The Birmingham age-herald., 1914-08-11
Striking Features of New Currency Law About to
 Become Operative
NOVEL IDEA Is ITS
 ENTIRE ELASTICITY
Question of What Was to be Done With Government Bonds Seems to Have Been Satisfac-
 torily Solved
Nv HOLLAND

New York. August 1o.-tSpecial,) )--With | the organization of the federal reserve board too long deferred. the defects | which were in the old national bank law will be for the most part remedied. Yet the old law has served, on the whole, l adequately to aid in the development of American resources and in the growth of the United States. In many respects, the old national bank law was marve- lously successful in it's operations. The defects that were in it. or some of them, were emphasized immediately after the chaotic condition occasioned by the out break of the war in Europe, and had the rev national bank law been in opera ton the highly artificial and yet on the whole successful method adopted by bankers in cooperation with the govern ment for the protection of American in- | torests would not have been necessary. American bankers place great confidence in the ability of the federal reserve | board Il is a diversified ability in the sense that some of the members are very | highly qualified bankers, whereas others possess expert Knowledge of American industrial financial and agricultural con ditions. One of the members at least combines both of these qualifications MT. Harding of Birmingham Ala. Various attempts have been made to set forth clearly and briefly, so that the aver age business man can understand the new features of American banking. The general principles which are embodied in the new federal reserve acts are fairly well understood by the public, for it was ill response to public demand that this legislation was enacted. Charming Rudd of Baltimore widely known in this city and to expert authori- ties throughout the country as the or ganizer of the finance forum,' has re- gently very clearly and yet briefly made exposition to the Maryland Bankers as- tociaton of the meaning and presumabe operation of the federal reserve law. He called attention of the Maryland bankers to the fact that there are four especially desirable features in the new law which were not to be found in the old one. One is a centralized control another is mo- bilized reserves; still another is redis- count facilities, and fourth important feature is one which provides permanent elasticity.
 Three of these features are to be com prehended only by practical bankers or students of banking, for they involve for the most part purely technical bank ing matters
 But in a currency, and especially an elastic currency, every one, even the huhlest wage earner, is interested be- cause it is mainly by means of currency of it's representative that men are able to make exchanges of what they have for what they desire and which other per sons can sell them.
 A Safe and Elastic Currency tbar ba frcf al banking law was passed really as an emergency measure. The Secretary of the Treasury, Salmon P. Chase, and those with whom he was in council in Congress. wanted to create market for United States bonds and also to put out g currency which would be acceptable at it's face anywhere in the United States and would have behind it the quality and absolute safety. To secure the quality of safety the currency was based upon United States bonds. That was a quality acquired at the expense of elasticity and it was a lack of this quality which in part explains several of the panics, notably that of 1907, which have occurred. Many persons have asked many times what will become of the United States bonds after the new banking law goes into effect. A little over 5100.000 eco of national bank rates are still outstanding and these are based upon government bonds. This is prob lem which puzzles the members of the national monetary commission and also greatly perplexed the members of Con- gress who drafted the present national banking law. The new law does not solve the problem. but 1t finds the way for get ting around the difficulty temporarily For Instance, under the new law national banks are not required to retire their borded circulation, ebut many increase or decrease their circulation as they did under the old law.
 But by most ingenious and not wholly satisfactory measure there are to be ab- sorbed every year a certain amount of retired circulation which will permit the bonds upon which this circulation stood to he released, and yet by a somewhat complicated process
 year and five months from this time and thereafter for 20 years any national bank will be able to retire either the whole or any part of its circulating notes if it apply to the treasurer of the United States to sell at not less than par and accrued interest the bonds upon which ,the circulation is based. In order to make a market for these bonds, if necessary the federal reserve board may compel the federal reserve banks to buy them although the aggregate sale in any one year is not to exceed S25, ,00000O. This is
 
 one practicable long as government bonds were outstanding and are used for the basis of cirulation. This arrange ment does not solve an important prob lem so far as the bonds of the govern ment which bear per cent interest are concerned. It may be that it will be found that there are three possible markets hereafter for the United States bonds. One, that ordered by the reserve bank which may buy as many as $25,000,000 a year from banks which surrender circula- ton. Then again. national banks may get these bonds for the purpose. of in- creasing their circulation. There may be a market for the general public. but that would be purely investing market The committees of the two houses of Con- gress which drafted and perfected the present law appear to have been per- suaded that the chances are remote that government bonds bearing per cent in- terest will hereafter command more than par.
 So that it 4nay be that if banks buy in the open market they will be able to get the bonds below par excepting those which the federal reserve board compels them to buy
 It is fact of which the public has Iit- tle or no knowledge that between 80 and 90 per cent of the entire bonded debt of the United States is held by national hanks The best opinion seems to be that many millions of the ? per cent bonds would be sold by national banks in case they are able to obtain a price of par or,