cted,
the others simply serving in the meantime as receipts. These bills are
used to pay accounts in foreign countries, just as drafts on New York
or Chicago are used to pay indebtedness at home.

VII. THE CLEARING-HOUSE SYSTEM[12]

THE CLEARING-HOUSE SYSTEM A MODERN INSTITUTION

The clearing-house is a comparatively modern institution, the
Edinburgh bankers claiming the credit of establishing the first one.
The earliest clearing-house of whose transactions we have any record
is that of London, founded about 1775. For fully seventy-five years
the London clearing-house and that of Edinburgh were the only
organisations of the kind known to exist. The monetary systems of most
European countries centring around one great national bank located at
the capital of each, found in this a means of effecting mercantile
settlements. The New York clearing-house was established in 1853, from
which date the American clearing-house system has grown to enormous
proportions. No country in the world has so large a need of
clearing-houses, for in no country is the bank cheque so generally
used in the payment of ordinary accounts.

TRANSFER OF CREDITS IN CLEARING-HOUSES

The purpose of the clearing-house is largely to facilitate the
transfer of credits. This is explained by the following illustration:
Suppose that Brown and Smith keep their money on deposit in Bank A and
that Brown gives Smith his cheque for $100 and Smith deposits it in
the bank to his (Smith's) credit. The officers of the bank will
subtract $100 from Brown's account and add the same amount to Smith's
account. No actual money need be touched. It is simply a matter of
arithmetic and bookkeeping. Credit has been transferred from Brown to
Smith. If all the people of a city kept their money in one central
bank there would be no need of a clearing-house. The bookkeepers of
the bank would be kept busy transferring credits from one customer to
another on the books of the bank. But if Brown keeps his money in Bank
A and Smith keeps his money in Bank B it is necessary that Bank A and
Bank B come together somewhere to conveniently make the credit
transfer, and this is practically what they do in the clearing-house.
Then, again, if Bank A should be located in San Francisco and Bank B
in Boston, the difficulty of transfer of credit is greatly increased.

Through the agency of clearing-houses located in money centres and of
co-operation between banks at distant points, the tran