INTERNATIONAL PAYMENTS 201 
The link of connection, it is hardly necessary to say, is in the 
bank rate of discount. The rate of discount tends to rise as 
bank reserves become less, to fall as they become greater. It is 
specie which is the variable and shifting constituent in the money 
available for bank reserves — the money that can always be used 
for payments by the bank. The other forms of money which may 
be permissible for such payments, such as government notes, are 
usually fixed in volume once for all. Hence it is the inflow or out- 
flow of specie which primarily affects the discount policy of the 
banks. Their discount policy in turn affects the volume of accom- 
modation which they offer to the borrowing public, and this in turn 
affects the volume of notes and deposits outstanding. In such 
fashion the international movement of specie may impinge 
promptly and effectively on the actual circulating medium of a 
country, on the general spirit and trend of its mercantile and 
trading operations, on the ups and downs of its price level. 
Next, as regards domination — the ultimate consequences, not 
the immediate. Notes and deposits, so the usual reasoning 
goes, are in the last resort dependent for their volume on the 
specie into which they are convertible and on which they rest as 
on a foundation. The relation between foundation and super- 
structure may not be precise; a given basis of specie will not 
always support the same volume of bank money ; but in the end 
an increase in the specie basis will lead to a roughly corresponding 
addition to the amount of active notes and deposits. As regards 
notes, the details of the legislation of the several countries neces- 
sarily affect the degree of correspondence. As regards deposits, 
legislation played its part, and still plays it, in the case of the 
United States, the one country where the law has specifically 
regulated the amount of the reserves which banks must hold 
against deposits. Elsewhere, in the absence of legislation, it is 
custom and the very necessities of the case which compel the banks 
to hold in their vault some legal-tender money and to keep their 
volume of deposit obligations in some relation to these holdings. 
[n all the deposit-using countries the general tendency among 
competing banks is for each one to swell its business (1.e. 1ts