sequently been able to
grow, without let or hindrance, along the lines that expediency and
convenience have shown to be most practical and useful. It has been too
busy to be logical or theoretical, and consequently it is full of
absurdities and anomalies, but it works with marvellous ease and
elasticity.

In its centre is the Bank of England, with the prestige of antiquity and
of official dignity derived from acting as banker to the British
Government, and with still more practical strength derived from acting
as banker to all the other great banks, several of them much bigger, in
certain respects, than it. The Bank of England is very severely and
strictly restricted by law in the matter of its note issue, but it
luckily happened, when Parliament was imposing these restrictions on the
Bank's business, that note issuing was already becoming a comparatively
unimportant part of banking, owing to the development of the use of
cheques. Nowadays, when borrowers go to the Bank of England for loans,
they do not want to take them out in notes; all they want is a credit in
the Bank's books against which they can draw cheques. A credit in the
Bank of England's books is regarded by the financial community as
"cash," and this pleasant fiction has given the Bank the power of
creating cash by a stroke of its pen and to any extent that it pleases,
subject only to its own view as to what is prudent and sound business.
On p.33 ("A BANK RETURN", below) is a specimen of a return that is published each week
by the Bank of England, showing its position in two separate accounts
with regard to its note issuing business and its banking business: the
return taken is an old one, published before the war, so as to show how
the machine worked in normal times before war's demands had blown out
the balloon of credit to many times its former size.

If the commercial and financial community is short of cash, all that it
has to do is to go to the Bank of England and borrow a few millions, and
the only effect on the Bank's position is an addition of so many
millions to its holding of securities and a similar addition to its
deposits. It may sometimes happen that the borrowers may require the use
of actual currency, and in that case part of the advances made will be
taken out in the form of notes and gold, but as a general rule the Bank
is able to perform its function of providing emergency credit by merely
making entries in its books.

A BANK RETURN