and to which in turn it remits for collection drafts and checks which it has received.  From time to time, as balances of accounts increase on the one side or the other, shipments of actual money become necessary, but these are only a small fraction of the total amount of the bills of exchange.  Similarly, the settlement of accounts between any two localities can be made by the shipment of comparatively small sums of money.  Under the Federal Reserve Act the reserve banks are in various ways assuming the functions of the correspondent banks.

The wider use and acceptance of individual checks at long distances from the banks upon which they are drawn limit by so much the proportion of special bills of exchange drawn by the banks themselves.  Domestic exchange involves just the same principles as foreign exchange of funds, except that in the latter, usually, two different units of standard money are used.  In connection with the discussion of foreign trade below, foreign exchanges will be explained and further light will be thrown upon the adjustment of the money supplies and levels of prices of the various sections of a single country as well as between different countries.

Sec. 9. #Issue of notes#.  The issue of bank notes as a mode of lending a bank’s credit calls for consideration here.  Yet it must be observed at once that comparatively few banks in the world have now the legal right to issue their own notes.  In some cases the right has been granted as a monopoly to certain banks in return for specified payments and services.  But in general the function of bank note issue has come to be treated as so closely connected with that of the coinage and regulation of the standard money that it has been increasingly limited in each country to a central national bank, or group of banks, which is in many respects practically if not technically an organ of the government.  This public nature of bank note issues has been strikingly evident in Russia, England, France, Germany, and other countries since the outbreak of the war in 1914.

No two countries have quite the same system and kind of bank notes.  It is well to consider first, therefore, the qualities of typical bank money.  This consists of notes issued by banks on the credit of their general assets, without special regulation by law.  With such a form of note we have had until 1914 no experience in the United States since 1866, at which time a federal tax of 10 per cent on state bank notes made their issue unprofitable.  Since the passage of the Federal Reserve Act we have temporarily two kinds of national-bank notes, the old bond-secured notes, in use since 1863 (very different from the typical form),[10] and the new kind of Federal reserve notes very nearly typical in character but issued only by the Federal reserve banks, not by individual banks.