The Bank of France always reserves the right to pay in either gold or silver in order that in ;times of stress it could charge a premium on gold. The Im perial Bank of Germany, tho theoretically obliged to pay gold, makes it very uncomfortable for any bank or customer who has the temerity to demand gold for export purposes. Both France and Germany, since the war, have abandoned any attempt to maintain a gold basis.
New York, tho generally willing to part with gold for export purposes, was—at least up to the estab lishment of the Federal Reserve system—handi capped by the lack of machinery for the efficient and economical mobilization and control of the gold re serves of the country.
England is not only committed to an undeviating policy to maintain a free gold market but enjoys peculiar advantages in this connection. Great Brit ain is not only the largest creditor nation of the world but also controls and supplies, within the Brit ish Empire, nearly two-thirds of the raw gold out put of the world and has the control automatically. independent of any exchange movements, of over $350,000,000 worth of newly mined gold each year. Owing to this gold income Great Britain has been able to maintain her position as a free gold market during the whole period of the war and its bank and treasury notes have been, and still are, redeemable in gold at the Bank of England on presentation.
It is true, that since the war, London's activities as an international gold market have been curtailed ow ing to the disturbances in trade routes and the difficul ties and risks of ocean transportation, but, so impor tant is the certainty of the English monetary standard and financial policy to the merchants and brokers of the world, that it is unlikely that the war will cause more than a temporary recourse to other methods of settling international obligations.
12. Liquid discount natural com plement of a free gold market is a liquid money mar ket capable of absorbing bills of exchange to an al most unlimited amount. This unique feature of the London market makes a first-class bill of exchange on London as acceptable as gold. The strength and broadness of the London market, apart from the nat ural resources of the country, lie in the ebb and flow of foreign capital thru the machinery of the branches of foreign and colonial banks established there.
Altho London does not particularly encourage the establishment of foreign banks, it, on the other hand, does nothing to restrict the movement and allows free dom in banking privileges to all corners of good stand ing. This broadminded policy, tho it perhaps affects to a certain extent the individual interests of some of the British banks, is recognized as of great importance to London and the country in general, and therefore indirectly to the banks themselves. These branches of foreign banks, with their network of correspond ents thruout the world, in addition to their direct in fluence on the exchange situation, give invaluable as sistanee to the Bank of England in preserving the equilibrium of the money market. ' The policy of New York in connection with foreign banks is just the reverse of that of London and is ap parently based on a local and narrow point of view. New York bankers have always discouraged the es tablishment of foreign banks in their midst and have evoked state legislation and other means to this end. A few foreign banks are represented by agents, not by branches. They cannot take deposits or discount commercial paper and their activities are practically restricted to making call loans and dealing in foreign exchange.
The London discount rates are controlled by a cen tral institution, the Bank of England, and changes in the rate are not only infrequent but seldom rise above six per cent. By this control of the money market thru the bank rate, as it is called, the Bank of England has been able to attract gold to London by raising the rate whenever the exigencies of commerce and the ex change situation require it.
Reference has already been made to the ability and willingness of Great Britain to invest its large surplus income in foreign and colonial securities and thus pro vide foreign countries with the means of paying for British merchandise and machinery. The movement of such investments forms a large part of the so-called invisible exports and imports and is necessarily an important factor in creating exchange and adjusting international balances.