58 Colorado College Studies. 



found at work in every bank-note system, no matter how 

 bad: 



CHECKS UPON THE ISSUE OF BANK NOTES. 



1. Return of notes for redemj^Hon. The effect of this 

 important restraint has been outlined above. It is thor- 

 oughly effectual only when redemption is enforced by law 

 and not discouraged by jjublic opinion or by bank jDressure 

 (e. g. refusing discounts and other bank services to persons 

 who have presented notes for redemption). But as we shall 

 see hereafter, unless certain artificial means are used to 

 compel the return of the notes within a given time, the 

 action of this check does not prevent an increase from year 

 to year till the issue is very large, if public confidence in 

 the soundness of the banks prevails. 



2. Fear of discredit. That is, a belief of the bank 

 managers that further issue of its notes would impair the 

 bank's credit, and either directly fail of its purpose by 

 bringing back for redemption notes equal to the new issue, 

 or injure the deposits and other business of the bank. 



3. Fear of general injury to business. This may in- 

 clude one or more of the following elements: Fear of the 

 effect on the bank's own business of a general derangement 

 of business caused by bad currency; fear of the effect of 

 such derangement on the interests of the managers outside 

 the bank; and a sense of responsibility and trusteeship 

 towards the business community. This check is seen at 

 its best where a single large bank issues most of the bank 

 notes of a country (the circulation of notes of other banks 

 being prevented or kept within narrow limits bylaw); the 

 Bank of England, for instance, would doubtless be tem- 

 perate in the issue of notes, even if it were not hindered 

 by law from making any profit by an increase of circula- 

 tion. The Bank of France is influenced by a similar com- 

 bined responsibility and prudence. But when there are 

 many banks, each knows that its own note-issue will be 

 only a small part of the whole note-circulation, and that 

 its own abstention from new issues will have little effect 



