The herald., 1894-12-22
BANK NOTE CIRCULATION.


Alls of planB have been submitted
to bring about prompt, systematic and
certain redemption of all bank notes.
1t ia urged by competent, conservative
finauciers that it is not enough that the
u1imsts redemption Of the notes shall
bs secure. for under any decently mod
ern system of banking the Limitation OF
issues to 70 per cent OF the paid>up oapi.
tai, the fret lien on all assets and the
liability of shareholders to double the
amount OF their shares would insure this
with entire certainty. 1t is claimed as
Indispensable, however, that every dol.
lar OF the bank issues shall, the moment
it ceases to circulate in actual ex-
changes, return to the bank of issue and
be there redsemed. On this condition
the banks get all the profit from circuls-
tion consistent with the safety OF the
note holder, and no more.
One OF the plans under discussion to
bring about this redemption lie reviewed
by the New York Times at length. It
10 proposition providing for the divi-
sion of the country into half dozen re.
dempton districts, in each of which
there shell be central redemption
agency at which all notes, whether is.
aued within the district or not, should
be redeemed on presentation. each
agency sending the notes from other
districts to the respective agency for re.
dsmption.
1t is probable that this plan could be
developed in form to be effective. That
would depend entirely on the prompt
ness with which it could be made to
work. There would be a tendency to
check redemption by the vsristions OF
exchange ct the different agency cities,
which it would require careful study to
overcome.
Another plan contemplatss n sngla
redemption agency in New York as be-
ing the insnoial center of the country,
and this would have the distinct sd-
vantage that exchange generally favors
the sending OF currency in that direc-
tien.
The chief defect, the real vice, OF our
present currency system, in the opinion
of the Times, whether oil government
paper or of bank notes, is its rigidity.
In the case OF the government paper
the rigidity is created and enforced by
law. The total volume in circulation
cannot be increased and cannot be re-
dTced save by the Insignificant amount
passing through the treasury, Gnd for
the relatively short time thua occupied.
the dictate of the law is that when the
notes OF the government come into the
treasury in any way, either in payment
OF dues to the government or for re.
dsmption, they must as rapidly as pos
sible be reissued and kept in circula-
tion. As to the national bank notes,
the conditions are more complicated.
The increase of circulation ia not deter.
mined solely by the legitimate demands
of business, but is largely affected by the
price of bonds, which does not necesaa-
rily correspond to the requirement Of
business. On the other hand, the in.
crease once having been made, the rs-
duction is checked by definite provision
of law and cannot exceed the rate 60
fixed. To call this a nationally elastic
currency is sssurd Real elasticity
msans the regular and automatic re-
aponse of the course OF the currency up
and down to the actual requirements Of
trade. Redemption. to secure this, must
act like a safety valve. A safety valve
that did not work with increased or
diminished pressure, but was regulated
by force practically indepsnden and
unconnscted, would secure NO regularity
or safety whatever.
Perfect rede is peculiarly nee.
essary il the specific security of bonds is
to be given up ahd if the bank notes are
relied upon to furnish large part OF the
currency. The part they furnish must
be flexible end its course must be deter.
mined easily and surely by the condi.
tions Of trade. This is not only requi-
site to the safety OF the notes, but to
the orderly and regular procedure of
business. The only way to prevent
heavy demand for redemption at times
of apprehension when the least delay
heightena anxiety and tends to produce
panic, is to provide for the steady re.
demption OF all notes not actually en-.
ployed in exchanges. That was what
the Suffolk bank system--which was
simply very perfect bank note clearing
house-did for New England. No cur
rsncy reform will be really effective
without the principle Of this safeguard.
and with this, defects OF any other kind
will surely be developed and corrected.