For this purpose he comes to a bank, pledges the capital he wants to melt down, and receives for his obligation, bearing interest, paper money which bears none.
This paper money, I suppose to be as solidly secured as the principles of private credit can make it. I suppose the bank to be established by authority, according to the regulations already mentioned, and the notes made a legal tender in every payment of domestic debts; by which I understand debts payable within the country.
From these data, I say, that the regular method by which the bank should acquit the obligation in the notes, is by restoring the security granted at issuing the notes, if they be returned by the debtor in it; or by a transfer of a sum of interest equivalent to the notes, if they are presented by any other. All farther obligations laid upon banks to pay in coin, or inland bills, is only an equivalent expected from them in lieu of their great profits[[12]].
[12]. It must here be observed, that in every country where there is a national coin established, it is absolutely necessary to connect with it the denominations of the paper; in order to affix a determinate value to these denominations. This may easily be done without implying, as at present, an obligation on the bank to realize into coin every bit of paper in circulation.
The interest, therefore, of the credits given by the bank, may be demandable from the debtors in coin; and the transfers of interest made by the bank, to those who bring in notes for payment, may also be demandable in coin from the bank.
These payments will bear a small proportion to the paper in circulation, as interest must be very low; and coming at fixed terms of payment, provision will easily be made for them.
This regulation will support the coin of the country, and as the interest of all the paper becomes demandable in coin, the intrinsic value of the interest will effectually support the value of the capital.
When paper issued for domestic circulation returns to a bank, were it not for the profits on their trade, I see no reason why a bank should pay in any other species of property than what it received; and if, by the interest they receive for their notes, they are abundantly indemnified for all the difference between paying in coin and in transfer, I think the public would be a gainer to dispense with that obligation in lieu of an abatement of interest; which would be an advantage to commerce, not to be counterbalanced by the other.
Farther, the business of providing coin is totally different from that of supporting domestic circulation: it is founded on different principles: it requires men of a particular genius to conduct it: the difficulties to be met with are not constant; and therefore cannot form a regular branch of bank administration.
2do, The method of providing coin for domestic circulation is the business of mints, not of banks.