Chap. XIX. Here I take a farther step into those intricate combinations. I now shew how the whole obligation, both of paying in coin, and discharging foreign balances, may be taken off from those who administer a national bank. Their notes are proposed to be paid by a proportional transfer of interest. All interest due by banks on that account, and to banks for credit given, is proposed to be paid in coin at certain terms. Those who have occasion for coin are to buy it at the mint: but this coin is entirely calculated for domestic circulation; and therefore a very moderate quantity of it will be necessary. And for the payment of all sums due to foreign nations, I lay it upon government, according to the plan proposed in the 5th chapter, upon exchange.
Thus the whole policy of circulation is divided into three distinct branches:
1mo, The melting down of property, and keeping circulation full at all times. This is the business of banks.
2do, The providing of coin is the business of mints.
3tio, The granting bills on foreign parts, for value in the national currency, is the business of the state.
Chap. XX. The objection to this doctrine is, that if notes are not payable in coin, they cease to be of value. The answer is short. The use of paper money is to keep reckonings of value between people who have property; the use of coin is to avoid giving credit to people who have none.
The value of the paper in the country is ascertained by the value of the interest which is paid for it in coin; and by not paying the capitals in coin, you prevent its being carried off without necessity, whenever a balance becomes due; which balance might be paid by the means of credit.
Chap. XXI. I shew, by many arguments, (afterwards employed in the 10th chapter, upon public credit, and which render this combination more simple than I should otherwise have been able to make it in this place) that the return of a favourable balance of trade will clear the bank of all the foreign debts contracted by it, for the relief of the country; as a like favourable balance on the trade of Great Britain has the effect of setting that nation free from a proportional part of the money due to strangers. In this case, the favourable balance is incorporated in the public funds due to natives: in the other case, it is incorporated with the stock of the bank securities, and enables them to relieve that part of them which was engaged for the interest paid out of the country.
Chap. XXII. The constitution of the bank of England differs essentially in some particulars from that of banks upon mortgage, and private credit. It is not so much calculated for multiplying the currency, by melting down private property, as for facilitating the circulation of the trade of London, and exchequer of Great Britain.
The grounds of confidence upon which the notes of this company stand are very great.