Evening star. [volume] (Washington, D.C.) 1854-1972, 1913-01-19

chant deposits the check for his own
bank account and simultaneously draws
against it credit is being used. and a
great convenience and economy are ef-
fected over payments of money from
hand to hand. When payments are be-
tween distant localities the advantages
are obviously greater.
The great bulk Of the payments between
the east and west are accomplished Dy
offsetting the purchases they make of
each other. The great bulk Of the bank
deposits of the country are created in this
way, and not by passing money over the
counter. All of this involves the use OF
credit. This method of doing business
will not be changed. The public will not
go back to a greater use of money from
hand to hand; on the contrary. ii is GER
tain that the various forms of bank cred
it will more and more become the means
by which payments are made.
Banks Must Act Together.
1t is generally. recognized that there
must be some way by which the banks
may act together in time of panic. using
but many who favor authorizing currenc,
issues for this purpose give no thought
to the organization of a great reserve
behind these issues. And yet 1t is funda
mental in sound finance that all currency
issdeS shall have a direct relation to an
ample gold reserve
Moreover. there is always a real basis
for the fear that facilities for extending
time credits may result in an undue in
fiation of such credits. No provision
against money panics is sufficient thai
does not afford means of checking the
initiation of credit before it has reached
the point where collapse is inevitable and
panic results. There must be some conn.,
mon policy among the banks of the whole
country if these recurring crises are to be
avoided.
Result of Competition.
An unhealthy state of imitation and
other evils that weaken the banking situ-
alton are to a great extent a result of
excessive banking competition. There Is
competition not only between banks OF
the same city but between banks of rival
cities No lines can be drawn arbitrarily
dividing and apportioning the business OF
the country between banking districts.
The country is one business field, and
there can be no adequate supervision or
regulation of the banking business that
is not national in scope.
The pending plan for currency reform
proposes a national organization. al
though provided with branches that are
to be in large degree Independent in their
operations. The moment 1t Is proposed
to divide the country into districts and
rency association in each district the
questions arise. where shall the gold re-
serves be maintained. who shall be re-
sponSible for them and what measures
will these local associations take to pro-
tect the gold stock of the country?
Duties of Institution.
In countries where the entire banking
system is affiliated with a central insti-
tuition at the head, this institution is
charged with the responsibility Of pro-
tecting the gold reserve. The officials OF
the central institution are in position to
know the demands that are likely to be
made upon the reserve in the near fh-
ture. They know the conditions of trade
and industry, the degree to which credits
are expanded, the state OF the foreign
exchanges. the rates of discount in other
financial centers, and all of the signs
that tell Of financial weather. If il is
time to check the expansion of credits
the discount rate is advanced, and If the
first advance is not effective, another is
made, and others until the desired result
is obtained. AS the rate advances. the
other banking Institutions, which must
look to the central organization to redis-
count their paper, naturally conform to
it's policy. and thus an influence nation
wide is exerted to curtail expansion and
or Indirectly are a charge upon the re.
serve.
Power of Discount Rate.
In these modern times an advancing
rate for money in one country will
quickly divert an important body OF loans
to other markets. and this is frequently
sufficient to restore the balance in the
exchanges and avert the movement OF
gold.
Most of these central institutions fortify
their position by the practice of regu-
larry carrying a good amount of foreign
bills. which constitute their first line of
defense against adverse balances. These
bills are as good as offset against the
upon which they are drawn as
gold in the reserves.
The practice Of carrying certain high
class securities. particularly government
bonds of the countries in which the chief
financial markets are situated, which
have a constant market with narrow
fluctuations, is similar method Of main
tanning an International equilibrium.
Thus. an organization OF great finan-
ciaI strength, representing the entire
banking system of country like the
United States, and conducted primarily
with a view to studying the domestic
financial situation and serving as an ad-
Unstable Joint or buffer between the do
mestic and foreign situations. may rem
der very great service to the banking