Page:The Bank of England and the State, 1905.djvu/49

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Foreign Trade and the Money Market.

from Sicily to the United States, and agricultural machinery from the United States to the River Plate, all these trades find their Clearing House in Lombard Street. This applies not only to goods, but to securities also. If a Dutch capitalist invests his money in an American railway, he will probably complete the purchase by a payment in London; and when the United States paid Spain for Cuba, it was through London that the transaction was settled, and the same, of course, applies to the Chinese payment to Japan at the close of the war. The fact of our being the only free market for gold, and also the credit and high standing of our bankers and merchants, have contributed largely to our attaining and keeping our position as the financial centre of the world. But this cannot be the only reason, nor even the main reason, for this position. The banker who buys a bill on London, say, in Valparaiso, does not buy it because he wants the gold; but he knows that, if he has no other use for the bill, he can obtain gold for it, though probably at a small loss to himself; he buys it because he knows he always finds a ready market for it, he can always sell it to a merchant, in his own place or in some other country, who requires it, in order to pay for goods or services rendered to him here, or to some Government that has to remit it for payment of interest. There is an absolutely free market, because there is always a supply, and there is always a demand, and that really in every part of the world. For as the seller of foreign goods to Great Britain obtains payment by means of this bill on London, so the purchaser of British goods abroad settles his indebtedness by the same means.

But it is owing to our having first established a trade with all these countries, a trade more important than each carries on with other countries, that ours has become the supreme money market. It has been said that trade follows the flag, but more surely can it be said that banking follows trade, and if our trade for any reason whatsoever were to be restricted, were to be confined within narrower channels, then with absolute certainty others to whom this trade would fall would also oust us from our supreme Position in the International Money Market. What a disturbance