The Providence news. (Providence [R.I.]) 1891-1906, 1894-10-20

stands merely the governments promise
to pay. And we all of us day after day
receive and pay out this money, and sill
yer certificates as well, without the
slightest thought that they are not worth
par, for no other reason than that We
believe in the promise of the Govern
ment.
As compared with the present bank
circulation the proposed circulation VIII
have no bonds as basis, but will be
issued only to the extent of 90 per cent.
Qn case of extreme needs 20
per cent? of unimpaired capital. But
as the stockholders OF national
banks are liable for double the
par value of their stock the circulation
will have behind it as one clement in its
basis (and it has that same element OF
strength under the present law stock
holders liability three or four times As
great as its total issue. There
is, however, to be a guarantee fund
of 8 per cent. and this is
new feature, deposited with the
comptroller Of the currtncy to redeem
the bills Of all banks that suspend.
With the present capitalization OF the
the National banks, S700,O 900, the
total circulation would be $350, ,OOO, 900,
and the guarantee fund would be Sl7,-
100000. When we consider that during
the past thirty-one years of the national
banking system, with all its early i'm
projections aud the gross mismanage-
ment of some Of its officers, through
the four panics of 1873, 's3, 80. '93, the
total failures and suspensions OF ma
tional banks and losses to circulation In
consequence have been only 81, ,135, 253,
the amount Of $l7, 800, 900 seems quite
an adequate guarantee fund.
But suppose that the guarantee fund
does prove inadequate, what then?
There is clause in section 9 Of the
proposed plan that seems to have
escaped the notice of most readers. 1t
reads:
redeemed by the Treasurer of the United
States out Of the guarantee fund, il it
shall be sufficient, and if not sufficient.
then out of any money in the treasury,
the same TO be reimbursed to the treas
ury, out of the guarantee fund, >" when
replenished either from the assets of the
failed banks or from the tax aforesaid,
which tax the comptroller of the cur
rency shall have the right to impose at
any time.
If this clause becomes a law, then
there will be as 'basis for the new cir
culation," guarantee fund, the Govern
ment's obligation to redeem the circula-
ton, and back of that the associated
banks of the whole country. That is
practically the present basis reinforced
by the integrity of the whole banking
system.
AS to the elasticity of the new cur
rency desideratum it may be said of
the present system that it is not capable
of expansion, because no system of cur
rency based on bonds can ever be elastic,
for the reason that, as noted
above, to issue $50 in circulation
bank must first spend $114 for
its bonds. and it can not afford to spend
Sll4 for $S5 when it can just as easily
loan the whole $114 and not bother with
circulation. An elastic circulation,
therefore, must be based on credit.
Under the proposed plan of an issue of
80 ner cent. Of the unmpaired capital,
tax for redemption of
only one-half of one per
cent. the profit on circulation
would be SO much greater than at
present that it is very probable that
instead of $7oO. O0O, 900 of capital and
circulation OF 1915, 900, 900 1880. .OO0. 900
less per cent. guarantee fund and a
per cent. redemption fund. $50. .O0O, 900
in ally The banking capital would soon be
doubled and the circulation doubled as
well. In addition to this probability
there is the extra issue of 25 per cent.
circulation allowable under special re-
strictions and taxes, which could be is
sued and redeemed in exact proportions
to the demands of increasing and de-
creasing trade: thus joining an elastic
and safe currency. in all respects.
Such is the new plan of the Baltimore
convention and such are its favorable
features. THE News may give criti-
cism of its clauses as occasion offers;
this is merely an analysis and explana-
ton.