A large part of the 'indemnity' was paid by France to Germany in bills on England, and the German Government, as those bills became due, acquired an unprecedented command over the market.

As each bill arrived at maturity, the German Government could, if it chose, take the proceeds abroad; and it could do so in bullion, as for coinage purposes it wanted bullion.

This would at first naturally cause a reduction in the bankers' balances; at least that would be its tendency.

Supposing the German Government to hold bill A, a good bill, the banker at whose bank bill A was payable would have to pay it; and that would reduce his balance; and as the sum so paid would go to Germany, it would not appear to the credit of any other banker: the aggregate of the bankers' balances would thus be reduced.

But this reduction would not be permanent.