A banker who has to pay 100,000 L.cannot afford to reduce his balance at the Bank of England 100,000 L.; suppose that his liabilities are 2,000,000 L., and that as a rule he finds it necessary to keep at the Bank one-tenth of these liabilities, or 200,000 L., the payment of 100,000 L.would reduce his reserve to 100,000 L.; but his liabilities would be still 1,900,000 L.and therefore to keep up his tenth he would have 90,000 L.to find.

His process for finding it is this: he calls in, say, a loan to the bill-brokers; and if no equal additional money is contemporaneously carried to these brokers (which in the case of a large withdrawal of foreign money is not probable), they must reduce their business and discount less.

But the effect of this is to throw additional business on the Bank of England.

They hold the ultimate reserve of the country, and they must discount out of it if no one else will: if they declined to do so there would be panic and collapse.

As soon, therefore, as the withdrawal of the German money reduces the bankers' balances, there is a new demand on the Bank for fresh discounts to make up those balances.