INTERNATIONAL PAYMENTS 203

The relation is not unfailing; an element of the unpredictable
remains. But, given a bank or a set of banks for which the ruling
motive is the aim to secure the maximum profit, deposits will
increase in the long run as reserves increase, and will decrease as
reserves decrease.
Let us now take up once again the matter of sensitiveness. It
is connected, obviously, with that of domination; yet it raises
some problems of its own. They can best be considered by classifying
 countries according to the degree in which their monetary
systems are sensitive. In some countries the conditions are (or
have been) such that an inflow or outflow of specie might be
expected to bring quick response in the banking and currency
situation. In others the response is slow and uncertain.
The classic instance of marked and continuing sensitiveness is
that of Great Britain, as her monetary system stood in pre-war
days, and again stood after the resumption of specie payments in
1924. With a great utilization of deposit banking and a towering
mass of demand obligations in the form of deposits, the banks
habitually carried in reserves, as the basis of it all, the bare minimum
 necessary for the recurrent daily demands for cash over the
counter. IFor the banking system as a whole no increase of money
available for reserve could take place except thru the importation
of specie. The Bank of England was the one source to which a
joint-stock bank (the ordinary bank) could turn for cash. Bank
of England notes were virtually gold certificates, varying in
amount with the amount of gold held by the Bank. The Bank's
holdings of gold in turn fluctuated chiefly with the conditions of
international payments — the foreign inflow or the foreign drain.
The Bank then, according to the extent of its gold reserve, made
it easy or hard for the ordinary banks to maintain or replenish their
cash, using its rate of discount to them as the means of regulating
loans, thereby deposits, thereby command of cash. Being chiefly
a bankers’ bank, its discount rate to banks served to regulate the
general discount market. The links of connection were close:
gold inflow and outflow, bank discount rates, the loosening
or restriction of loans and deposits, the temper and spirit of