St. Paul daily globe. [volume] (Saint Paul, Minn.) 1884-1896, 1888-03-14
FAIRCHILD'S ANSWER.
The Secretary Gives His Views on
the Redemption of National
Rank Notes


the Redemption of National
Bank Notes.
WASHINGTON, March 13.-Secretary
Fairchild to-day sent letter to the
senate finance committee in regard to
the Sherman bill for the investment of
the funds for the redemption of national
bank notes. He says in part: Your
committee, some time since. asked my
opinion upon senate bill No. 1916, in
troduced by Mr.. Sherman. Said bill
directs the secretary of the treasury to
invest so per cent of the fund held by
the treasurer of the United States under
existing statutes, for the redemption Of
the notes of national banks which have
reduced their circulation, by the pur-
chase in open market of United States
interest bearing bonds. The bill is
mandatory and would require the in
vestment to be made Immediately upon
it's passage. The secretary is further
directed to sell in the open
market so many of the said
bonds as in his judgment shall
be necessary to redeem the bank notes
as they are presented for redemption
whenever the uninyeSted portion of
|. said fund falls below 20 per cent of
the whole. The bill further declares
That it's purpose is to maintain in the
treasury for such redemption not less
than 20 per cent. and not more than 50
per cent. of the money deposited. The
secretary discusses the questions raised
by the bill and says: After mature
consideration it does not seem to be
/ well thus forcibly and suddenly to eX-
pand the circulating medium when eX-
pansion inevitably must be followed in
short time, and, perhaps suddenly, by
almost equal contraction. The business
of the country has already adapted
itself to whatever diminutiOn of circu-
lating medium has been caused through
. the surrender of circulation by National
banks. The alternate expansion and
contraction resulting from this bill
would, in my Judgment, promote only
speculation.
NOT HEAITHFUL BUSINESS.
On the whole it would appear to be
better that the time when this contrac-
ton takes place should pc determined
by the voluntary action of the banks, as
is now the case, than by the compelled
action of the treasury, as would be the
case even if this bill applied only to fut-
ure deposits. The banks will not sell
their bonds unless it be profitable to do
SO, but the treasury might be forced to
sell them at loss under the provisions
of such bill. The contraction of the
circulating medium would lie the same
in amount, and it might be more sudden
under such a bill than under the law as
it now stands. The last section of the
bill authorizes National banks to issue
circulating notes to the par value of the
bonds deposited, instead of 80 per
centum as now. The increased circula-
ton authorized by this bill would prob
ably not exceed S19,O0O,OOO; there would
not be great profit in circulation at
the present price Of bonds,
ton were authorized. and any
attempt by the banks to purchase
many bonds would soon advance the
price beyond The amount where circula-
ton could be proftably issued upon
them; this certainly would be the case
if the forced governmental purchase
required by the earlier provisions of
this bill was simultaneous with bank
purchases; however, the 10 per centum
increase would be to that extent of
benefit to the banks and not harmful to
the public except as it might
COMPEL THE GOVERNMENT
+ to pay more for the bonds, the purchase
of which is directed by this bill, than
otherwise would be the case. If the
average annual increase of National
bank circulation should continue to
equal that of the average of the past
five years the whole of such circula-
ton would have been retired by the
end of the fiscal yer 1884, The mini
mum of bonds which the national
banks now in existence must keep Oh
deposit is about 800, 000, 600; it is, there
fore, not possible that the rate of de-
crease of circulation should con-
tinue, unless government purchases
of bonds drives their price
SO high that it is clearly
for the interest of the banks to sell their
bonds and retire from the National sys-
TEN; this might be the result should
this bill become law. But even if the
National bank circulation should be re-
tired in the future at the same rate as
during the past five years, there is no
reason to fear that its place will not be
supplied by other forms of circulating
medium as rapidly as it has been in the
past. In my judgment the purchase of
bonds with the surplus revenues of the
government is the only immediate relief
from the evils caused by the accumula-
+tiOn of the circulating medium in the
treasury through excessive and unnec-
aessary taxation; but even this relief
will be only temporary and partially
effective for that purpose; repeal of the
laws which levy the excessive taxation
and cause the accumulation of the harm
full surplus is the only adequate remedy
flor this fiscal disturbance which our
Government now causes