bankers keep their reserve in London.  They only retain in each country town the minimum of cash necessary to the transaction of the current business of that country town.  Long experience has told them to a nicety how much this is, and they do not waste capital and lose profit by keeping more idle.  They send the money to London, invest a part of it in securities, and keep the rest with the London bankers and the bill brokers.  The habit of Scotch and Irish bankers is much the same.  All their spare money is in London, and is invested as all other London money now is; and, therefore, the reserve in the Banking Department of the Bank of England is the banking reserve not only of the Bank of England, but of all Londonand not only of all London, but of all England, Ireland, and Scotland too.

Of late there has been a still further increase in our liabilities.  Since the Franco-German war, we may be said to keep the European reserve also.  Deposit Banking is indeed so small on the Continent, that no large reserve need be held on account of it.  A reserve of the same sort which is needed in England and Scotland is not needed abroad.  But all great communities have at times to pay large sums in cash, and of that cash a great store must be kept somewhere.  Formerly there were two such stores in Europe, one was the Bank of France, and the other the Bank of England.  But since the suspension of specie payments by the Bank of France, its use as a reservoir of specie is at an end.  No one can draw a cheque on it and be sure of getting gold or silver for that cheque.  Accordingly the whole liability for such international payments in cash is thrown on the Bank of England.  No doubt foreigners cannot take from us our own money; they must send here ’value in some shape or other for all they take away.  But they need not send ‘cash;’ they may send good bills and discount them in Lombard Street and take away any part of the produce, or all the produce, in bullion.  It is only putting the same point in other words to say that all exchange operations are centering more and more in London.  Formerly for many purposes Paris was a European settling-house, but now it has ceased to be so.  The note of the Bank of France has not indeed been depreciated enough to disorder ordinary transactions.  But any depreciation, however small—­even the liability to depreciation without its reality—­is enough to disorder exchange transactions.  They are calculated to such an extremity of fineness that the change of a decimal may be fatal, and may turn a profit into a loss.  Accordingly London has become the sole great settling-house of exchange transactions in Europe, instead of being formerly one of two.  And this pre-eminence London will probably maintain, for it is a natural pre-eminence.  The number of mercantile bills drawn upon London incalculably surpasses those drawn on any other European city; London is the place which receives more than any other place, and pays more than any other place, and therefore it is the natural ‘clearing house.’  The pre-eminence of Paris partly arose from a distribution of political power, which is already disturbed; but that of London depends on the regular course of commerce, which is singularly stable and hard to change.