The Pacific commercial advertiser. [volume] (Honolulu, Hawaiian Islands) 1885-1921, 1910-10-09

out 1t is also true that the great in
crease in National Bank note eircuia-
tlon Will Jeopardlze the government S
ability to redeem this pledge in any
great international crisis, if indeed it
has not already done So If the Ma
tlonal Bank notes sought redemption
when the strain of the fall demand
throughout the country was over. they
would cease to be menace, but the
banks take out the notes because it Is
profitable to do so. The margin of
profit Is very narrow, and can be made
only when the notes are kept in circu
latlon, consequently every ingenuity of
the executive officers is employed to
keep them from being redeemed.
Elasticity in National Bank circu-
lation can be accomplished, but the
result would be further shrinkage in
the value of United States bonds, en-
failing great loss on the National
! Banks, and these banks have already
been called upon to assume loss of
! many millions on their holdings.
To my mind the question of emer-
gency currency or any additional eur
rency is secondary to the main neces
sitv What we need is some plan that
viii make every idle dollar return to
i the central reserve cities or to a central
bank, where it will naturally be sought
by any section of the country that has
work for it to do.
We need a reserve lending power to
be called into use. not when a panic Is
in full swing, but to meet legitimate
borrowing demands which, if not met,
will lead us into panic, and I believe
1 ! %o1-
steps to encourage and build up a dis
count system which can be done with.
out establishing central bank. and
without interfering with the banks now
in existence.
We bankers who have to sit out on
the firing line want the privilege of
dealing with the central reserve cities,
and particularly New York, with the
same facility that we deal with Lon
don, Paris and Berlin. The central re-
serve cities are not performing the
functions of financial centers to us;
they are merely giving us safe places
to keep part of our reserves and pay
ing rs two per cent. thereon. To earn
this two per cent, they sometimes get
our funds locked up so that they make
the whole country feel uneasy when we
begin to use our balances for the very
purpose for which they were kept idle.
Many writers deplore the fact that in
terest is paid on these balances, saying
that it attracts money that would
otherwise stay at home. but idle money
will seek rewards where it can do so
safely. and do not criticize the central
reserve cities for paying interest on
balances, but for paying too much at
one time and too little at another.
If a discount market were built up
and the central reserve cities or a cen
trail bank adopted discount rate, the
banks could then adopt a rate on re-
serve balances of say one to one and
half per cent. below the official rate.
IF some other locality made better
bid for the money and the owners OF
It felt that it could be safely employed,
it would 90 there The ebb and flow
would be controlled by the rate.
I believe that by an amendment to
the National Bank Act, allowing Ma
tional Banks to accept time paper icon
fning this power, if you wish, to Ma
t;oral banks in reserve cities and cen
trail reserve cities-and | believe that
the central reserve cities would he SUI
fcient). You will lay the foundation on
which will spring up large discount
market. and at one stroke put New
. York and the other central reserve
cities on a basis where they will become
real financial centers. The banks
throughout the country. State and Ma
tional, Will provide the largest market
for first class acceptances and discount
companies will spring up in New York
end Chicago as soon as the opportunl-
ties which viii be developed are recog-
nized. and 7 believe will attract money
from England, Germany and Franco.
The National Discount Company was
established in London about 1886 and
was received very coldlv by the London
banks as an unnecessary competitors;
however. it grew and now has pald-uT'
capital of $3.50. 900 and an earned re
serve of 100000 The Union Discount
COMPANY, another large factor in the
London market, was established IN 1888
and has, under able management,
paid-up capital of f750,000 and an
earned reserve of 100000 In addi-
ton to these powerful companies there
are large discount houses like Samuel
Montagu G Co, Brightner & Co, and
MANY others. who contrihute as much
if not more than the joint stock com
uanies to the efficiency of the system.
Rediscounting goes on from day to day
and the facilities which they afford are
of inestimable benefit to the CONNER
cial world and to the joint stock banks.
Why. gentlemen, we have millions OF
dollars locked up in crops and mer'
chandise. moving to all parts of the
United States (actually sold, not seek
ing markets. subject to all the vlcls-
STUDIES of transportation, and placing
us in position where each year we
are worrying and wondering If we are
going to be able to find the means to
keep these crops moving without fore
ing our merchants 10 curtalI their leglt-
innate business. This thought never
enters our minds in connection with the
same character of products when they
are shipped to a foreign port. During
the panic of 1907, we were forced to
refuse to accept as cash. drafts against
these products when moving to any
part of the United States, but never
hesitated second when the products
were going outside Of the United States.
Some of you will remember that there
was period when it was difficult to sell
Sterling in spite of the fact that the