Evening star. [volume] (Washington, D.C.) 1854-1972, 1913-01-25
Circulation of Deposits.


4 depositor now and then asks the
bank to convert the amount of his de-
post subject to check into the form of a
certificate of deposit. and turns this over
in making a payment. IL the one TO whom
this certificate is turned over redeposits
II in the same bank. ii is again converted
into deposit subject to check. and no
money is even temp orarily drawn out of
its reserves. Likewise. IL the bank should
have on hand certificates of deposit in
currency denominations. payable to bear
err, and should. when depositors desired,
convert deposit balances into this form
OF certificates of deposit. these promises
to-pay-money would pass from hand to
hand, performing the same service as
money. and in due time would again be
presented for deposit by other depositors
that is. would be reconverted into de-
posits subject to check II deposited in
other banks they would be presented by
them to the issuing bank for payment.
along with checks drawn upon II. To the
extent that such promises-to-pay-money
We're used instead of using money itself.
the actual money would remain in bank
reserves. where. as previously shown. II
would be serving commerce more than
ten times a g efficiently and economically
as IL used in direct circulation. Such a
method would not deny TO the poorer
classes. having only small retail transac-
y
the use of a circulating medium of the
same economy and efficiency as the
checks and similar promises-to-pay-
money which are now used in the larger
commercial transactions.
Such bearer certificates of deposit in
currency denominations are essentially
what are known as true bank notes.
which In principle are the same as deposit
liabilities, being demand promises-to-pay-
money, to Offset which the issuing bank
h<nl dc and 1nnr mt ho
same as against deposits, and pays such
bank notes in money on demand the same
as deposits.
There is about a billion and half OF
money Of all forms in, circulation In this
country. If transferred to bank reserves
and would there perform ten times the
service, the advantage to commerce Is
easy t. see Deposits would be circulated
instead by the use OF bank notes.
Constitute Flexible Currency.
Bank notes of this character constitute
what is called a flexible or elastic cur
rency. The conversion of deposit bal
| ances into bank notes is at the will OF
the depositOr and proceeds according &C
the need for currency to circulate. If this
need diminiShes there is a reconversioT
| Of bank notes into deposits subject tc
check. The process Is substantially thu
same as with checks. One having a de
post uses 1t in a payment by drawing &
| check against it. The one who receive:
| it promptly deposits 1t at his own credit
thus converting it again into a deposi
! subject to check. The use Of checks i
| the circulation of deposits. The use o
bank notes Is likewise the circulation o
deposits. A small proportion Of check
| Is presented for payment in money. TIL
| same Is true of bank notes. The continu
Gus process OF converting deposit bal
| ances into bank notes by withdrawn
| such currency from banks and the recon
| version by deposit into balances subtec
to check, at the will OF depositors. auto
matically adjusts the volume Of ban
notes in circulation exactly to trade re
quirements. The volume increases IL tn
| trade requirements are such that tn
| Withdrawals Of bank notes exceed tn
amount deposited. It diminishes il tn
amounts deposited exceed the with
draWals.
Such q currency is the only flexible Gu,
rency ever devised
Protects Reserves and Loans
The use Of bank notes. promises-to-pay
money, for circulation instead Of none
itself, leaves bank reserves PRACTICAL
unddsturbed and SO does not necessitat
calling in Of loans because Of drains upo
reserve to supply an increased volume {
currency for circulation to meet the need
of expanding trade.
Such protection Of reserves and cor
sequent protection of loans contributes
stability Of commerce. and is a highl
important element in bringing about tn
most efficient and economical bankin
| service.
Our present banking and currency sys
tenn involves high cost service because:
% The generalization Of reserve
among many thousand individual bank
requires them to be largely self depend
ent. and therefore to carry proportion
ately larger reserves, resulting in re
striction of commerce and higher lendin
rates.
4 e. Surplus funds Of one, section ar
not available for use in other sections fo
lack Of provision for standardizing loan
SO as to give them broad market.
I O. Actual money is SO largely used {
circulate, when 1t would serve commerce
more than ten times as efficiently an
economically if held in bank reserves, de
posts being circulated instead by the us
/ nf ho MI