Democratic Northwest. [volume] (Napoleon, Ohio) 1869-1894, 1883-12-06
rHE cuRREncV-
Comptroller Knox on the Contraction Of
National Bank CIrc culatIon.

Comptroller KnoI on the Contraction Of
National Bank Circulation.
wAsHNerox, Nov 96-The portion Of
Comptroller Knox's IMPORT relating 10 the
contraction Of National bank circulation Is
the most interesting and important part Of
the document The Comptroller refers to
the probability that all the thTees viii be
called for redemption within the next three
years, and says this will reduce the bonds
held by banks from SS5s, ,000, 900 to s151,-
100000 and cause contraction Of the
National bank circulation OF about s60,O0o,-
600 per annum. II Is evident unless there
is additional legislation the bonds held
as security for circulation will rapidly
diminish. New legislation may, how
ever, postpone payment of the public
debt, or cause the profit on circulation 10 In
crease sufficiently to induce National banks
to invest In long fourper cents, which are not
to mature for twenty-four years. Contrac-
ton Of bank circulation may be avoided by
the reduction of the redundant revenue, and
there Is no doubt this is the true policy.
Contraction Of bank circulation may also be
avoided by the conversion of long bonds into
three per cents, by offering an inducement to
holders Of bonds to exchange them for three
per cents to mature in 1907, the Government
paying the holders thereof a reasonable
amount for the difference in value The pre-
MUM to be paid holders Of these long bonds
may be considerably reduced by providing
that the circulation to be issued upon the
proposed bonds when deposited by National
banks as security therefor, shall not be
subject to the present tax of one per cent.
per annum, or pOstponing the time of their
payment. Contraction would also be
avoided by providing for the removal of the
tax on circulation, and the increase of the
amount of circulation to be issued to the
banks upon bonds deposited by them.
The Comptroller considers that so long as
there is a sufficient amount of United States
bonds outstanding, legislation should be so
shaped as to continue them in use as basis
for the National bank circulation With a
decrease of interest and decrease of profit
upon circulation, the amount of issue upon
the value of bonds would be also decreased.
There is no propriety or justice in authoriz-
ing the issue of ninety dollars upon every
one hundred dollars of the three per cent.
bonds worth par, and refusing to issue like
proportion upon the four per cent. bond
worth one hundred and twenty-one dollars.
Holders of Government bond can
readily borrow money upon it as pledge
from bank to the amount of ninety-fye
per cent. of its market value, and it is not
surprising that banks prefer to relinquish
their circulation rather than to deposit, as
security bonds having a margin of more
than One-third of the circulation issued.
A law authorizing the increase of issue to
ninety or ninety-fiye per cent. upon the low
est market price during the calendar or 'fis-
cal year previous to deposit, together with
the repeal of the tax upon circulation,
would result in the depos;. of q sufficient
amount of four and four and half per
cents. to maintain the circulation at about
the present aggregate. ....lt ..f.
The amount of gain to the Government
from the accidental loss or destruction of
circulating notes, the Comptroller says, does
not properly belong to the United States. or
the banks issning the notes, but to the own
ers of the notes at the time of the loss, and
the gain thus accruing should be carried to
the credit of the 'insolyent bank redemp-
tion" account in the Office of the Treacurer.
The Comptroller believes that the PROPOSE
tiOn to convert long bonds into three's is
more desirable than the proposition to in
crease the rate of circulation, and that a
large contraction of the currency, now im-
minent, should not be allowed to take place
too rapidly, or the deficiency caused by such
contraction will be replaced by substitute
less desirable than the bank notes now in
circulation. ...-
Knox calls attention to the statement that
the contraction of currency may be supplied
by imported gold, by the annual product of
mines, or by the coinage of the silver dol
lar, upon which silver certificates are now
issued, and shows that the excess Of the
gold import is growing smaller, and the
probability that the gold now held by us
will not long hence be greatly diminished.
The substitution of standard silver dollars
for the retired circulation would be simply
the introduction of inferior cleSency. In
answer to the proposition that treasury
notes as well as silver certificates may be
issued in place of the bank notes to be
retired, the Comptroller says that
the treasury is embarrassed with reve-
nue. greater than it needs, gsd greater
than it can iudiciously disburse, and
under such circumstances the authority
from Congress to print additional treasury
notes would lead to still greater embarrass-
ment and place treasury circulating notes at
time when the most important subject
before Congress is the reduction of the re-
dundant revenue and the employment Of
the surplus overf1owing treasury. If it
were possible to issue additional treasury
notes when the revenues of the Govern
ment are so much greater than its expendi-
lures, and simultaneously with the yearly
additional Of silver dollars now authorized
by law, it is evident that such steps would
lead plainly from gold to a silver stand
ard. The issue of additional treasury notes
will weaken the treasury and be likely to
create doubts of the ability of the
Government to pay gold on demand, and
the Government by declining to pay in gold,
thus taking from the holder the option of
payment, may at any time bring the Nation
upon silver standard, advancing the price
of products and demonetizing the entire
gold coin of the country. In such crisis
the reserve gold in the treasury would be
continually diminished on the one hand by
the presentation of its notes for payment
while its revenue on the other hand would
not be increased by the customs duties paid
in gold as at present, but by the return of
silver dollars and silver certificates, which
WILL under existing laws, sooner or later
drive every dollar of gold coin out Of circu-
lation, bringing upon the country much
greater contraction than that which it is now
proposed to prevent.