Now that London is the clearing-house to foreign countries, London has a new liability to foreign countries.  At whatever place many people have to make payments, at that place those people must keep money.  A large deposit of foreign money in London is now necessary for the business of the world.  During the immense payments from France to Germany, the sum in transituthe sum in London has perhaps been unusually large.  But it will ordinarily be very great.  The present political circumstances no doubt will soon change.  We shall soon hold in Lombard Street far less of the money of foreign governments; but we shall hold more and more of the money of private persons; for the deposit at a clearing-house necessary to settle the balance of commerce must tend to increase as that commerce itself increases.

And this foreign deposit is evidently of a delicate and peculiar nature.  It depends on the good opinion of foreigners, and that opinion may diminish or may change into a bad opinion.  After the panic of 1866, especially after the suspension of Peel’s Act (which many foreigners confound with a suspension of cash payments), a large amount of foreign money was withdrawn from London.  And we may reasonably presume that in proportion as we augment the deposits of cash by foreigners in London, we augment both the chances and the disasters of a ‘run’ upon England.

And if that run should happen, the bullion to meet it must be taken from the Bank.  There is no other large store in the country.  The great exchange dealers may have a little for their own purposes, but they have no store worth mentioning in comparison with this.  If a foreign creditor is so kind as to wait his time and buy the bullion as it comes into the country, he may be paid without troubling the Bank or distressing the money market.  The German Government has recently been so kind; it was in no respect afraid.  But a creditor who takes fright will not wait, and if he wants bullion in a hurry he must come to the Bank of England.

In consequence all our credit system depends on the Bank of England for its security.  On the wisdom of the directors of that one Joint Stock Company, it depends whether England shall be solvent or insolvent.  This may seem too strong, but it is not.  All banks depend on the Bank of England, and all merchants depend on some banker.  If a merchant have 10,000 L. at his bankers, and wants to pay it to some one in Germany, he will not be able to pay it unless his banker can pay him, and the banker will not be able to pay if the Bank of England should be in difficulties and cannot produce his ‘reserve.’