Evening star., 1914-08-16
The new BANKING LAW
xllI.-Note Issue.
By Frederic J. Haskin.


when framing the new banking and cur
rency law. For years there had been
complaint that our currency was inelas-
tic. that the supply of money in circula-
ton was in nowise regulated by the
needs of business. The need of a money
supply which varies with the demands
G. trade is easy to understand. When
times are srisk and merchandise is con-
tinually changing hands there is need of
more coin and bank notes than in sea
sons when there are few buyers.
The currency issued by the United
States government remains practically
fixed quantity from year to year, and
from season to season. The only other
source of currency supply is that of the
circulating notes issued BY national
banks against their United States bonds
bearing the circulation privilege. These
notes have proved unsatisfactory as
means for regulating the money supply.
On the one hand there has been no
adequate machinery for their retirement.
on the other. there has not been suffi-
sCient inducement connected with their
issue to influence the national banks to-
ward the endeavor of meeting excessive
demands for cash by increased issues.
Moreover, the increase and decrease
in the amount of national bank notes
has followed the fluctuations in the price
of United States bonds securing them
rather than the needs of business
Therefore. the problem before Congress
was to eliminate the national bank notes
without causing business disturbance,
and to substitute for them some more
suitable form of note issue. This PROB
lem proved to be one of the most dif1-
cult of solution. and many conf1ctlng
plans were considered by the lawmakers.
The plan most favored by bankers APP
bearing before the committees OF CON
Eress was the unification of note issue.
hat fha
government should retire from TINS
branch of banking altogether, and that
the privilege of note issue should De
given exclusively into the care OF q ceii-
1ral banking institution.
AS finally determined in the act. pro-
visions are made for the gradual retlre
ment of the national bank notes and LOT
the substitution therefor OF tinlted
States bond-secured note issue by the re-
serve banks. Lastly, to provide for an
elastic currency which will be safe, and
contract and expand in relation to busi-
ness demands the issue of federal re-
serve notes, based upon commercial pa
per- has been authorized. Thus, COM
mercial paper has been chosen as the
most fitting index of the nations need OF
cash. and provisions made for regulating
its supply entirely by the selected index
There is minimum below which the
country's money supply may not fall
without in
Minimum Is Set for Aicting seri-
the Country's Money. business
This minimum was placed by Prof O. NJ
III. Sprague, in his testimony before the
Senate committee on banking and cur
rency, at between 81 200OOO.OO0 and ST.
5p0,cO0O00. These amounts, according to
Prof. Sprague are needed in circulation
among the people. entirely aside from
the amounts held in the vaults of the
banks or in the United States Treasury
Taking figures for December l, 1913, we
had money supply in the United States
or $3, i6a.O .OS2, 1o4 OF this S332. So, ,915 was
held in the vaults fthe Treasury as as
sets of the government. leaving So, 434,-
.i9,tS9 In the banks and in the hands of
the people
OF our three billions of currency $780,
9i9.1 194 was in the form of national bank
notes. Such supply of money could not !
be withdrawn from circulation. probably, |
without serious injury to business Any |
plan. therefore. looking to the retirement |
of ntaional bank notes must needs pro- |
vide for the substitution Of some other
form of money in like amount to that
withdrawn.
The hrst steps toward the organization
or our currency were reserved to two
years after the, passage OF the act. or
to begin December o. 1915. From this
date it was provided that national banks
might retire their calculations in whole
or in part. and this privilege was to
extend for twenty years. or until Decem-
ber %. 1885. The act however. does not
compel national banks to discontinue
their note issues This is left entirely
optional with them. They may increase
or decrease their notes under the old
regulations if so minded. They are freed
from the requirement of the old law to
purchase specified amount of United
states bonds before commencing business
The machinery provided for the ma
tlonal bank note retirement is the sale
by the treasurer of the United States of
nited States bonds held by national
banks to the reserve banks and the re-
aempton OF the note issue secured by
these bonds out of the proceeds. The re-
serve banks purchasing the bonds will
replace the notes withdrawn with their
own notes issued against the acquired
bonds
After the second year of the acts pas
sage the Law provides that any member
bank de-
Measures for Retiring sirous of re-
Its Circulating Notes. who,a ae, o. IL !,
part. its circulating notes shall file with
the treasurer of the United States its
application for the sale of its United
States bonds. held in trust at Washing
ton, and the application of the proceeds
70 the redemption of its notes These
Donds are to be sold at par and with ac-
srued interest Such applications are to
ne Med at least ten days before the end
OF every quarter. or before March 81,
june 80. October 81 and December 81.
me law further provides that the