Honolulu star-bulletin. [volume] (Honolulu [Oahu, Hawaii]) 1912-2010, 1913-01-18


cooperation. But complete banking
cooperation is absolutely necessary to
control arising paniCS. Other Coun-
tries have proved this. Our banks
have demonstrated it by being COM
RELIED in times OF stress to fall back
Upon their local clearing house associ-
GtiOns, the only meanS-bUt q crude
means-of cooperation thai We have.
The necessity OF cooperation is fun
damental banking principle. 1t is not
TO be argued against But aside from
:nis theoretical truth, We have the Oh
rious to guide Us. They do not have
p2uics abroad: we do. r
Again, it Is only by cooperation. and
the consequent fixing of a uniform
rate OF discount, to be raised or low
cred as circumstances demand, that
We can control the flow of gold to and
from this country. This is funda-
mental to International credit. 1t is
also a banking principle.
No Broad Discount Market.
A second striking popularity Of our
banking system Is that we have no
broad discount market such as they
have in Europe Our banks. are for
hidden by law to accept business bills
for discount. Instead they take, for
instance, the business mans promis-
sorry note. In other words, merchant
in this country who hasSsold bin OF
goods and wishes to realize at once on
the sale cannot change this prime evil
dence of exchange into a credit in
strument. He gets credit at his bank
on his promise TO pay" But this lat
ter instrument, showing no transaction
to goods, is confined to the one bank
that takes it. The makers ability to
pay is unknown to other banks. So
this kind of credit instrument has
no circulation powers whatever. y.
In Europe, on.the contrary, the bust
ress bin becomes In itself a credit in.
strument. The bank accepting 1t
stamps it as banking instrument, II
Is good at any other bank In that coun-
try, It may be rediscounted at the CEN
trail bank of all these banks, or 1t may
travel to other European countries.
Now. aside from the ready elasticity
of credit that such a discount and re.
discount market gives. to business at
home, 1t must be apparent that it has
also direct effect upon foreign trade.
Today our local credit instruments do
not pass current in the worlds mar
kets. As q consequence the American
shipper is forced to buy foreign ex.1
change. Aside from the fact that for
this unnecessary accommodate we
pay annual tribute to Europe of mil
lions of dollars, it must be apparent
that the whole period of our foreign
trade expansion has been seriously
hanpered by banking accommodation
which are necessarily worked upon a
limited scale and which assuredly
have no reference to the broader needs
of this country.
The general and further result of the
workings of our discredited monetary
system is the isolation in a measure of
the whole American market.
International enterprises prefer to
establish their headquarters in coun-
tries whose banking systems are upon
a more stable basis. They cannot af.
ford the risks of such occurrences as
our disgraeefHl panic Of. 1907, with Its
suspensions of payment, shortages OF
aecomm odation and general financial
disturbance. Again, because we have
no uniform system or standard for fl
nancial transactions, such as exists
abroad. American securities are natur..
ally looked upon with doubt by for
eign investors and are listed only with
hesitation by foreign exchanges. \
Our national monetary commission
recently presented plan Of reform.
The object is not only to preserve the
independence and usefulness of our ex-
cellent banks, but also to give them
system based upon economic laws
ands the needs of the nation. The
plan proposes the formation of a re-
serve agency, not in any way Euro
pean central bank, but a cooperative
association of all our banks. The
Ganks individually shall be permitted
10 discount bills drawn for agricultur-
al, commercial and industrial purposes
in other words, prime, day-to-day
business bills-just as is now done in
Europe. The reserve agency will hold
the bank reserves of all the banks and
use them for the rediscount for the in
dividual banks of this commercial pa
per. This instead of holding this re-
serve money idle or sending it to New
York for speculative loans, as at pres
ent.