New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1914-08-14
FINANCIERS FIGHT
BANKNOTE RESERVE
Say Plan Would Mean
Only Liabilities to Sc
cure Liabilities.
MORGAN MEMBER
MAKES PROTEST
Dawson Declares Substitution
of Paper for Gold Eco
nomically Unsound.'

The suggestion by some New YORK
bankers that national banks ne per
mitted to substitute banknotes TOT part
OF the "lawful money" now required az
reserve against deposit liabilities, IN
order TO release more gold in payment
Of our obligations abroad, aroused
storm Of protest in the financial DIS
trict Yesterday. Admitting the eNlgen-
cies of the present situation, such
bankers as Henry 2. Dawson, OF ). /.
Morgan G. Co.. and A. Barton Hepburn
chairman of the Chase National BANK,
placed themselves on record by de-
claring that the project, which, IL ac-
complished, would, in effect, substitute
paper money for part Of the metallic
reserve, was both unnecessary and eco
nomically unsound.
81 think the proposal to use national
banknotes as part of the reserve rs
both unsound and unnecessary SAID
MIR. Dawson. at would open the way
TO imitation and, instead Of lettering
the situation in any way, would make
it Just so much more difficult to con-
serve the country's resources IN me
way in which they ought TO be con
served at time when the world is
confronted with the conditions which
/ the war in Europe has brought about.
"On both sides Of the war every ef-
fort is being made to reopen CONNER
cial and financial intercourse between
this country and Europe, and each day
some progress has been made IN that
direction.
SAYS Bills viii BE Met.
"Any agitation of this subject now
will. in my opinion, tend to retard the
/ accomplishment of the results desired
The action of the British government
and the Bank of England is the great
est step yet taken toward relieving the
exchange situation. 1t is not ques-
ton Of whether we are going to meet
our obligations. OF course, we are 60
| ing TO meet them when they become due
and where they become due, and TINS
will be done without resort TO any such
proposal as the issue of banknotes as
reserve.
IF you will point out to me any man
who proposes to take advantage OF
present conditions by not meeting, or
by deferring payment OF his obliga-
| tions. | will point him out to you as
man who does not know the real ethics
of business"
A. Barton Hepburn, chairman Of the
Chase National Bank, opposed the
usage of banknotes as lawful reserve
on the ground that they are liability
and that it would not be long before
they would drive out gold as a reserve
entirely.
There NAV be some bankers in New
York" added Mr.. Hepburn, "who favor
making national banknotes lawful re-
serve for national banks, but there are
many who are violently opposed 20
such q scheme. National banknotes
are a liability of the bank issuing the
same and not an asset-a liability IS
not a good reserve against another Ii
ability.
Points Out Weaknesses.
Congress has just authorized more
than a billion dollars of banknotes
issuable by the banks against their
assets, as provided in the Aldrich-
Vreeland law. They are in form, force
and legal effect indistinguishable from
/ those secured by government bonds.
| Shall these be made lawful reserve?
"Under Gresham's law, how long
would il be before the cheaper reserve
would drive out the better-the gold
reserve? ! presume banks would not
/ BE- permitted TO count their own notes
/ in their own reserve, but bank a
could take out block Of this cur
rency and swap with bank B. which
I had done the same thing, The practi-
/ cal effect would be that their deposit
I liability would be protected only by
/ their note liability"
( The Clearing House committee of
| the New York Clearing House Associa-
! ton, il was also stated, would not
/ agree to the adoption of the reserve
note plan, so far as its members we're
concerned. This announcement was re
/ garded as especially important, as the
/ Clearing House is an independent or
I ganization, and can lay down rules in
| regard to its own reserve requirements.
/ The announcement yesterday that
| the Bank of England was willing to
/ discount bills of exchange accepted
prior to August 4, in view of the fact
/ that the British government would
/ guarantee it against loss, was reflected
/ here in an immediate improvement in
/ the foreign exchange situation. There
/ was a larger supply of exchange in the
/ local market than at any time since
/ the European war caused a rise to
/ prohibitive rates. The result was that
demand sterling was quoted at 81 80 TO
/ 81 90, cable transfers at 81 80 10 50,
and franc cables at IS TO- Foreign eX-
/ change bankers said grain bills were
coming in more freely and that there
was a general loosening up of the mar