MARGINAL CREDITS, the name (riven to business operations, in which bankers lend the credit of their names, as it were,°to their customers, and thus enable them to carry • out important commercial transactions which otherwise could not be gone into, or only at excessive cost. A merchant in this countiy, for instance, desires to import tea or . silk, but his name is not so well known on the Chinese exchanges, that bills drawn upon him by a merchant in China can be sold there at a reasonable rate of exchange. The tea -or silk cannot be bought without the money being on the spot to buy it with, and if he . sends out specie for that purpose he involves himself in heavy charges for freight and insurance, and loses the interest of his money while on the voyage. Before it arrives, the prices of tea aud silk may have been so altered in the market that he would not be inclined to buy, and his money would thus be placed where it is not wanted, But while drafts by the merchant in China on the merchant in this country would not sell, or only at a heavy sacrifice, the drafts by the merchant in China on a banker in this country will :sell at the best price. The merchant in this couutry therefore deposits with his banker, . cash or securities equal to the amount to which he desires to use the banker's name, and receives from him marginal credits for the amount. These are bill-forms drawn upon the banker, but neither dated nor signed, with a margin containing an obligation by him Ao accept the bills when presented. The bills are dated, drawn, and indorsed by the -merchant in China before being sold, so that the obligation runs from the date on which the money was actually paid, aud the tea or silk is most likely in the merchant's ware house before the bill is payable. For the transaction, the banker charge,s the merchant
.a commission to remunerate himself for the risk involved.
Many other transactions between merchants abroad and in this country can only be car ried through by the acceptances of a London banker being tendered in payment, but the transactions are intrinsically the same,as when marginal credits are used. The banker in :the country can arrange with his customer to obtain the London banker's credit for him. 13ankers—usually in London—also accept bills to a great amount for the exchange opera tions of foreign banks. A banker in, say Canton, buys from his customers bills drawn upon merchants in this country for a Oven amount, and sends them to his correspondent in London, who holds them for him and grants a credit in his favor on the security of them. The Canton banker operates upon this credit by drawing upon the London •banker, and sells his drafts at the most favorable exchange. With the money received the purchases other bills, anti remits them also, to be again drawn against. When these operations are made with caution and sound judgment, they are beneficial to all con ,cerned; but when engaged in without sufficient knowledge or recklessly, they involve :most disastrous consequences.