One of the most important services that a bank can render is that of supplying informa tion relative to credits. In many countries this information is difficult to obtain, and those who have it give it up with reluctance, especially in reply to written inquiries. Replies are vague, elusive and unsatisfactory. It cannot be ex pected that this class of information will be given frankly and accurately by mail to strang ers. No other source can be so trustworthy as a locally established. bank which is linked up in every interest with the trade which it is serving. Credits arc changing constantly; in formation which is good at one time may be misleading a few months later; the exporter in another country requires an allied advisor upon the spot who will not wait for inquiries but volunteers his counsel. Moreover, he wants a banker with a knowledge of the credits who will give him assistance in carrying them. In short, he wants the service which his own banker is accustomed to render at home ex tended to the foreign trade.
The service of the American branch bank does not end with attention to business placed in its hands; it is equally interested in creating new business. It makes itself familiar with all lines of trade; it studies the import and ex port trade of the country in which it is located, with a view to developing trade with its home country; it takes note of opportunities and re ports them to the home institution, which places the information where it will be likely to promote action.
The import trade of growing or developing countries consists to a great extent of equip ment and construction materials, for use in new works designed to increase the production of the country, or to improve its facilities for handling the products. These purchases rep resent investments rather than consumption, and ve7 often they represent an investment of foreign capital, as in the construction of railways and other public utilities, or manu facturing plants. The investments of Great Britain and Germany in South America are very large, and they have been made usually by sending out machinery and equipment which were the product of their home shops. Their manufacture supplied work for the home people and when converted into investments abroad they not only yield good returns but they create new demands for repairs, replacements, ex tensions, etc.
These investments abroad have not in years past been attractive to the people of the United States, because there were abundant opportu nities, as good as any in the world, for similar investments at home. No other country was growing so fast in population as the United States, and so long as there were extensive natural resources to be opened up here it was doubtful policy to place investments abroad. But the United States is.no longer a new coun try; the main railway lines have been con structed, every section of the country is under going development, the more easily. tilled lands are now under cultivation, the timber lands have advanced greatly in value, the mineral resources are bein.g worked. Both population and wealth are increasing rapidly, but the country has reached the stage where raw ma terials, once cheap, are becoming dear and affecting the cost of manufactures and the cost of living. The manufacturing industries are affected both by the increasing cost of raw materials and by the increasing cost of food, clothing and other necessities which affect wages. Already the United States has become one of the principal importing nations of wool and hides, and it is probable that our consurnp tion of these articles will steadily increase faster than the home supply. We arc also con sumers in vast quantities of many articles which we do not produce at all, among which are coffee, rubber and tin, which are obtainable in South America. In short, we have reached the point in our own development where we can advantageously spare some of our capital to develop the dormant resources of countries not so far advanced as ourselves. There will be an economic gain to ourselves and to the world community in doing so, just as there was an economic gain to New England and the United States from the use of New England capital for the development of the Western States of this country. This investment of
United States capital in other countries will be guided and stimulated by the development of international banking facilities with headquar ters in this country.
Short Loan and Commercial Bills.— There is yet another class of international banlcing which is comparatively new in this country but which is developing, and that is the class of banking which has made London the chief market of the world for short loans and commercial bills. Here again the defects of our national banking in the past have mili tated against us, National banks not being per mitted to accept drafts for future payment. Even our own foreign trade, both exports and imports, has been financed through bills upon London. Most of the time there has been no real loss to this country by this process, because it has been possible to carry the drafts at a lower rate of interest in London than in New York. In the future, however, this situation is likely to be different, not so much because of a probable change in the London situation as because of the changes effected here by the Federal Reserve system. In the past the finan cial banking reserves of the United States have been kept in the large National banks of New York city, which, by custom and as a result of competitive conditions, paid a uniform rate of 2 per cent upon them. This interest bur den made it incumbent upon them to keep the funds employed upon the most favorable terms possible, and this employment was commonly found in loans on stock exchange collateral. The Federal Reserve system transfers the banking reserves to the Federal Reserve banks, and forbids their employment in loans upon stocks or bonds. They can only be used in rediscounting paper arising out of commercial transactions. Coincident with the creation of this great fund, restricted to commercial paper, has come permission for National banks to accept paper arising out of international trade, a permission which extends not only to our trade with other countries but to trade between all countries. These acceptances are the most desirable paper available for the Federal Re serve banlcs, and as they pay no interest on de posits, and large earnings with them are subor dinated to the policy of having liquid assets and developing a great discount market, it may be expected that the rate on this class of paper will hereafter be as low in New York as in any market of the world. The availability of the New Yorlc market for trade bills ultimately payable elsewhere will of course be affected by other factors as well as the discount rate, and particularly by the general position of New York in the world's exchanges, but it is and can be confidently predicted that with the re sources of the Federal Reserve system behind it, and with the United States developing as a creditor country, New York in the future will play a much more important part in interna tional banking than in the past.
As a result of the European War, and the closing of European markets to foreign loans, an important aggregate of loans to foreign governments has been made in the American market. Since there is reason to believe that capital will continue to accumulate rapidly in the United States, and there will be less differ ence in interest rates between New York and European markets than in the past, it is prob able that New York will continue to be a fac tor in transactions of this class. The develop ment of any country in international banking is dependent finally upon the relations of its people to international affairs. There must be an important body of traders and investors with international interests and cosmopolitan views. See CO-OPERATIVE BANKING ; FEDERAL RESERVE SYSTEM (article 12); FOREIGN Ex CH ANGE (article 15); WORLD SYSTEMS ( ar ticle 3).