CHAPTER XII

PAPER CURRENCY AND MODES OF REGULATING
ITS ISSUES

A° pointed out in the preceding chapter, the work of a
medium of exchange is, in modern communities,
partly performed by representatives of money, partly by
money itself. The representatives of money are of two
classes, bank-notes and Government paper-money forming
one class, bills of exchange, promissory notes and cheques
the other. When we compare the cheque and the bank-note,
we soon realise that both confer on their owner the right of
calling on the banker to pay over an amount of money stated
on their faces. The bank-note is the bank’s own promise to
pay on demand, the cheque is an order requiring the banker
to pay. Assuming that the drawer of the cheque has a right
to draw it, the bank has undertaken to make the payment
for which it calls. Thus the bank’s obligation to pay to the
owner of the bank-note is matched by the bank’s obligation
to pay to the owner of the cheque. If the cheque be payable
to the bearer, as many cheques are, the proof of ownership is
the same in the case of bank-note and cheque, namely
possession. But, from another point of view, the identity of
obligation for notes issued and for deposits payable on
demand, such as balances of current accounts, is perhaps
clearer. If a man hold notes of a certain bank, he holds
that bank’s promises to pay certain sums of money. He
will have an equally valid title to claim the money if he
pays in the notes to the credit of an account opened for him
at the bank. So long as the bank is solvent, the two claims
are identical, the bank’s need for provision in respect of them
also equally imperative, though, as will be seen, the provision