_The clearing house._--All forms of credit referred to above, where dealers are customers of a single bank, are easily brought together upon the books of that bank, and will practically cancel each other. The customers of many banks in large cities may have their checks and drafts brought into a single system of book-keeping through a clearing house, which is simply a bank of banks. At a certain hour each day, in the larger cities twice a day, each bank of the city brings to the clearing house all checks and drafts against any other banks. These are quickly sorted, charged to the several banks against which they are drawn, and credited to the banks from which they are brought. The balance of debit and credit is settled then and there, either by transfer of cash, or by issue of a clearing house certificate that a bank has a balance in its favor, and so only a small amount of cash is used in settling all transactions of an immense business. The clearings of a single day reach hundreds of millions of dollars, and form an index of the business prosperity of the country.
The system saves the risk and cost of transferring back and forth immense amounts of coin and currency, and brings the business men of the country into ready contact with each other. It is an essential part of the means of settlement between different cities and different countries. A debt in any part of the world can be paid through a draft on London, which by means of the clearing house and its associated banks can be purchased anywhere and paid without delay. Since the purchasing power of any part of the world is chiefly in what it has to sell, the constant motion of checks and drafts in opposite directions will balance each other. If there were no long time credits, the purchases of any city would essentially equal its sales; and so with perfect clearance all trade would be quickly adjusted with but little use of money except for retail business.
_Other clearing systems._--So evident are the advantages of clearing houses in banking that the system extends to many other interests. Railroad corporations balance accounts against each other by exchange of tickets issued by the different roads. Large combinations of dealers in implements or other goods find a similar service available where they can work together with confidence. Express companies sharing in a common service divide the final proceeds upon the same principle. So evident is the advantage that the growth has been rapid during recent years, and seems likely to extend still further.