The Minneapolis journal., 1903-04-10
BANK NOTE SYSTEM
Geo. E. Roberts, Director Of the
Mint, Tells Of the Proposed
Reform in It.
The Fowler Bill, Now Pending in
/. Congress, and What It Would
Accomplish.
From The Journal Bureau, Room IS, Post Build
ing, Washington. '.~ 81. ga.77, --@.--


George e. Roberts, director of the mint,
before the Association for the Advance
ment of Science: r.. t-s
1.-THE banker in each community is the
agent through which that community set
ties its accounts with the outside world.
One hundred men may go into bank
in day and arrange for the payment
or collection of distant accounts. In the
natural order of business one-half Of them
will want to buy drafts to make pay
ments and the others will want to make
cash drafts which they have received.
The banker takes the money Of those who
come to buy drafts. gives it to those
who want to cash drafts. and both GUS
toners go away with their distant ac
the days business with substantially The
same amount of money on hand that he
had in the morning, but he has out
standing certain credits which he has
drawn on central cities, and has on hand
to Offset them certain drafts by other
banks on the same cities. He forthwith
forwards the latter to meet his own
drafts and they balance and cancel each
other That is the end Of the 100 scat
tered and distant transactions. So all
the accounts between distant individ-
ua1s are first gathered into the local
banks, then passed on to the central
cities, and are sorted and shifted until
a few men In the same town hold them
against each other. Then there is moth
ing to do but that which two individuals
do when their accounts against each
other balance, to-wit, exchange receipts
and begin again. Everybody understands
the economy and advantages Of this sys-
tenn Of effecting settlements by credit
instruments. which are paper represen-
tatives Of actual property moving In the
exchanges. There is no mystery about
It.
Reform In Bank Note System.
'The real reform in the bank note
system Is to be had by making the bank
note a true credit instrument similar
to the bank draft. We have been 50 long
accustomed to the present bank note
which is regarded as permanent form
Of money that it's true office, which is
to perform in the local exchanges service
similar to that performed by the draft
in the larger exchanges. has been for
gotten. The present national bank note,
when it leaves the issuing bank, floats
off to any part of the country and or
dinarily no one thinks any more Of pre-
sentng it for redemption than of having
a gold certificate redeemed. Instead Of
being a credit instrument. issued like a
bank draft to perform a specific service,
It is a convenient form Of capital
1.-THE average banker educated upon the
tenn. is alarmed at the thought Of having
his notes coming promptly back for re-
tlemptiOn It is a bugbear to him. His
mind instinctively reverts to some plan
by which the notes can be scattered far
and wide, so that they may not be pre-
sented for redemption. On the contrary.
the safety of the system lies in current
and regular redemption, which keeps the
volume down to the volume of current ex-
changes. Then the volume has the capac-
3ity for expansion when needed, and,
whether great or small, has the same fac
,ulty of f-eXtinguishment that charac-
sterizes drafts and bills of exchange. The
objector to note issues without special Sc
curity wants first of all to divest himself
. of the idea that note redemption depends
solely or primarily upon the gold reserve
in the banks. That is a reserve and
guarantee fund. but the regular redemp-
tion of a, scientific bank note currency is
through clearinghouse by e. system Of
offsets. Under the Fowler bill, now pend
/. ing in congress, each bank would send the
notes of other banks that come to its
counter to it's correspondent in the clear
g-house city of it's district. 1t would
have double object in doing this. First,
it would prefer to pay out it's own notes
instead of theirs, and secoEd, it would do
it to have an offset to it's own notes in the
clearing house and to build up it's gold
a further development Of the clearing
house idea as we now have it in operat tion
for drafts and checks. 1t is further
economy in the exchanges, further sub
stitution of an inexpensive medium.
Can anybody tell wherein any new
principle is developed or any liability
is created by substituting a banks own
notes for its customers checks in circula-
ton? If a bank loans 81. 600, what differ
ence does it make to the institution
whether the borrower takes credit in his
account and checks against it, or draws
the amount in bank notes? In the one
case it has the liability in the form of q
deposit, and in the other case it has its
i own notes outstanding. "-t
% The Theory Of the Opposition.
THE. general theory Of those who op-
pose the system is that every bank would
s forthwith put out it's full authorized cir.
culation and keep it out But that canno,
a4be done. 1t is to be remembered tina,
+ while each bank is interested in swelling
its own circulation all the other banks arc
conteracting it's efforts. The best illus
tration of the practical operations of sucl
+ system is to be found in the record OF
the Suffolk bank system of New England
a voluntary association of banks which
j did business for some forty years prior
Z to the establishment of the national sys.
tenn. There were about 500 New England
8 banks IN that system which was WHOLLY
1aNotuntary one without any legal regu
lAtions. Each bank sent the notes of al
other banks to the Suffolk bank of Bos
ton which sorted and balanced the note!
and returned them to the issuing bank
Their experience was that they could kee,
out only about one third of their author
y lied issue. I. ... s, IA
$a 80 long as a bank confines its not,
issues to the service of it's regular daily
y n
accommodation to farmers, manufactur
and merchants in their business, there will
be no important balances against it at tn
g clearing house, because the legitimat
s trade of the country offsets itself. But a
Fl soon as a bank begins to greedily push it
circulation by unusual methods or unusua
credits adverse balances at the clearin,
i house will begin to appear and its gol
reserve will begin to dwindle. So long a
4 a bank does only the business that ban]
ought to do, redemption is no problem a
all. but the moment it departs from tha
policy, 1t must suffer and settle at ever
misstep. Instead of encouraging inflatio
and speculation a proper bank note syster
would restrict it. d Instead of being aEcove
for loose banking under. which bad debt
could accumulate for years, it would brin
every bad lean based on notes issued horn
promptly and enforce immediate settle
ment. s.
1t is not likely that any bank coul
get a sconsidera BILE circulation outside {
its own locality. The notes could nc
float off to New York and be, the basis {
speculation there, for they would not b
I good in the legal reserves of the Ne,