, 1862-01-07
NATIONAL. CURRENCY AND BANK.
ING SYSTEM,
a Letter from Edmund Dwight,


gentleman who has given the greater part Of
his life to the study Of fnancinl questions It
will be seen that he does not argue the
constitutlonality or expediency Of the scheme
for national currency proposed By Mr: Chase,
but he desires1ito show, if such scheme Is
adopted, the principles on which alone IN his
judgment it can be safely organized. -
As an Introduction to 4 plan for Z National
Currency and Banking System, I shall en-
deavor 10 establish the following propositions,
using, not the terms Of Political Economy, but
tue plain and concise language Of bankers.
L Specie is the only adequate basis Of that
portion Of the whole paper currency which
may, under any condition Of panic, or of ad-
yeIsc exchanges, be returned for payment.
II. Tie specie which is held for tic security
and redemption of the hank-note circulation
Should br aggregated at the commercial and
financial ecl,tcEs Of the country.
IL. The average aggregate Of specie, SO
held, should bear such proportion to the to-
tai trade Of the country that it could pay any
possible foreign balances against it without
exhaustion; and always leave enough remain
ing to sustain the currency and credits at
home.
". The most effective general safeguard is,
not any indcxible and hau1pering law, but in
ability On the part Of the banka, through week
~ published Statements
]. As all debts nrc made payable In money,
as money is named in all contracts, and is the
representative Of all values, nothing but mo-
uey can satisfy the demand which arises in
those periods Of distrust when all faith in
promises is gone. The sale Of public stocks
viii, Of course, produce money at some rate,
but, at such times, tic market is soon
| giutted, zhd the securities, :. however
sital fact in this question il that the forcing Of
securities epond market ag9r ipates
tie panic beyond all other causes. The better The
secaries are, the more complete and u'siseTsM i
| the destruction Of market values by the forced
| sale and consequent depreciation of'the1n- #
| circulation secured BY United States bonds,
and in q sudden panic You throw ten millions
| of these upon the market, and they fall to SO,
| al other ma1Eet values simultaneously fall in
| the same proportion.
This occurred in 1857, when in sound
state Of the tEade Of the country, mere panic
sales forced New York stocks from ITO to 10,
and the State security system Was totally bro
| ken down. q suspension Of specie payments
promptly followed, and the deposit banks 81
banks 50 quickly, BY taking their notes on
credit, that the fact that the system had failed
and demonstrated its oRn imperf1ciions, va:
hardly recognized, 1t, nevertheless, was q
fact, and momentous one In its bearing OF
the mode Of organizing national currency
For if the market could not take enough O.
New York State stocks unsurpassed in rca
| yalue> to redeem the limited bank note cur
rency secured by them, what would be the re
suit when the stock security Of national cir
| on the game market?
The conclusion then is, that neither bond
nor mortgages, nor State stocks, nor Govern
mcnt bonds, nor British conEals, nor any 9th
er form Of property, can be safely made th
security for the bank note circulation, excep
| hat. 1x1F
balances Of trade can ever drive home for re
demption, and which, therefore, {althongl
nominal1y payable on dcmand} may be regard
ed as permanent loan from the people.
To tlis conclusion more than q century q
experiments and failures have driven th
} statesmen Of England, and it is now fully IT
cognized and embodied in the organization {
the Bank Of England, and established BY it
successful working.
To this conclusion our Own history and fai
urrs impel Us. and will, till we accept it.
2. The specie Of money which IS held 70
the security and redemption Of the bank not
currency should be aggregated at the CONNER
: cial and nnancia: centres of the country
, This is md has been the case in the actu:
working Of all The existing banking system
England, of New York, and Of the whole il
i | terror, rest upon their deposits in the cit
banks, as the means Of redeeming their circr
1ating notes. Most Of their rcdemptions {pe
laps a-lo0) are actually made by drafts upo
;, those city bank deposits, and as those deposit
| rest upon the specie III the city banks, thu
: I specie at these centres OF trade is pr.ctieshl
the real basis Of tic bank note circulation
: the whole country
! The modicuin Of coin kept in the countr
banks serves to furnish change to the peopl'
and, occasionally, for the redemption OF notc
but its relation to the security and redeu1ptio
: Of the paper currency is Of triaing impo
u tance.
Q It follows, therefore, that any 1aw requirfn
n the country banks Of circulation to hold fixe
ler centDges Of specie would be contrary t
The teachings Of experience. Such la
wenld be evaded BY the unsound banks. In tt
), case Of the sound banks it would place IL
: specie where it would be comparatively us
{ less and unavailable. The specie is not wan
i ed in the banks Of the interior; and If it wer
Y to compel them always to hold it would be
i forbid its nsc. Such law would dispens
n ! with the heart, md require the hands an
t. blood.
IS paper currency should be held-subject
s actual use-at the centres Of commerce an
) 5. The avcra5e aggregate Of specie whis
e / should be held at the commercial cent
y should bear such proportion to our who
f. debit balances without exhaustion, and alwa,
Z, leave enough remaining to sustain the cure
d | cy and credits ut home.
n The non-recogrition Of this principle co
ID the nation the terrible experience Of a1mo
Is universal bankruptcy, and the long md pai
re 1n1 struggle which followed the collapse
Is 1886. Previous to that year the country h,
il run up balances ct trade more than four tim
Is greater in amount than all the specie held
ID i'll the banks in the United States.
IS Again, 60 lately as 1857, the banks Of Ne
= York, holding about s12, ,0O0, 600 Of coin, viii
u was then nearly their average stock, were at
or to bear reduction of only. about 8, ,0o0, OF
ID being about one per cent Of the trade Of Il
9e suspension. From that and many previous {
periences they have wisely adopted mu
it. larger specie basis, and by the strength tn
is attained, they hare supported the coniden
Id | Of the nation and the finances Of the goye1
th mcnt through crisis which, in former yea
Mt would have plunged it into bankruptcy.
rs The yalne of q stock Of specie proportion
IT. to the trade Of the country is strikingly sho,
4, in the action of the Bank Of England, Viii
4 has repeatedly paid foreign balances Of tween
Lu- n rise in the rate Of interest, or any distu
TX aDce Of the course of credits and business
s., In view Of the foregoing principles, the
al- lowing plan for national currency and bal
mt ing system is suggested
it 1st. AL future bank-note currency in
Is; | United States shah be issued in the man
I'll following: The United States Treasurer
cd Banking Department) shall furnish to BAT
lc- or bankers circulating notes equal in amo'
lid to ninety per cent of the market yalue Of
NE I United States bonds, which such banks 81
ed deposit as security for such bank notes,
as such banks shall Keep their notes secure by
Of average excess Of ten per cent in United Sta
cir bonds at their market value.
my %. The aggregate amount of bank nQ
which may be sd issued by the United Sta
me Banking Department shall not exceed
'ho amount which, added to the amount in ci1
led | lation under State laws, would be equal to,
ary 500, ,0c0, GOO, that being about the aver
du- amount which experience shows that
en- country will hold.
ole I'd. The Bank Department shall hold in s
Treasury, or in special deposit in specie
average sum, equal to twenty per cent. Of
t. bank notes issued to the banks upop
pledge Of United States stocks.
nj 4th. In addition to the notes which may
~ issued on the pledge of United States stot
~ the Bank Department may issue to the ba
hot ~ baDk-notes equal to the amount Of So,
ave which may be pledged with it as seen
n ms thcrcfor-such specie to belong to the bar
I 4ha and to he held apart from the twenty per c,
~ ~ provided for In section third and such is
e1f 20 secured may be independent of the lin
aey W. x, - E;sst Sistto1 ~ eenonG' Rot3l
nee ILL. snst, .ue oAnh UeputtLuenk q das NJ
~ - any portion Of the twenty per cent. provi
had 1oI ~ setllon SECOND, or any specie n
,ets Treasury to buy from the banks the I'm
pro- eta.es ponus pnasea "en n1n " Inc oa
the ~ ten Pei Gent:, OF more, oelo" me pnc
hip ~ I,as ~ onus ntle pteGgea nat Is
| eySA S1c all L.