In the first place, it sells exchange, save in exceptional circumstances, in one direction only. It will be seen from the table given above that the London Balances fell to a low level in 1908, the Secretary of State making free use of them to aid him in supporting exchange during the critical months of that year. By the law of England the legal tenders are gold and silver coin (the last for small amounts only), and Bank of England notes. Accordingly, the other bankers of London, having perfect confidence in the Bank of England, get that bank to keep their reserve for them. If a proper machinery is set up for lending these out in India, I anticipate some appreciable relief to the Bank Rate at the season of greatest stringency. By irresistible tradition the English Government was obliged to deposit its money in the money market and to deposit with this particular Bank. And in this theory there is doubtless much truth, though it can only be applied in practice after a number of limitations and with a number of deductions of which the older school of political economists did not take enough notice.