Dakota farmers' leader. (Canton, S.D.) 1890-19??, 1897-03-05
NEED OF BANKING
REFORM.

Those who see that the present check
to gold exports and the building up OF
the gold reserve held by the national
Government is directly attributable TO the
misfortunes that have overtaken our
competitors. and cannot. therefore, regard
the present relief from currency troubles
as other then temporary, are urgent IN
their demands that our greenbacks and
Treasury notes be retired, and our cur.
rency system be built up on sound foun-
datlons. But the sound foundation on
which they would build is our banking
system, the fabric of the credits reared
by the banks. And the credit fabric is,
as we have before said, as top heavy as
our fabric of national currency. Like
our national currency, this bank
fabric has not been brought down to the
gold basis. The foundation on which it
rests has been weakened, but the weight
resting on the weakened foundation has
not been reduced. The result is, we are
ever threatened with the disaster Of COL
lapse. Like our national currency, the
fabric of credits reared by the banks is too
broad for it's basis. there is no sufficient
means provided for its redemption. And
of course. when demands for redemption
come that cannot be provided for by cur
rent receipts, that is, when daily deposits
do not provide the funds to meet daily
~. 1e nd
as a drain on deposits is likely to recur
periodically, the credit fabric reared by
the banks is periodically likely to COL
lapse. Such a fabric cannot be made
into safe foundation for a currency
system.
Whenever the national Government
finds itself getting into deep water the
banks are very likely to be found in the
same unenvitable state. When gold
exports come as the result, first, of our
endeavoring to get on the gold basis
without contracting our currency and
pulling down prices to the gold level,
and, second, of our discarding silver,
thereby raising up the premium on gold
which enables our competitors to cut
down prices in the European morkets
and makes it impossible for us to export
enough surplus produce to pay the inter
est on our foreign debt, the drain falls
both on the banks and the Government.
The Government is called on to
supply the gold, but the banks are
called upon to supply the green backs and
treasury notes to get the gold out of the
Treasury. And these greenbacks, etc.
are the basis for the fabric of bank cred
it's just as the gold in the Treasury is the
basis for our paper currency. Conse-
quently the pulling out Of these green
backs and treasury notes is equivalent to
pulling out the foundation of the credit
fabric reared by the banks. And this
foundation drawn out, the collapse of the
credit fabric must come unless something
is done.
The Government, when in a similar fix,
has borrowed gold to avoid collapse.
But not so with the banks. They go TO
work and put a fictitious foundation, by
the name of clearing house certificates,
in place Of the foundation of greenbacks
and treasury notes. In short, they use a
currency of their own creation, in place of
greenbacks and treasury notes, as basis
for their credits. This currency of clear
ing house certificates is unknown to the
law. In issuing it the banks violate their
charters. yet they have issued these GER
tlficates with impunty. Comptrollers Of
Currency have winked at such transgres.
sions of the law. They have permitted
such usurpations of sovereignty to 20 un.
rebuked.
1t is true that there are certain certifi-
Gates, the issue Of which IS authorized by
law, and which are known in the Nation
al Bank act by the name of clearing
house certificates. But these certificates,
known to the law as clearing house certi-
ficates, are authorized to be issued by the
Clearing House Associations only against
deposits of legal tender money of the
United States IN the vaults OF the clear.
ing houses, and they are not the kind Of
certificates the banks make use Of in
times of trouble OF these legitimate
clearing house certificates they make use
of all the time in effecting settlements
between themselves, their purpose being
si.nply to obviate the carting Of specie
and currency through The streets. Thus
at this time the New York banks have
somes4s, 900. 600 of these certificates issued
against deposits Of gold in the clearing
house. The clearing house holds the
gold, the banks the certificates, and the
transfer of these certificates effects a
transfer of the title to the gold repre-.
sented by them. Thus the banks effect
their payments without handling the
gold.
But, as we have said, these are not the
sort of certificates the banks issue when
the foundation Of the credit fabric they
nave reared is pulled away through the
withdrawal of deposits. The certificates
they then issue and use exactly as if they