The World's Clearing House. - William Stanley Jevons, Money and the Mechanism of Exchange [1875]
Edition used:
Money and the Mechanism of Exchange (New York: D. Appleton and Co. 1876).
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The World's Clearing House.
It might seem that in the use of cheques internally, and of bills of exchange in foreign trade, we have reached the climax in the economy of metallic money but there is yet one further step to make. We found that so long as all the merchants of a town keep their cash with the same banker, they have no need to handle the money at all, but can make payments by transfers in the books of their banker. Let us imagine, then, that merchants all over the world agreed to keep their principal accounts with the bankers of any one great commercial town. All their mutual transactions could then be settled among those bankers. An approximation to such a state of things exists in the tendency to make London the monetary head-quarters of the commercial world, and the general clearing house of international transactions.
All that is needed to secure economy of money is centralization of transactions, so that there may be the wider scope for the balancing of claims. Before the elaborate system of English provincial banking grew up, considerable economy was effected by the practice of "drawing upon London." In every country town many persons wanted to transmit money to London, and others wanted to draw money from the same place. To vast private trading transactions with the capital and principal commercial towns was added the whole of the payments connected with the collection and expenditure of the public revenue. In each country town some prominent trader discovered that profit was to be made by selling bills on London to those who wished to remit, and buying with the proceeds the bills of those who had claims upon banks or firms in London. The capital thus becoming the monetary centre, it was often convenient to make payments to other towns by bills upon London. Each person wanting to remit was more likely to get a bill upon London with ease than upon any other place, and it was likely that the creditor would prefer such a bill to one upon a town with which he had no relations. It is obvious that if every important trader in England kept his principal cash with a city banker, the use of bills on London would have enabled all the commercial transactions of England to be centred in, and cleared through the books of these bankers and the Clearing House.
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