The clerks of each bank represented in the Clearing House make out a summary at the end of each day, showing the amount of the “articles” (cheques, bills, and drafts) which they have handed to the representatives of other banks, and the amount of the articles handed to them by other banks, and the difference of these two figures shows the net amount which has to be received or paid as the result of the aggregate of all their transactions.
All the clearing banks must keep an account at the Bank of England, and a nominal account is kept at the Bank, called the “Clearing Bankers’ Account.” At the close of each day the amount owing by each bank, which on balance has to pay, is debited to that bank’s account at the Bank of England, and credited to the “Clearing Bankers’ Account”; while as regards those banks which have to receive on balance, the “Clearing Bankers’ Account” is debited, and the account of those banks credited. Thus while the Clearing Bankers’ Account at the Bank is automatically balanced each day—as, in the aggregate, the credits of one set of banks must be balanced by the debits of the other set—the whole of the enormous total of transactions thus brought to one head is settled by a few dozen entries in the books of the Bank of England.
Quite recently, and not before it was absolutely necessary, the building of the Clearing House was largely extended, and the internal arrangements reorganised, giving greater facility for the work carried out there; and an innovation has been made in supplying Burroughs’ Automatic Adding Machines for the use of the clerks of the house. About one hundred and forty of these machines are now in use, and though when they are all at work the Clearing House is certainly not the quietest spot in the City, yet the convenience and great economy of time and labour resulting from their use cannot be fully appreciated by any except those in daily touch with the work.[3]
CHAPTER XII
FOREIGN EXCHANGES
in the course of this book reference has been made on several occasions to the influence on the Money Market of the foreign exchanges. It will be impossible in the course of a short treatise such as this to enter fully into details and technicalities. Anyone wishing to obtain a fuller explanation of the subject cannot do better than study Mr. George Clare’s book entitled The A B C of the Foreign Exchanges.
Bills of exchange have been used in settling commercial transactions since very early times. The Romans appear to have employed them to some extent, but it is to the early Italian, and even more to the early Jewish merchants, that we owe the development of the system. By the fourteenth century the use of bills was firmly established, and their form, and the laws and customs relating to them, were much the same as at the present day.
Before inquiring into the effects which the foreign exchanges have on our Money Market, we will state clearly what a foreign bill of exchange really is. When a foreign bill is bought, what is it that is bought? The transaction is simply this, that so much money is paid here for the right to so much currency of a certain country to be delivered at once, or at a given date, at a certain place, to the buyer of the bill or to his nominee. The bill itself is merely an order to pay, and the transaction resolves itself into bartering so much money of one country for so much money of another country, to be delivered at a specified place and time.
The value of the imports of the United Kingdom for 1901 was 522 millions of pounds, and of the exports 348 millions, together nearly 900 million pounds; and to understand how these huge transactions were settled financially, it is necessary to have some knowledge of the principles and customs of foreign exchanges. It is common knowledge that we do not pay gold for our imports nor receive gold for our exports. The imports are paid for mainly by the exports, the balance being made up of sums due to us for interest on capital invested abroad, for repayment of money invested abroad, and for freights, etc. Some gold, however, does enter into the settlement of these transactions. This gold is sent from country to country, centre to centre, and further on in this chapter we shall see the causes of these movements and the effects arising from them.