The bank does an extensive business in discounting short time commercial paper, according to the above-mentioned regulations, but its business in this line is considerably hampered by its rule which requires three names to each paper. This compels many merchants to discount their paper through brokers or private bankers, who, after endorsing it, re-discount it in the Bank of France.

To satisfy the demand for banking facilities in the provincial towns of France, the bank is required to maintain in each department (equivalent to a state) in the republic, a branch with a capital allotted to it by the parent institution in Paris. These branches, which now number more than one hundred, are conducted under the supervision of the head bank, and can engage in no operation with other banks or with each other without special leave. Their business, even to the rate of discount, is directed in Paris, and not with reference to local wants. The local managers are frequently strangers sent from Paris and are not in close sympathy with the business public. Nevertheless the branch banks discount a large amount of commercial paper, besides issuing bills of exchange, collecting government revenues, stamp duties, etc.

The note issues of the Bank of France are regulated by law. The volume has been increased from time to time until now the limit is 5,000,000,000 francs, with an actual circulation of about 3,600,000,000. This large circulation of the bank is, according to Conant, in a measure due to the large quantity of silver in the reserve of the bank. The bank has made repeated and continuous attempts to force its five franc pieces into general circulation, but they constantly and persistently flow back to the bank, the people preferring paper currency based upon the gold and silver reserve in the bank vaults. The circulation of the bank is divided into two classes, denominated as "productive" and "non-productive." Notes issued to meet the demands of commerce, and which are secured by discounted bills, are called productive, probably for the reason that interest is earned, and are subject to a tax of 50 centimes per 1,000 francs, while those issued against specie or bullion are called non-productive, and pay a tax of 20 centimes per 1,000 francs. As soon as a bank note passes into circulation it is a legal tender for all debts, public and private, so long as the bank maintains specie payments. They are guaranteed by gold or silver coin, by loans made upon gold or silver bullion, by securities or public funds, by loans made to the government, or by drafts discounted upon the terms prescribed by law.

The Bank of France has the option of redeeming its notes in either gold or silver, and it does it in whichever metal seems most advantageous at the time. In case a note-holder desires gold when silver is offered him, or vice versa, the bank exacts a small premium, as a compensation for paying in the other metal. It has been the policy of the bank to keep on hand a large gold reserve and prevent the exportation of the yellow metal as far as possible. This has been done by charging a premium on gold for export. The gold reserve in the Bank of France is, in round numbers, 2,500,000,000 francs, or about one-half the authorized limit of circulating notes. The silver reserve is in the neighborhood of 1,000,000,000 francs. There is no law fixing the amount of coin reserve, or proportion of specie to be held against the notes in circulation. In a time of crisis the government can give the notes of the bank a forced circulation, in which case the bank would be relieved from the necessity of redeeming its notes in coin.

The enormous volume of the circulating medium of France is necessitated to a considerable extent by the fact that it is a country of small traders, as well as small farmers, and the minute division of properties and enterprises is not favorable to the use of bank checks to the same extent as in countries where industries are more consolidated and centralized. Then again the masses of the French people are not educated in the use of checks, or accustomed to their use as we are, and are conservative in their habits in regard to changing long-established methods, and hence adhere to the old way of using the actual coin or bank notes.

Redemption of Notes

Volume of Money

The French people, therefore, require a large amount of cash for the transaction of their daily business, and accordingly we find that France has the largest volume of both gold and silver as well as paper money, in proportion to the population, of any of the great nations.

The banking of France is remarkable as an example of the free organization of a financial system under general laws, and without those restrictions and provisions for the safety of all bank debts, especially circulating notes, which in other countries has come to be regarded as essential to a stable currency. Here is a great bank authorized to discount paper, receive deposits and issue circulating notes, but without any special provision for the safety of one class of liabilities rather than another. All liabilities of the bank are upon the same footing and equally a charge upon its general assets. The Bank of England existed in this manner until 1844, and banking in the United States was conducted under the same condition up to the period of our National Banking Act, but in both these latter countries public opinion has required important modifications in the law for the safety of creditors and note-holders.