Montgomery County sentinel. [volume] (Rockville, Md.) 1855-1974, 1913-12-26

member banks, but also having the powe
through the Federal Reserve Board Al
Washington to draw upon any of the othel
great reservoirs in order to supply prompt
and effective relief when needed.
Heretofore when individual banks have
discounted the bills and notes of the Gus
toners the commercial paper thus discount
ed has usually been held by the bank until
maturity. the banks money being tied
up in the meantime. Under the new sys-
TEN the bank can take these bills and notes
OF its customers, provided they meet the
necessary requirements. and have them re-
discounted at the Federal reserve bank in
its district, the member bank itself indors-
ing and guaranteeing the paper. This wide
ly extends the facilities of the bank and
permits legitimate business of the district
to expand in accordance with its needs,
the banking facilities. under proper safe
guards. keeping pace with such business
activity and development
One of the most serious difficulties with
the system now existing has been the lack
Of elasticity" of the currency. This means
that the currency could not sufficiently ex-
pand when business needs required
larger volume of money for its transac-
tons and exchanges. Neither has there
been heretofore power sufficiently to con-
tract the currency when business did not
require the volume of outstanding money.
The former condition produced money
strineency and the latter a redundancy
Of currency, both being undesirable and
either likely to prove dangerous. The in
elasticity of the present currency has been
due almost entirely to the fact that Gov
eminent bonds were used as the security
and basis of bank note issue.
The system of currency provided by the
new bill is based upon approved CONNER
cial paper, properly indorsed and guaran-
teed by member banks, and is additionally
secured by gold reserve of 40 per cent.
This plan is far better than the infiexible
bond-secured currency. for it enables the
currency to expand as the need arises, that
is, as additional commercial paper is pre-
sented for discount, and automatically i
reduces the supply of currency as the
commercial paper natures and the volume
of business decreases. OF course, as is
generally understood. the main function of
currency is to act as a medium of ex-
change and facilitate transactions between
persons and places.
All member banks of the Federal reserve
banks will be under strict control and
supervision at all times. The new law
provides for periodical detailed examina-
tons of each of the member banks, with |
the power to examine specially at any
time.
In order to give ample time for estab-
fishing the new system. and also to safe |
guard against any possible financial strin-
gency until the new system is thoroughly |
established, the present bill specifically ex-
tends for one year. or until July 1, 1915, |
the operation of the Aldrich- Vreeland
Emergency Currency act. which was en-
acted by Congress in 1908.
1t is predicted that this new banking
and currency law, coupled with the changes
in the tariff. will open wide the doors for
a revival Of business activity on an en-
larged scale. and usher in a new period
Of prosperity.
At two minutes after 6 O'Clock last Tues
day evening. President Wilson signed the
Federal Reserve Act" as the currency bill
is technically known. Immediately there
after he delived short speech that more
clearly outlines his views with respect to
constructive legislation of the future than
any message he has yet sent to the Amer
lean people.