Whether the general public will make an extensive use of checks is doubtful. In England the conditions necessary for check transactions exist, as every one has a banking account, and all payments to be made or received are effected through the banks. To Germans this seems very strange; a large part of the public cannot keep a banking account, and when it is in a position to do so either expects high rates of interest or keeps no permanent balances and pays no commissions. Under such circumstances there is no sense, from a business point of view, in the shoemaker, who has no banking account, accepting a check, which he has to cash, instead of ready money; for the shoemaker has to take an unprofitable walk, and the bank has to examine the check, pay and book it, and in some cases notify by letter the customer of its payment. The ingenuous idea prevails that by some cabalistic method of procedure the bank earns something by such transactions that in reality only cause irksome work.
The Reichsbank, with a creative and organising spirit, laid the foundations of the system of payments by means of transfers to, and deductions from accounts current that obtains in Germany, the so-called giro system.[185] It was in every way preordained for this creative work, for at the time of its foundation it was the only financial institution whose activities extended over the whole Empire, while in the territorially restricted and immature banking systems of those days the conditions were lacking for the development either of a giro business or of a system of payments by means of checks. In the giro system, with its splendid organisation, the Reichsbank has created an institution that has given the German system of payments its characteristic stamp, just as the apparatus of checks and clearing houses has imparted a typical character to the system of payments in other countries, like England and the United States. The giro business in Germany, however, is far from having attained the dimensions that the use of checks has in England and America.
The number of long-distance transfers is about double that of the locals. This is as it should be, as it is mainly in the matter of long-distance transfers that the giro system has the advantage over the method of payment by check. In the matter of local transfers, on the other hand, giro and check are probably about on a level with respect to the number of transactions.
To prevent themselves from being ruined by the competition of the Reichsbank, the private banks of issue[186] have been obliged to offer various inducements to their customers in the matter of the giro business. They make no demands in regard to a minimum balance, pay interest on deposits, do not oblige their customers to domicile bills drawn on them at the bank, and exact no charge from persons having no account with them who desire to have sums placed to the account of depositors (to some extent also making cash payments free to third parties who are nondepositors for account of depositors). The private banks of issue sustained a severe blow in 1900 on the occasion of the renewal of the bank laws through the provision prohibiting them from discounting bills at a lower rate than the Reichsbank whenever its rate reaches or exceeds 4 per cent. and not allowing them to go more than one-fourth of 1 per cent. below the official rate and one-eighth of 1 per cent. below whatever private rate the Reichsbank may have whenever the bank rate is below 4 per cent. These trammels imposed upon the principal business of the banks was bound to affect their giro business injuriously in spite of the efforts made to counteract the mischief by the establishment (especially in Württemberg) of many new branches and agencies. These banks of issue have never had any great importance as regards the giro business, and even at the present day the volume of their transactions is relatively insignificant.
The post-check system supplements in a most effective manner the giro system of the Reichsbank in that it brings in connection with the five hundred establishments (more or less) of the Reichsbank about 39,000 post-offices and post agencies. As all the post stations are included in the post-check system, the Reichsbank's network of branches is spread out uniformly in a compact manner over the whole Empire.
The post-check system, inaugurated January 1, 1909, would more appropriately be termed the post giro system. For at bottom its purpose is to become a giro system, a system of monetary transfers by means of assignments to, and deductions from accounts current. What it is aiming at is to make it unnecessary for German letter carriers to be lugging around millions in cash every day. The money sent through the German post-office in 1907 amounted to no less than 13-1/3 billion marks. The post-check system has this in common with the giro system of the Reichsbank that it extends over the whole length and breadth of the German Empire, while the activity of all other institutions carrying on a system of giro, as well as check, payments, with the exception of the union of the Schulze-Delitzsch credit associations, is territorially or locally restricted. The giro network and that of the post-check system are connected with each other by certain channels that render it possible for payments to travel unhindered from the one system over to the other without the intervention of cash.
General Sketch of Bank and Credit Organisation in Germany
[187]Germany witnessed a tremendous economic expansion during the twenty-year period 1888-1907. There occurred a considerable increase and extensive circulation of capital. This movement of capital naturally passes through the banks and is brought about by them. As collectors and distributors of capital, the banks are, so to speak, the focal points of economic life.
We are here concerned with three kinds of credit institutions—the note banks (banks of issue), the credit banks, and the land credit institutions (mortgage banks and land mortgage associations).