The commonwealth., 1912-08-02

at least six per cent. OF their deposits
In cash in their vaults: reserve city
banks must keep IAN per cent, and
the central reserve city banks OF New
York, Chicago and st. Louis must keep
70 per cent. The solidity of bank
under this system Is tested by the con.
dition OF Its reserves, and not by It's
aDillty TO continue the extension of ac.
commodation to customers. No mat.
ter that the conditions in the country,
what the demands Of business, what
the needs OF customer or what the
security he offers, II a banks reserves
are down to the legal limit. It must stop
loaning.
Permanent Remedy Suggested.
In the time OF crisis, therefore,
banks are interested only to protect
thelr reserves. Not only do they call
In loans and refuse discounts, but they
hoard cash. That they may survive
ana comply with the law, business con-
Germs are sacrificed Deposit currency,
although remaining OF service longer
than any other. Ia hampered and bust.
ness is depressed. Without loans,
goods cannot be transferred.
AS a passing remedy In a crisis.
clearing house associations have Is.
sued certificates. They have accept.
ed commercial paper and other coliat.
eral from banks and against such SO.
eurlty have issued a promise to pay,
supported by all the banks In the asso-
citation. 1t has been only tempo
rary expedient adopted to meet an ex-
igency. Its permanent value is to DEM
onstrate the effectiveness OF banking
cooperation.
A permanent remedy is mobilization
OF reserves and q re-diBcount system.
Mobilization of reserves means put.
ting the resources Of all the banks be.
mind each one of them 1t would end
the boarding of reserves and make
the test Of banks solidIty It's pow.
er to accumulate It's customers, not tia
hoard Of unused and unusable cash.
A rediscount system would create
a market for commercial papers, and
especially provide place where banks
could rediscount their high-class hold
ings and SO secure funds. With us.
able reserves and rediscount mar.
ket' there woulC be no stoppage OF
Dank loans, and the deposit currency
would always be available for use In
business.
d How the Gold Supply Fluetuates.
OF gold the countrys supply is about
$1,S00, 100000
Gold is an element in the currency
that constantly fiuctuates In volume
1t Increases when imports of gold ex.
ceed exports. It decreases when ex
ports exceed imports.
In this country there Is no means OF
controlling the international ebb and
how of gold. England has a single
standard gold system, but 1t has also
"a discount rate. Under the operations
OF this system, gold becomes a perfect
ly elastic medium European central
banks always carry large amounts OF
foreign bills. These bills are first line
of defense against adverse balances
They are as good an offset against
the country upon which they ara
drawn as gold in the. reserves, BY
raising er lowering its discount rate,
the Bank of England, for instance, at,
tracts or repels gold, and so compels
a supply exactly adapted to the needs
OF business. We have no such system.
Silver Element Stationary.
The silver element In our currency
has been practically stationary since
the repeal of the Bland and Sherman
acts. AS to United States notes, thei,
volume has not changed since the re
sumption of specie payments. Januar,
1, 1879.
National Bank Notes.
Fc- Hexibility--for a medium that
can be changed to meet the chang
ing currency needs OF business bank
notes alone are fitted. While Eng
land has only gold, It has such con
troll over the supply and the quantity
of gold is 80 nicely adjusted to cur
rent demands for currency, that the
Bank of England notes are perfectly
flexible. In all commercial countries
with successful banking systems, cur
rency demands are met by banks
which are necessarily In touch with
not by the government
which Is not.
A bank note is banks promise te
pay. 1t Is the same kind Of liabll
ity as the deposit account. 1t is the
oretically the same to the bank wheth,
er It gives It's notes to borrower o,
the right to draw checks. Both obli
cations are payable on demand.
In quantity the national bank knote,
now exceed $s00,0OO,00O and form
about one-fifth Of the money in circu
lation. They fiuctuate to some extent
in volume but their quantity is neces
sarily limited by the quantity OF bonds
in existence.
Thus 1t appears that OF the fve ele
ments in our currency, two are abso.
lutely fixed, and three. while fiuctuat,
ing to some extent, change in volume
either with no relation whatever to
the changing needs OF business or are
beyond control. Our monetary sys
tenn is defective at every point.
Cardinal Points Of Remedy.
The remedies are obvious. II 10
necessary to have:
IA United Reserve Agency to hold
thn rasarraa Of ALI the hanka 70 khn