New-York tribune., 1909-07-19
PANAMA BONDS AND THE cURRENCY

PANAMA BONDS AND THE CURRENCY
Their interest rate and the conditions to be
attached TO the proposed Panama Canal bonds
deserve serious consideration. especially in view
Of the steps being taken to reform the country
currency system An eminent fnapcier in this
city remarked not many months ago that the
greatest enemy of n central bank Of issue ana
Of a reformed currency would prove to be the
Panama Canal meaning thereby that the ez-
tensive borrowing which the country would have
tn do in connection with the canal project might
fasten the bond secured currency upon us iTreV-
ocshIv When we consider the impediment
that the outstanding bond issues with the bank
notes based upon them have been to currency
reform if is natural to look with misgiving upon
the nossibilitv Of the issuance within few years
Of nearly half Hs many more bonds and the
taking out of circulation upon them by the
banks If the country is going to break with
the system of bond secured banknotes. now IS
the time to make the first step away from the
wartime custom If the break is not made nov,
the pessimistic utterance Of the eminent fnan-
cier quoted before may he verified and what
ever change is made in the currency system of
the country is likely 10 preserve in some form
or other IT'S present defects.
The questions as to the rate Of interest and
as 10 the use Of the proposed issue Of Panama
bonds as a basis of circulation are probably not
definitely settled. although the conference COM
uittee is reported to have agreed in favor Of
making them available for circulation The first
announcement regarding the bonds that came
from Washington was 10 the effect that they
would bear 3 per cent interest. would be for
general investment and could not be used by
the banks as a means of further swelling their
note issues. This report was welcomed by all
believers in currency reform as hopeful step
l9S,o aI..D-
indicate that tLis determination has been un-
settled. a higher rate Of interest than per
cent is inevitable. for the bonds would not be
marketable at present If they bore only per
cent, even though they were made available for
circulation. SO it is proposed by some that they
bear per cent and be available for circulation.
which circulation would pay double the tax OF
circulation be sed 2 per cent bonds. Then.
again. It is proposed by others that the bonds
bear per cent interest, and the tax rate on
circulation based upon them be p Of l per
cent. the rate now paid On banknotes taken out
on the , per cent bonds and that the rate upon
the circulation based the latter securities be
reduced to Il or Il of per cent. This would
accomplish the favorite purpose Of certain in
9uential banks of obtaining reduction IN the
tax rate on their outstanding circulation. The
objection 70 this plan of reducing the tax on
circulation is that il would still further induce
the banks TO keep their notes out when the con
dition of business did not require them.
The objection to making the Panama issue
available for circulation. whether ar q reduced
rate Of taxation or at the present rate would
be- besides the obstacle II would interpose to any
genuine currency reform. the danger of imitation.
or st any rate the certainty Of a great increase
in the inelastic mass of banknote issues in this
country We have had illustration in the
recent period of depression of how inert this
mass is Instead of responding 10 the contrac-
tion of business the bank circulation has shown
a slight increase. while gold has been going
abroad money has been lying idle in the vaults
Of the banks and cheap capital has been avail
able for Wall Street speculation. The country
may well hesitate to encourage its banks TO put
forth nearly half as much more circulation IS
peciaIlv when back of the Panama Issues lies
the prospect Of large borrowing for internal
waterway improvement. The nation is now. in
common with other governments the world over,
city, state and national. probably entering upon
a period of generous borrowing, The public
ideal of what government must under take has
changed. If a liberal enlargement Of the IA
tional debt is in prospect. the present practice
Of relating the volume of currency 70 the volume
IF the country's debt has new dangers which
deserve the most serious study before the
policy is reafirmed in regard 10 this large Pan
ANA issue