considerably to suit modern conditions. When I stated that it was no use trying to do away with native orders I did not for a moment suggest that the methods of native banking did not need re-modelling. As the best way to effect reform is to facilitate the adoption of it by those whom it is intended to reform, no violent change would be either justifiable or successful. The effort should always be towards making the banks as little responsible for the transactions of individual dealers as possible. Under the system of native orders, the banks do not provide for their own safety in case of default by dealers. In a few cases, when some of the banks have been rash in issuing native orders and the dealers have not been of the right type, the native banks adopted subterfuges to get out of their obligations to foreign merchants. They contended that they gave the native orders on the promise of the dealers, to meet them or pay a portion of the sums due to them before the dates on which the foreigners were to be paid; and, that, as the dealers had not kept to their promise, they found themselves unable to pay the amounts due on the native orders. According to the canons of modern business morality, it is certainly dishonest for a bank to agree to pay a certain amount on a certain date unconditionally, and then give excuse for non-payment or even ask for postponement of payment; and foreign criticism has been based on this principle, when it spoke about the dishonesty of Chinese banks. But in the light of the procedure of the Chinese such acts are not dishonest, although not businesslike. Usually, the native banks give orders on personal credit, or, on the promise of the dealers to meet the sums due on the orders before the due date - thus enabling the banks to meet the orders in the hands of the foreign merchants or foreign banks. It is tacitly understood among Chinese that the dealer would meet the orders or make arrangements for doing so, before they are presented by the foreigner. For a long while, the respectable native banks or Chinese dealers always took care to see there was no default on their part. When there was a large crop of questionable banks and unsound dealers, the default of the latter led to a corresponding fault of the former. The foreigners or foreign banks had the unconditional promise to pay; and it was no concern of theirs to go into the tacit agreement between the native bank and the native dealer. It is, therefore, easily seen that much of the foreign criticism of native banking has arisen through an incorrect understanding of the situation.

Reform of native banking should, therefore, grapple thoroughly with this question. The formation of the district banks, in the manner which I have suggested, would do away with a lot of unsound native banks. And the passing of questionable native banks would, in its turn, put an end to the activities of unsound native dealers. The foreigners that took the orders of such banks as were not members of the respective district banks would do so at their own risk.