In chapters 2 and 25 we considered the limitations on the discretion of a member bank in a monetary system to ‘create’ bank money. We found that any individual bank is compelled —unless it is prepared to allow its reserve ratio to be modified (up or down)—to ‘keep step’ with the other banks of the system, including the central bank. They can all march forward together and they can all march backward together. A tentative movement in one direction or the other on the part of a single bank may confirm, strengthen or stimulate a tendency on the part of the other banks to move in the same direction. But a single bank cannot move far unless the others move too; for otherwise its loss or gain of reserve resources will rupture its reserve ratio. Accordingly the total quantity of bank money created is closely governed by whatever causes determine the aggregate of reserve resources for the member banks as a whole.

Now the behaviour of an international system, made up of several national systems of member banks each clustering round its central bank, with a uniform currency standard, is essentially the same in principle as that of a closed national system. The discretion of the central banks in respect of their lending policies is limited by the effect of these policies on their reserves—on whether these policies are causing them to draw reserve resources from, or to lose reserve resources to, their neighbour central banks; and there is a similar pressure on them to ‘keep step’—unless they are prepared to see their reserve ratios modified.