The comparatively small employment of the check in France is clearly indicated by the fact that there is in that country only one clearing house, namely, the Chambre de Compensation in Paris.2 About thirteen banks, corporate and private, belong. There are three clearings a day, but they are of little importance. The four big credit societies occupy so large a portion of the field that a considerable proportion of the total business is through their own branches. The Bank of Prance is a member of the Chambre and the final settlement of differences resolves itself here also into a readjustment of balances at the reserve-holding institution.

In Germany

In France

1 Tabular Summary, Publications of National Monetary Commission.

2 Since this went to press there has been a better organization of clearings in Paris.

In all three countries the system of branch-banking simplifies intercommunity clearings. Ordinary checks on local banks are freely remitted in the payment of intercommunity obligations in England, while drafts on London are, of course, common. With all communities carrying, through their banks, balances in London, whether with the Bank of England itself or with other large London institutions, the clearing of claims arising between them is finally effected through a readjustment of London balances. "Country checks" are less common in France and Germany; indeed in France they are said to be negligible. Much of the checking business is in the hands of the large institutions with branches, and the clearing of claims between the branches is simply a matter of bookkeeping at the head office.

The great emphasis put upon bank notes in Germany and France has led, however, to the development of a system of transfers by the central banks of those countries to obviate the wasteful shipping of currency in intercommunity payments. Both the Bank of France and the Reichsbank will make gratuitous transfers for their regular clients, while a small charge is made to outsiders, Most domestic remittances are said to be made in this form. Even more important in this connection, however, is the system of collection of the French and German central banks. Bills of exchange rather than cash payments are pretty generally employed in European business. These bills, when payable in communities other than those in which they are held, are, a few days before maturity, quite regularly offered for rediscount at the central banks, Under this system intercommunity payments are cleared directly through the reserve-holding agency.1

Intercommunity clearings

In England

In France and Germany

Transfers in Germany and France

1 In 1913 the Bank of France did a collection business of over 800 million francs. At Paris, on November 30, 1913, 456,350 bills and documents were presented for collection at 107,975 offices and domiciles.

Whether transfers are directly made through the central banks as in France and Germany, or whether other banking institutions are more largely relied upon, as in England, under the centralization of reserves that characterizes all three countries the settling of intercommunity accounts resolves itself into a process of balance shifting at the central banks.

In the field of international clearings England is, of course, supreme. The widespread usefulness of bills on London has led to the establishment in that market of branches, or of banking connections, by the larger banking institutions all over the world. There is no mean volume of "direct business" transacted in "francs" and in "marks," but it is only a fractional part of that conducted in pounds sterling. In any case, however, the employment of bills drawn on any center in the settlement of international obligations, involves the clearing of claims and the settlement of differences through a readjustment of balances in that center.

Intimately connected with the subject of foreign exchange operations is that of the protection of the domestic reserves. In all three countries chief emphasis is put in this connection on the control of the discount rate. This practically suffices in England and in France, which are largely creditor countries, but supplementary aids are usually needed in Germany. London has been the freest gold market in the world, and large movements in and out have been more or less the rule. Yet when it has been necessary to check an outflow of gold the Bank of England has been able to attain the desired result through the increase of its discount rate. As already indicated special steps must at times be taken to make the rate effective, but that has not blocked the fulfilment of the bank's purpose. On the other hand, there have been comparatively few large shipments of gold from Germany or from France. Gold sent to those countries usually stays there. France's international position has ordinarily been so favorable that in normal times the exchanges do not often go seriously against her. Moreover, considerably-higher discount rates can prevail in other markets without seriously increasing the demand for bills on such markets. The French bankers fear unfavorable rates when they wish to bring their funds home. The situation in Germany is normally less secure. Germany has been a pretty consistent borrower in the world market and the nature of her industry is such as to subject her to relatively greater uncertainty in world commerce. Active protection of the national reserves has thus been more often necessary in Germany than in France. But the prestige of the Reichs-bank, together with its final control of the discount rate, has normally sufficed for this purpose.

International clearings and exchange

Protection of the reserves

The discount method

In England

In France

The other methods employed by the central banks of Europe to protect domestic reserves, were discussed in the chapter dealing with that special subject. The Bank of England's export corner, and the possible redemption in silver of French bank notes were noted. Mention should again be made, however, of the foreign bills held in the portfolio of the Reichsbank. The possession of these bills supplies a perfectly normal method of influencing foreign exchange rates. The central banks of England and of France have not held foreign bills, although the Great War has brought some change in this respect. The Bank of France and the Reichsbank have also frequently made, without charge, advances of credit on importations of gold. The Bank of England does not normally have to adopt such an expedient because London has for years been the great gold market, where every Monday a large supply, gathered during the previous week, has been put up at auction.