(A fuller understanding of this may be had by first reading "Exchange.") A method by which persons travelling can obtain money at different points, thus making it unnecessary to carry a large sum at the outset. The method of procuring a " letter of credit " is to go to some bank, or banking house, making a practice of selling the same, and deposit money, or approved securities, sufficient to cover the credit desired, in addition to which will be paid a small charge for the accommodation. The customer receives a written order which is good when presented at certain banks or banking houses, in such cities as the traveller intends to visit, for payment to him of sums of money not greater in the aggregate than the face value of the " letter of credit." They are good at all important points throughout the world. When a stranger wishes to buy a credit, it is desirable to bring a letter of introduction from a bank bearing not only the signature of some officer of the bank, but the signature of the bearer as well, or to arrange some other method of satisfactory introduction. The holder of one of these " circular," or " traveller's letters of credit" is identified by his signature. The credit will be issued in favour of two or more persons if desired.
1 "Money and the Mechanism of Exchange," Jevons.
Such orders, when used by travellers in the same country as that in which they are issued, are called " domestic traveller's letters of credit," but for use without the country issuing, foreign traveller's letters of credit."
Foreign credits enable the holders to obtain the money current in each country where presented.
There are also commercial letters of credit," which are likewise foreig " and domestic," according to the place in which desired. These are issued, if foreign," payable in the money current in the country where desired for use, francs, marks, guilders, etc., and afford the merchant or manufacturer facility and protection in paying for purchases made abroad. They are issued on account of the importer and in favour of the shipper, seller, or manufacturer, in foreign countries.
For example: If a merchant in Boston buys merchandise in Constantinople, he may obtain a "commercial letter of credit " for the sum desired, which he forwards to the seller in Constantinople, and that person, upon presentation in his city to the banking house designated in the "letter of credit," and properly identifying himself, may obtain the sum desired, but generally only upon presentation with the "letter of credit " the documents showing actual shipment of the goods.
The issuer of the " letter of credit " naturally instructs his correspondent, that the latter may be properly advised.