New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1907-02-01
SHAW ON THE CURRENCY
HOW TO GET ELASTICITY.
Fauors Credit Circulation Gaaran-
teed bY the Government.

teed By the GOUernment.
Secretary Shaw OF the Treasury Department
speaking at the seventh annual dinner Of the Mis-
sourt Society OF the City OF New York. at tbs
Waldorf, last night. on Pending Financial Legis-
lation" said he considered the bill recently report
ed from the Committee Banking and Currency
OF the House of Representatives. authorizing q
maximum issue of a fraction over s20O,O00O0O OF
banknote currency. entirely inadequate to provide
the elasticity which Is needed TO prevent the re-
Currence OF financial stringencIes such as expert
enced last December.
Il am disposed to think the bill would be
profitable to banks. he ssid but would not result
in elastic currency. It is suggested as remedial,
but the banks don't need any legislation; they are
getting along very well. We do need legislation 20
avoid the recurring times that keep awake at
night I think the bill is entirely inadequate but
do think something should be done.
The Secretary said that credit currency was the
only elastic currency known TO man, and that the
tendency Of all bond secured circulation was 70
contract interest rates advance and TO expand
interest rates decline.
When advertising tho Panama bonds" he
said. 'the banks at once wanted permission to
retire their bonds. they could sell before did.
They had limit OF 100000 a month. had no
limit. I beat them out. II had not, the Pan
bonds might have brought only 1ol. instead
of what they did"
He said he thought It was idle TO provide a re-
serve against emergency circulation, because the
emergency dlu nOt arse until me reserve
Secretary Sha~'s speech IN full was as follows:
The root OF the evil which we experience at fire.
Circulation but a want OF responsiveness in the
fails to contrast when money is plentiful and cheap
will OF course, fall TO expand ehen money Is
by deposit OF bonds, like national bank crcU-
Tass a s oW t Esa wsn res nigh
The tendency therefore. Of all bond secured cir
and to expand as interest rates decline, credit credit
collateral IS demanded. Is the only elastic cur
rency known TO man.
system OF credit Currency in this country II We
we're creating a new system am inclined to think
ever way D reasonabi. Permit an lasfration The
First Haona Bank of engage 99s {RFes ns15
drawn on Now York, These drafts are issued in
is placed upon their number or their volume The
same institution acquires during the day ron 9r It's
4es ~ Ma lafs So yp SH otbs ,1sao aa
hrms ana indiyid,ais. a me close. q BUSINESS
this Is packed . ana 1b sen next ~
These drafts are then s3Tted during the night ana
rsns 70 e ast tb drsfts drawn by the First
National on New York
Every ono comedies the appropriateness Of this
straint upon the amount that may be done. the
0s ne m needg Of 20 the erTy s4
By the bank During August, 1906 for instance Ss,0
Cago, aggregating 100000. while in December OF
the same year the number increased TO 100 and
inCrease Ths bundle OF drafts representing New
during some days in August measured only BY IS
inches. while some days in December the bundle
These drafts and checks are PAYABLE to order
and pass by ndoTseme1t What business reason
nitted TO issue carefully safeguRrded and limited
tS hsSre qi TT 6s pTnp IS s sa rh nS
distinction is that one is called a bank draft. and
one is as much wildcat the other. Naturally
unrestricted credit currency is elastic. No more
Is issued than IS needed; ana wngn u Is no longer
reasons. however, why the system must not be-
issue may be authorized
CANADAs ELASTIC CURRENCY.
Canada has thirty four relatively large central
Branches scattered throughout the ponipion 1ess
central banks permitted to issue bank notes
paid up capital, Canadt las no cOmmerciai banks
except these thirty-tour central institutions and
these central banks results in cooperation between
several banks are naturally siifuily managed, and
the maintenance Of circulation Is of their prin
therefore. Is fully understood by the management
structiOns.
We have; on the contrary, sir thousand national
m eaSh % HatG int sS to sf
II accepts and the amount Of its reserve. We have
tons-state banks. savings banks and trust com
panies-enGased In commercial banking TO permit
an issue from each equal 10 its capital stock would
result in no end OF disaster.
Let no one suppose that the adoption OF A part
OF the Canadian system will result in a correspond
ing desree o: elasticity as the entire system yields
ssaed BY M hons ed of credit
tons. with fourteen thousand other commersiaI
banks in the country. would probably Weld
some measure OF elasticity. but it Certainly
would not yield the same measure OF elias.
aggregate capital of every commercial bank
in the country. In Canada the maximum issue is
In January From October to january the decline
Is well nigh preoiPitous and always uniform This
leads me rresistiby to the conclusion that there is
operation between the thirtyfour central banks
The per cent OF contraction between CIctober AMI
January has varied from % per to % per cent
during the last six years, and has averaged about
20 per cent. In other words, there has been an av
erage contraction Of about 25 cent IN the vol
airy following. ~ JAM
The bill recently reported from the ConmitteA an
Banklng and currency or the House authorizes n !
maximum issue of a fraction 5000 900 900 II |
every national bank In the United States should
avail itself OF this new privilege. and II the author
lzed issue should prove relatively as responve 70
the changing needs of business as dces die credit
currency OF Canada. there would ba an annual
or about $4,000 900 In bankro orrrac1
between the maximum issue in the fa0 ana tba
minimum issue OF midsummer. and a cnrresDondinS
Uooo0Vv increase In banknote circulation whsn the
In national bank notes would be equivalent 20 a Ia
posit In national bank depostaries OF Sc 500 600 from
Ir Si} EfeGsuTy; believe the proposed measure
One other consideration in my Indignant will
materially anect the element OF elasticity in the
there shall be kept against this new issue tns sans
reserve as Is Kept against deposits. The avowed
fact that banknot3 bears q very close reseTSis1oa
20 certncate or deposit payable to bearer IL
Is, however. renewable at the option Of the hank
Issuing 1t. believe, therefore a much suafiaH
reserve than is required against deposits renew
20 sle only with the consent OF the deposition would