Very many persons who are out of touch with money-market problems fail to see why the Bank of England’s rate of discount should be in any way connected with a banker’s charges; and though, to those who have not studied the question, the swaying of the pendulum seems due to some occult influence, the forces that move it are both visible to the naked eye and capable of explanation. In the first place, the Bank of England keeps the cash reserves of all the banks in the United Kingdom, and, as a natural consequence, possesses the only large store of gold in the land. The other banks, which are dependent upon this accumulation, become nervous immediately the gold in the Bank’s vaults begins to leave the country in appreciable quantities, because, should not the Bank of England be able to meet their demands, they, too, will be unable to supply the requirements of their own customers. We need not, in a small book of this description, enter into the mysteries of the foreign exchanges, or discuss internal and external drains of gold, but the Bank, in order to arrest a drain of gold outwards, raises its rate, when the other banking companies, equally anxious to stop the efflux, raise their rates too, with the result that borrowers, whether upon bills or securities, have to pay more. Conversely, when the Bank’s reserve is high and the political horizon unclouded this nervous feeling no longer exists. The Bank, we will assume, then lowers its rate, and the other banks follow suit, when the borrower pays less. When speaking of the money-market, the London money-market is always implied, and here we encounter the bill-brokers to whom the banks advance their surplus funds. The banks, that is to say, finance their rivals, who make bills a speciality, and whose knowledge of bills of exchange is doubtless both extensive and peculiar. Seeing that the banks themselves discount trade-bills for their customers, the necessity of a middleman or bill-broker between the person who discounts a bill and the banker who supplies the capital is not very apparent, but the broker’s “turn,” when he re-discounts with the banks, is extremely small; so it is quite possible that were the banks to establish special departments to deal with this business, the slight increase in their rates would not compensate them sufficiently for the troubles of management. As, under this system, the brokers’ rate of discount is below that of the banks, it follows that all the bank-bills and most of the best trade-bills pass through the hands of the bill-brokers, while bills are also sent to them from all the great cities. The bankers, consequently, discount inferior paper at higher rates for their own customers.