The questions which China has to decide in connection with banking reform are: first, whether the Government should have the exclusive right of issuing paper money as is the case in India or whether the right should be given to a bank; second, if the privilege of issuing notes is granted to a bank, whether it should be a private bank or a purely state institution. Incidentally, it is also an important question to decide whether there should be one central bank of issue or several banks controlling the issue, as in the United States. The first point is easily decided; as a rule, even in the most advanced countries, the privilege of issuing paper money is not a boon to the people, when it is a monopoly of the Government. In India, of course, the system is a success, mainly because India has at her back the whole resources of the British Empire; and, secondly, there are proper means of maintaining and controlling the reserves. In China, on the other hand, the Government has neither the capacity nor the means to build up the reserves, and China has no other country to count upon in case of difficulty. Besides, the experience in the past with regard to paper money in China should be a great deterrent to putting this power once again into the hands of the Government. Therefore, there is no other alternative but that the right of issue of paper money should rest entirely with banks. Now, the same objections which apply to the treasury would also apply to the state bank, because any institution under complete control of the treasury is even more dangerous than the treasury itself. The Bank of Spain should be a standing example of the possibility of the disastrous consequences brought about by the undue pressure of the state on the bank of issue. As M. Leroy Beaulieu states: "A country soon recovers from the effect of the errors committed by the private banks, for excessive issue on their part, if it occurs, cannot sensibly affect the rate of exchange for long. On the other hand, the errors of state banks or those closely connected with the state, committed on the instigation, under the pressure and for the requirements, of the government, have a far greater and more lasting influence. They throw the country into complete disorder for many years in succession." Consequently we are thrown back on private banks, with a sort of Government control, so that as banks of issue they may satisfactorily perform their functions; (1) to provide a medium of circulation of constant value in the handy form of bank-notes or book credits which are easily transferable, and (2) to place its funds which are mainly drawn from the national wealth at the disposal, as far as possible, of the community by the advances in form of discount of bills and loans of money on the security of stocks and merchandise. Whether there should be one such institution for all China or whether there should be several, as in India or the United States, is a point of great importance which needs detailed consideration.

* The Federal Reserve Act came into force in the United States in September, 1914.

* * The Chartered and Hongkong and Shanghai Banks can, by charter, issue only a certain total, irrespective of the place of issue.

It is essential that there should be no misapprehension about the fact that, whether there is one bank of issue or many, the Government is ultimately responsible for the issue and regulation of all kinds of currency. As the Government could not do banking itself, or as it is not advisable, in the interests of the public, that the Government should do banking, the question is: under what system the Government's supervision could be insured, while the public would also be benefited? The progress and functions of banking are dependent upon the prosperity of the people -essentially the prosperity of trade. Commerce involves, so far as banking is concerned, discounting bills, making loans, advances, and all the paraphernalia of the banking business. The Government could not do all these things and no one institution, which is connected with the Government in any manner, can do all the business available in the country. For instance, in England the great majority of business is done by banks other than the Bank of England; as a matter of fact, there are individual banks bigger than the Bank of England; but the Bank is the bulwark of all business, not only in the country, but in the Empire. The Bank of France, the Reichsbank and the Bank of Japan occupy practically similar positions. Being the mediums through which the Government deals with public business, their operations are to a certain extent even restricted; and profits to their shareholders are not as much as in the case of some other very sound banks.