Thus we see that the Bank of England, like the other banks, creates credit by any advances that it makes; and its action in so doing is of especial importance because the credit that it creates is regarded as cash by the other banks. If it lends money to Government to pay interest on Government debt, the Government draws upon the credit so created, and pays out cheques to the debt holders, which they pay into their banks, and so there is finally an increase in the balances of the Joint Stock banks at the Bank of England and in the amount of the Bank of England's "Other" deposits. On the other side of the account there will be an increase in the Bank of England's holdings of Government securities. The same thing happens if the Bank of England lends money to the Government to pay for a battleship, or to meet the salaries of its officials, or if it lends money to any other borrower for any other purpose. The borrower draws a cheque, which is paid into one bank or another and increases the credits held by the banking community at the Bank of England. And, as has been shown above, other banks include their credits with the Bank of England with their legal tender cash. Thus, whenever the Bank of England lends, it places at the
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