New-York tribune., 1908-03-01
LETTERS TO THE EDITOR
ASSET CURRENCY.
Greater Fleribility, Not Market for
Bonds, Needed by Banks.
To the Editor of The Tribune

Sir: I have been greatly interested In the dis
cusson of the AIdrich and other currency meas
ures in the columns OF your paper ana most
heartily approve of your opposition TO the Adrich
bill which has very little merit and. as you nave
pointed out very positive dement's. one
phase OF the question. It seems to me. mas not
been sufficiently discussed and one oo)ecton 10
any sort of asset currency has not been toucneo
lIpon either In the discussion In Congress or III
the public press
It is alleged by those who oppose an asset cur
rencv that banknote issues which are not secured
by a deposit of bonds of some sort-sovernulent
or corporatior-would be insuflciently secured ana
thar IN the event OF the failure of the bank Issuing
them the holders might lose a portion or an
This it Is further claimed. would cast oouO1
unon all banknotes and would thereby weaken
public confidence in the money in circularon'
As a matter Of fact. would this proposed e1ner
panczy currency be any better secured II based
upon bonds than If based upon the assets OF the
issuing bank and made first lien upon ils asso1S'
7 think it can be easily demonstrated that the one
security IS as good as the other. especially Ii
oddI+{on to being made first lien upon the assets
z,cb notes are further secured by a fund proFaoea
h1, q taxation of the emergency note issues AAo
denosited with the Treasury Department
while II is admitted by the advocates OF 'he
bord secured banknotes that the security OF the
ro+aboIders will be ample If the emergency notes
are made q first lien the assets OF the oaiiA
and further secured by special 1uho 10 DC pA
vided by taxation, what about tne oepoSA'o
~a1IS
- the notes are made first lien upon the assets
1-tis is the noint which wish TO bring OUT cleA
" namely that it does not matter a paI ICle "
the unsecured depositor Of bank "helLiei ~
ts hest securities, worth 100 cents on CIie o0ii'
- fo,, t+e q ssets and deposited as security T0r
o+a issues or wi neither the securities aleteLI III ~
tie ~ the hank and the note issues are H1ade
ers+ lien ,1non its assets. The emergency notes, "
the event Of the closing OF the nahh' VIII Nc
in its vaults or, If paid out, Will nave cdil@eo -
eoua1 amount of liabilities The holoeIS "a ~ -
notes issued bv the banks, in the same event.
- .t7 no cents on the dollar. and the orner cred
t+os Of the hank namely, the depostors. VIII have
what is left.
am right in this. certainly there is not the
slightest difference to the depositors OF tie paii-
vvhether the notes secured by oepos4I "a
bonds or by making them first ana pTe1siIe1
claim upon the general assets OF the banH- Ahas-
much therefore, it makes no dlnerence to INC
creditors of the bank, noteholders or oepositois
whether emergency issues Of currency are secured
nv general assets or by deposit OF bonds, taken
so-, tho assets or purchased and paid for ~ cash
taken from the assets, why should the deposit OF
bonds be insisted upon IT is by the authors anu
supporters OF the Aldrtch bill?
II the principal object Of currency REFORM Is 10
make a market for United States. state municipal
and railroad bonds then. of course. there is moth
,ne further TO be said upon this question and the
AIdrich bill ought to be passed. But the bankers
and business men OF the country have been LED 10
believe and a result Of the panfcs OF 1888 ana
1907 have been pretty thoroughly educated to be-
Iave that what is needed is greater fexibility IN
the currency. and that what our lawmakers shouio
a++e-7p+ 10 provide IS method by which so!Vent
banks when frightened deposttors suddenly demand
+bair money may be enabled utilize some OF
their ordinary assets TO provide the currency Win
which to meet extraordinary demands
The Tribune has most forcibly and clearly point
ed out that banks do not ordinarily invest in the
class of securities required by the Aldrich bill as
q basis for emergency circulation. but some evi-
dence may not be anss. Let US take for an Illus
tratIon a country bank of which l have some
knowledge It owns s250.0OO worth Of bonds; Soo'-
oeo Of these are United States bonds pledged un-
der the law security for circulation, OF wnlch
II has out the full legal amount permitted It. An
other $4,000 of United States bonds owned is
nIedged as security for deposits OF United States
funds OF the remaining 100000 not & dollar is
oF the class Of bonds required by the Aldrch BILL
Why? Simply because there would be little profit
to the bank, which pays per cent interest on
time deposits IN bonds which bear from TO "a
ner cent interest. The bank in question owns
100000 worth OF most excellent bonds which earn
from : To 6 Der cent interest, but not one dollar
of these bonds would be available for the cur
rency which the Aldrich bill attempts 10 proVlos.
Therefore in order to put itself in q posldon 10
enable # TO benefit by the Aldrich bill. and IN
time of financial stress help the community III
xrbicb n ia situated this bank would be compelled
10 sell all It's present holding Of bonds ana pur-
chase those which the Aldrich bill requires
either this or to call commercial loans TO a SUM
cient amount enable it TO purchase such oohds
as the AIdrich bill requires.
II is not necessary TO argue this point 1urLileF.
Anv banker or any business man Will see at once
because this bank of which l speak Is oouplesS
typical of two-thtrds OF the national banks OF lho
country practically of all excepting rev ID lhe
larger cities) that the Aldrich Dill VIII not &C
cornplish what 1t aims do and what 1t should do
Instead while it may make a market 1or the
classes Of bonds It requires as security for eneF
gencv issues It will surely cause denoralizaClon
in the nrices of other bonds or calling or COM
r,ercfaI loans or it will have no effect whatever
a. ,,o,, have clearly shown. what the business
and banking interests of the country need Is a
measure which will enable the banks 10 Utilize tner
present assets a basis for nloderale amount
~ currency to be issued in case OF an emergency
and to be SO taxed that there will be no temptation
to make the issues permanent purely asset cur
rency made a preferred claim upon the assets OF
the issuing banks, and further secured oy funo
n be provided by the taxation Of national banks,
will be absolutely secured. as abundantly secured
as are our present issues by the deposit OF gov
arnrent bonds doubt II IN the history Of national
banking there has been failure in which the
holders of such emergency notes made preferred
claim would not have been paid in full without
resort TO the special fund it is proposed to provide
for additional security The other creditors OF the
bank will be In no wise injured by making such
issues of notes a preferred claim they will have
all that is left in either case and get
But the difference between emergency Issues, which
NAV be made only upon the deposit OF certain
bonds and issues which may be based upon the
ordinary assets of a bank will great deal
10 the business interests OF the country. which de-
u1and and have right to demand relief from the
rigid requirements Of the Aldrich OF any other
strictly bond-secured circulation Respectfully.
ERNEST A. HEMPSTEAD.
Meadvflle. Penn, Feb. .. 1908.