202 MONEY AND BANKING

times; but if over-exercised, it can become abnost in amoment a most importunate bability.

240. Use of credit as a medium of exchange,Themost important function of credit is its power to circu-late as a medium of exchange. Obviously, if exchangecan be consummated in large volume by means of credit,the necessity of huge national investment in the preciousmetal is obviated. The whole system rests upon theassumption that not everyone is going to present de-mand credits for redemption at the same time. Ex-cept in extreme instances, the assumption is a good one,,and credit has become the chief medium of exchange ofthis country.

In order to circulate in lieu of money, credit mustbe payable on demand. Furthermore, the issuer mustbe one in whose integrity and ability to pay, the publichas entire confidence. Naturally, then, the creditwhich circulates the most freely is Government credit.Second to this is bank credit, and as this is the mediumin which a large proportion of our exchange is made, itis well to consider it separately.

241. Bank credit,Bank credit has two forms, notesand deposits. The true bank note is the simple promiseof the bank to pay legal tender on demand; the de-posit is precisely the same except in form. Thesecredits are created as the result of an exchange, eitherof money for credit, or credit for credit. If the cus-tomer brings money to the bank he receives for it eithernotes or a deposit account, depending upon which willbest suit his needs. If he comes to the bank as a bor-rower, he exchanges his own time credit for the bank'sdemand credit and again takes it in either form he de-sires. It is the credits thus created which perform so

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