The diamond drill. (Crystal Falls, Iron County, Mich.) 1887-1996, 1913-01-25
United States notes.
National bank notes


business for currency and whether
their adjustment is such that they
meet the demands perfectly at all
times or imperfectly some of the time.
The one purpose Of currency of all
Kinds Is 10 furnish convenient method
Tor the exchange of goods At time
lin the commercial progress OF the
world when business has reached its
highest point of development. ii is fair
/ 70 expect and den and the best and
most convenient means of effeoting ex-
changes Does the courrency sytsem
of the United States meet this exrec-
tation and demand3 lt does not.
First, the deposit currency.
First Aid TO Business Needs.
This currency is form of bank cred
it. Ii is transferred through the me-
dium of checks and drafts In cities
where banking facilities are ample.
more than 0S per cent of the exchanges
are Effected by its use. In country dis.
tricts. the percentage may be as low as
80 in some cases. In general. more
than 90 per cent Of business in this
country is done in this currency.
Deposit currency is so called because
IL is created by bank deposits. While
a bank deposit is commonly enough
created by the placing of sum of ac-
tual money in the bank, and funds
supplied by non borrowing depostors
contributed TO the supply of means for
lending, deposits are also created by
loans. The borrower receives, in ex-
change for his promise to pay. not
money, but the right to draw checks
and SO transfer the credit obtained by
the loan. Between deposits and dis
counts, there is an intimate relation
They are interdependent and usually
rise or fall together
A Check TO Business
The rigid reserve system curtails or
stops the lending power of banks.
Therefore. the deposit currency is not
always responsive 10 the demands of
/ Oublu'rNf II IN NV HCIltbAiN hbNAbNO
to meet the requirements Of commerce.
Banks, under the law, must keep "A
certain amount of cash on hand Ma
tional banks in the country must keep
at least six per cent OF their deposits
in cash in their vaults; reserve city
banks must keep 1915 per cent, and the
central reserve city banks of New
York, Chicago and st. Louis must keep
% per cent The solidity of bank
under this system Ia tested by the con-
dition OF it's reserves and not by it's
ability 10 continue the extension OF ac-
commodation TO customers. No mat
er what the conditions in the country,
what the demands of business what
the needs OF a customer or what the
security hs offers. il "A banks reserves
are down to the legal limit, IL must
stop oaning.
Permanent Remedy Suggested
In the time Of crisis. therefore. banks
are interested only 10 protect their re-
serves Not only do they call in loans
and refuse discounts. but they hoard
cash. That they may survive and
comply with the law, business concerns
are sacrificed Deposit currency. al
though remaining of service longer
than any other, is hampered and busi !
ness is depressed. Without loans. goods
cannot be transferred.
AS a passing remedy IN crisis,
clearing house associations have issued
CERTIFICATES. They have accepted com.
mercial paper and other collateral from
banks and against such security have
issued promise TO pay, supported by
all the banks in the association II has
been only "A temporary expedient adop
ted 10 meet an exigency. Its perman.
ent value is TO demonstrate the effec-
tiveness of banking cooperation
A permanent remedy is mobilization
of reese rves and rediscount system
Mobilization of reserves means putting
the resources of all the banks Dehind
each one of them. IL would end the
boarding OF reserves and make the test
of hanks solidity it's power TO &C
commodate it's customers. not it's hoard
of unused aud unusaple cash
A redIscount system would create n
market for commercial papers. and es.
peciallS provide place where banks
could redisconnt their high-class hold
ings and so secure funds. With disable
reserves and rediscount market. there
would be no stoppage of bank loans,
and the deposit currency would always
be available for nee in business
How the Gold supply Fluctuates.
| or gold the country 3 supply is about