Arizona republican., 1911-11-19

l Now, the note which "A gave "B
 is still in the hands of the bank and ] yet the amount of that note has been used by "B" in another direc- tion through having had it converted
 into a bank credit
 Let us see what becomes of this credit which is represented by bank credit or a bankers bill of exchange. B" in his transactions with, we will say, e. gave this check or bill l of exchange to "C'' in payment of his obligation, but "C," expecting to leave the community in which he had resided and intending to go to some remote section of the country where in his mind there might exist some doubt about the financial responsible l ity of either "B" or the banker being | known, does not wish to carry a l check or a draft or bill of exchange with him, and so he goes to the bank
 and instead of taking credit for the amount of the check he draws cur ! rency for the same, and the bank
 gives him currency in the form of
 bank notes. which are known through out the country.
 So, in these transactions we see the credit created in the individual transaction between A and "B'' ex- changed for other forms of credit and used in other business transac-
 tions until it finally falls into the hands of someone who wants cur rency. thus converting, through these processes. the credit represented by As" note into d circulating medium. Now, my friends, credit, if it is stable and properly safeguarded and
 protected, must he eXchangeable into these different forms of credit and
 finally into currency, the highest or
 der of credit, which is widely known and generally acceptable.
 Therefore. it must be clear to you that the banker is a dealer in credit, but when he sells his credit, through
 discounting paper or in any other way, he knows he must be able to protect that credit by always being
 prepared to pay money on demand against the credit he extends. This
 requires that he must keep on hand an amount of money known by eX-
 
 of averages as being in a proper re- lation to his outstanding credits.
 This requirement. of carrying d proper reserve against his outstand- ing credits in order to enable him to pay cash on demand against those credits is the safeguard of the pru- dent banker against over-extension of credits.
 Since the credits of community arising from the profits of the indus tries in that community are pretty generally concentrated in it's banks. the shipment of its products to the markets of the world naturally in- creases the balances of the local banks in the reserve centers, for when a carload of the products of d community goes forward to market it is generally represented by Dill of -lading which the shipper takes to his local bank and attaches to a draft upon some commission merchant at the destination of the shipment, which draft is generally drawn for from a to so per cent of the value of the shipment This draft is deposited to the credit of the shipper in his local bank, thereby increasing the deposits or the credits in that bank. The bank, in turn. forwards the draft with the bill-of- -lading attached to its core spondent in the reserve center most convenient, which, as you will see increases the amount of the credit of the local bank with their reserve correspondent
 This process. then. represents the marketing of the products, or one side of the business transactions of that community, and if we were to stop here we would find the deposits in the local banks, as well as the cash means of the banks, at the highest point of the year. but there is an other process which is going on all the while. and that is the process of the importation of whatever com modities. such as dry goods, groceries. hardware, etc, the people Of the com munity do not produce among them selves and which must be brought m from other places where they have products of this character to spare. All products thus imported must be paid for, and this is accomplished through the merchants in the local community purchasing the drafts or bills of exchange of the banks or that community upon their reserve correspondents, which are forwarded to the centers from which these com modities are purchased.
 In these transactions the merchant in the local community writes his check upon the bank for the amount of his obligation, takes it to the bank and exchanges it for the banks draft upon it's correspondent in the reserve city, which he, in turn, forwards to the wholesale house in the city where his purchases were made, and m que process this check is finally forward ed to the reserve correspondent of the bank in the local community. with the result that it is charged to the account of that bank.
 Thus you will see that through this process the credits which were built up in the local banks and with their reserve correspondents are grad ually diminished: you will also see that the debts and credits in every center more or less m of hot community and