ities local banks with branches in
surrounding towns and sometimes in Paris are to be found, branches of
one or more of these four institutions are the chief reliance in
nearly all places.
These institutions cater to all the financial needs of their
constituents. They supply their needs for cash and for exchange;
conduct checking accounts for them, although these are not used in
France to the same extent as in the United States; discount their
commercial paper and make loans to them on personal and other
security; and receive on deposit their savings and provide them with
investments. In performing these functions they make extensive use of
the Bank of France and of the stock exchanges of the country. With the
former they conduct checking and transfer accounts and rediscount
their customers' bills, by these means procuring the coin, bank notes,
and exchange needed; and from the latter they obtain the investment
securities required for the satisfaction of both their own and their
customers' needs.
Gold and silver coin and the notes of the Bank of France constitute
the hand-to-hand money of the country. The latter form the elastic
element, and their operation approximates perfection. When demand for
money increases for any reason, more commercial bills are presented
for discount to the banks, which, after indorsement, exchange them at
the Bank of France for the notes with which they supply their
customers' needs. The note issues of the Bank thus expand in direct
and immediate response to the needs of the country for more currency.
When such needs have passed, the discounted bills, in exchange for
which these notes were issued, mature and are paid in greater volume
than new bills are created and presented for discount, and notes, or a
corresponding amount of coin, accumulate in the vaults of the Bank.
The notes are cancelled and destroyed and the coin is kept in store
until it again passes into circulation through exchange for notes
still outstanding, or for discounted bills.
On account of the elasticity of its note issues, and the extent to
which they are used in the commerce of the country, the Bank of France
has occasion to change its rate of discount less frequently than any
other bank in Europe. The result is that the country enjoys the
advantage of steady and low rates, since in France, as in England, the
discount rate of the central bank controls the market rate, and the
ease and inexpensiveness with which th
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