Savannah morning news. [volume] (Savannah) 1868-1887, 1882-05-26
Bank Circulation.


has brought TO attention certain very
urgent facts relating to bank circulation
which neither that bill nor any other has
recognized.
In founding the national banking sys-
tenn, the conditions relating to the issue
of circulation were determined by an ex-
elusive regard for the convenience of the
government in procuring a market for
its then current large issues of bonds.
The government said to the banks-"if
you will take our bonds, we will author
iZe YOU to issue you rown circulating
notes to the amount of 80 per cent. of
the bonds so taken" As the banks re-
ceived 5 to per cent. in gold upon the
bonds and could also lend their notes,
the offer was too tempting to be reject
ed; and the result was that large por-
ton of the banking of the country was
transferred to the national system and
the government ultimately found rest
ing place for nearly 400 millions of its
bonds. This was the turning point in
war finance and, in all probability, it
saved the government from bankruptcy.
1t was, however, nothing more than an
expedient for the crisis of the moment,
and should never have been regarded as
affording a permanent basis of bank cir
culation. 1t has uuquestionably given
us a circulation which for safety, ready
redemption, and universal acceptability
could not be surpassed, and hence the
country has been more than satisfied with
it. The misfortune is that this circula-
ton has been better in these respects
than the banks could permanently afford
to make it, better than could be main
tanned if just regard were to be paid to
other classes of the banks creditors. The
country, however, has become so accus-
toned to the high degree of security af
forded to the notes, that it will be found
very difficult to bring public opinion to
appreciate the reasons which at no dis
tant day must compel a change in the
basis of bank issues Such a change,
nevertheless, must come, or this form of
circulation must be abandoned.
In the first place, it is an inequity
wholly inconsistent with just principles
of banking that so large portion of the
capital of the banks should be devoted
to securing the note holders and so little
to protecting the depositOrs. AS matters
stood in October last, the banks held as
capital and surplus 1892 900, 900. Of
this sum 1868 coo, 900 was employed in
United States bonds pledged to pro-
tect 1920, 900, 900 of outstanding notes,
leaving only 1929 000. 900 available for
protecting 81 070, 600, 900 of debts due to
depositors Thus the note holders are
protected dollar for dollar, while the de-
positOrs are shielded to the extent of
only 21t per cent. This gross inequity
is utterly unjustifable upon any sound
votr0loc nf hanlrino, - hoe hor1lvy
precedent in the history of banking OPP
erations; and it would never have been
permitted TO be legalized but for the
special national financial necessities
which alone led to its adoption. 1t is
an anomaly in banking that should not
have been permitted to exist for one day
beyond the period of the imperative ex-
igency that gave it birth; and yet unre-
flecting custom has led the people to re-
gard it as a normal condition In reali-
ty, it is a weakness that vitiates and en-
dangers the whole structure of our de-
post banking and should be remedied
under any circumstances.
There is, however, another very i'm
perative factor which must compel i'm
mediate attention to this guarantee
ing of bank circulation. The rapid re-
duction of the national debt exerts
double pressure upon the privilege of
issuing notes. 1t is diminishing the
amount of bonds available for deposit
against the issues, and the bonds are
yielding such low rate of interest that
the Issuing of notes is becoming unprof1
table. The larger half of the bonds now
deposited by the banks are likely to be
called for redemption within the next
four years, and to replace those bonds by
others at current prices would leave a
margin for profit so narrow that there is
every reason to conclude that large
amount of circulation would be with
drawn. We have clearly reached point
at which the bank circulation can no
longer expand with the increasing re-
quirements of our rapidly growing bust
ness, and from which this form of cur
Teney will be compelled to gradually
contract, unless the conditions of issue
are moderated.
We are thus brought to the verge of
crisis in our currency arrangements that
calls for the most serious and candid con.
sideratiop. 1t may be taken as beyond
question that the country will not submit
to any contraction of the aggregate
volume of our composite currency; and
therefore any disposition to permit the
bank currency to decline, without pro-
viding compensation or remedy, would
prove dangerous mistake. The future
conflict on this question is pretty sure to
lie between increasing the paper issues
of the government, as advocated by the
Greenbackers, and such a change in the
condition of bank issues as would admit
of maintaining or expanding them. Pos
sibly, further question may arise as to
the propriety of repeating the existing
restrictions upon the issuing of notes by
the State banks. The prospect of con
troversy of this delicate nature is by no
means a welcome one; but as it is newt
able, the true course is to meet it prompt
ly, rather than allow it to drift, with con-
sequent disturbance to every interest.
The Greenbackers will now have their
opportunity; and, as the course of
events will seem to favor their demands,
their doctrines will have the better
chance for acceptance. There appears
to be little or no chance for defeating
their schemes for flooding the country
with new issues of government paper
except by encouraging bank issues,
through diminishing the guarantee re-
quired from the national banks against
their circulation. That is the readiest,
the easiest, the most equitable and the
safest remedy; and the sooner it is adopt
ed, thelsooner will this unsettling question
be got out of the way. The "contrac-
zionist" will commit serious error if
imagining that an opportunity has ar
rived for permitting the volume of the
currency to diminish through allowing
matters to take their course-they OPP
pose such a settlement. Experience has
abundantly demonstrated that the West
will never consent to a contraction of
the currency; and if the "contractionists'
offer resistance to measures for protect
ing the bank circulation, they will, in all
probability, enable the Greenbackers to
control the settlement.
1t is perhaps too late for the present
session of Congress to undertake this
question; but is none too early for men
of moderate views to unite their eff.
forts for enforcing q settlement at the
next session.