Relation of the Cheque Bank to other Banks. - William Stanley Jevons, Money and the Mechanism of Exchange [1875]
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Money and the Mechanism of Exchange (New York: D. Appleton and Co. 1876).
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Relation of the Cheque Bank to other Banks.
We have seen how much has been accomplished establishing relations between banks, as branches agents, or correspondents of each other. The Cheque Bank carries out a similar system to the utmost extent by establishing relations with almost all the banks of the United Kingdom, as well as with most foreign banks of importance. Already 984 English, Irish, or Scotch banks, have entered into relations with the Cheque Bank, and 596 colonial or foreign banks cash the cheques. One advantage of this arrangement is, that the sphere of the cheque system can be greatly extended without any equal increase of trouble and risk. Whenever a bank opens a new account with an individual, that account has to be kept apart in the ledger, and constantly watched. But a bank can sell Cheque Bank cheques to any amount, without opening separate accounts with the purchasers, and may also pay such cheques when presented without risk. The Cheque Bank thus aims at becoming a great institution of accountants, operating for the most part through other banks, but relieving them of much of the risk and trouble of small transactions. The Bank of England is a bankers' bank in the sense that it holds the reserves of other banks, and makes those final payments of cash which close the general balance of transactions. The Cheque Bank seems to be a bankers' bank in the opposite sense of making deposits in all other banks and employing them as agents.
A peculiar feature of the Cheque Bank is that it entirely abstains from using, or even holding, the money deposited. All money received for cheque books is left in the hands of the bankers, through whom they are issued, or transferred to other bankers, as may be needed for meeting the cheques presented. The interest paid by these bankers will be the source of profit, and as the money thus lies in the care of the most wealthy and reputable firms in the kingdom, it could not be lost in any appreciable quantity, except by the break-down of the whole banking system of the country. It would hardly be true to say that these cheques correspond to notes issued on the deposit of government funds, because each agent-bank can use at its own discretion the portion of the funds of the Cheque Bank in its possession. Nevertheless, as the portion in the hands of any one bank will usually be a small fraction of the whole, and there is, moreover, a guarantee fund of consols in the background, the system of issue is more closely analogous to that of a documentary reserve than any other.
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