17. Control over the money Reichs bank does not hesitate to vary the discount rate in order to control the money market. In addition to this method, the bank has two other ways of giving flexibility to its resources and of checking sudden movements of gold. One of these is the accumulation in its portfolio of foreign bills, especially those drawn on England. When exchange approaches the gold export point the bank sells these abroad and relieves the tension.
The other measure is also practiced by the Bank of England and there it is called "borrowing from the market." The principles involved were explained in Section 11. The process in England consists of of fering treasury bills for discount in the market, there by absorbing surplus cash and preventing a too rapid fall in the open market rate of discount. The Reichs bank may sell either treasury bills or commercial paper. Both of these processes need to be adminis tered with care. An unskilled employment of the power at the wrong time may have disastrous effects.
The most notable development in later German banking has been the tendency of the great discount and acceptance houses to combine. Early in 1914, two banks combined with a joint capital of $75,000, 000; and there was one bank already in existence which had a capital as large. This is regarded as an im
portant development in the direction of the increased influence of the Berlin money market. It may in time lower the prestige of the Reichsbank at home.
18. Other European three great systems just described may be taken as representative of the banking systems of Europe. Scotland has an excellent system with some unique features, but most of these are also found in the Canadian system which is described in the following chapter. In general it may be said that the European countries have seen the advantages of having a strong central institution capable of controlling the money market in the in terest of the community. Most of the great Euro pean banks are privately owned but controlled by the government, the Bank of England being the notable exception to the rule of public control. The use of rediscounts and acceptances is one of the features most worthy of imitation. The German Giro system in dicates, in a way, the enormous advantages to be gained in America by a sensible extension of the clear ing house principle.