CHAMBERS'S INFORMATION FOR THE PEOPLE. 



it ; whereas these products, if retained by us, 

 and applied for new productive purposes, would 

 yield us the usual rate of profit, whatever it may 

 be. Substitutes for a metallic currency spontan- 

 eously take their rise in commercial communi- 

 ties, and this not so much from the difficulty 

 that would be felt without these substitutes in 

 supplying the increased demand for coin, arising 

 in a progressive state of trade and commerce, as 

 from their presenting themselves as the most con- 

 venient means of carrying through commercial 

 transactions. 



Paper-money. -It is by what is called paper- 

 money that people make payments without coin. 

 The term paper-money is sometimes confined to 

 notes issued by or under authority of the state, 

 and declared to represent a certain amount of 

 coin, without the coin being payable on demand 

 by the party issuing them. But the term is also 

 used to signify bank-notes, promissory-notes, bills, 

 and bank-cheques, by means of all which pay- 

 ments are made and received without the inter- 

 vention of coin. Indeed, in this country, coin is 

 used almost exclusively in retail transactions or 

 in payment of wages : all large payments are 

 made by these documents. 



Bills of Exchange were first used for the pur- 

 pose of settling pecuniary transactions between 

 individuals at a distance from each other, and 

 were therefore convenient expedients to avoid the 

 risk of sending actual money to a creditor. This 

 may be explained as follows : If A, a merchant in 

 London, have a debtor B, and a creditor C, both 

 in Paris, instead of sending money to C, and 

 getting money sent to him by B, he may give C 

 an order on B to pay the debt over at once to 

 him. This is a bill of exchange in its simplest 

 form. Suppose, however, that A has a creditor 

 in Paris, but no debtor, while his neighbour E 

 has a debtor, but no creditor ; A may pay the 

 money to E which the French debtor owes him, 

 and obtain from him an order on his debtor to 

 pay A's French creditor. This order he will be 

 said to purchase. It will be an accommodation to 

 him or to the other party, according to circum- 

 stances. In the complicated arrangements of 

 modern commerce, the individual debtors and 

 creditors are lost sight of. If a person has a sum 

 to transmit to another country by such an order, I 

 the rate at which he will obtain it will depend on . 

 the pecuniary relations of the two places taken in 

 the main. If there is more money payable at the 

 moment by people in London to people in Paris 

 than there is payable by those in Paris to those 

 in London, there will be a demand for orders on 

 Paris, and a premium will be payable for the 

 accommodation by those who want them. In 

 this case, the exchange will be said to be against 

 London. In Paris, on the other hand, there will 

 be more people ready to give such drafts than 

 there are in want of them, and those who dispose 

 of them must do so at a discount The rate of 

 exchange is from this circumstance said to be in 

 favour of Paris. The premium in the one case, 

 and the discount in the other, will be measured by 

 the balance due by London to Paris over what is 

 due by Paris to London ; and the principal sum ; 

 to be met by the rate of exchange will be the 

 expense of transmitting that balance in specie, ' 

 unless the accounts can be adjusted by bringing j 

 transactions with some other community into the ' 



488 



circle. Thus, to settle the commercial transac- 

 tions between two countries, it is only the balance 

 due by the one country to the other that must pass. 

 We may vary this explanation of the prin- 

 ciple of exchange as follows : Great Britain, like 

 every other country, is exposed to a drainage 

 of its metallic currency by the balance of trade 

 falling against it As long as our exports are 

 equal to our imports, they will balance each 

 other ; the bills drawn in England against foreign 

 countries will be balanced by bills drawn in foreign 

 countries against England. In this state of things, 



' the exchange will be at par, or even ; that is, there 

 will be neither profit nor loss in the transmission 

 of bullion between England and foreign countries. 

 If our exports exceed our imports, then foreigners 

 must send actual money for the overplus, because 

 they have not occasion to remit bills for the 

 amount. If our imports exceed our exports, we 

 must in the same manner remit the overplus in 

 actual money. Thus a dearth and scarcity of 

 corn in England will cause a drainage of the 

 precious metals, because our imports of that 

 article rise to a large amount, or much beyond the 

 value of the manufactured goods exported. 



Not only international payments, but also pay- 

 ments between the various towns or districts of 



j a country, are effected without the intervention of 

 money, by means of bills of exchange the bills 

 drawn against one place being set off by bills 

 drawn from it, as both pass through the bankers. 

 So also payments between persons in the same 

 town are made, without money, by means of bills, 

 where they transfer to the banker who holds bills 

 in which they stand debtors, the bills in which 

 they are creditors. The one set of bills balances 

 or liquidates the other. The multifarious trans- 

 actions taking place between merchants, espe- 

 cially those in Britain and America, cause an 

 incessant process of payment by the intervention 

 of bills of exchange, many thousands of pounds 

 being paid away daily in their accounts with each 

 other without the aid of any metallic money, 

 except perhaps a few coins for small odd sums. 



Here is a common form of drawing a bill of 

 exchange : 



100. LONDON, $th. May 1884. 



Three months after date, pay to me or my order 

 the sum of one hundred pounds, value received. 



JOHN NOKES. 



To Mr THOMAS STYLES, Merchant, 

 Cripplegate, London. 



The bill being drawn in this form, Mr Styles accepts 

 it, by writing his name either below that of Mr 

 Nokes, or across the face of the writing. Mr 

 Nokes, who is called the drawer, now indorses 

 the bill, by writing his name on the back of it, 

 and thus the bill becomes negotiable paper. It 

 may be paid away to a third party ; and he, 

 indorsing it below Nokes's name, may pay it away 

 to a fourth; and he indorsing it in the same 

 manner, may pay it away to a fifth ; and so on. 

 Thus the bill may pass from hand to hand, on 

 each occasion liquidating a debt of .100, and 

 performing the functions of money, till the day of 

 payment by the original acceptor arrives, when it 

 is duly presented by the last holder. Instead of 

 running this course, the bill may at any period be 

 discounted by a bill-broker or banker. The dis- 

 counting of a bill consists in giving the money for 



