Grand Forks daily herald. (Grand Forks, N.D.) 1914-1916, 1914-11-16
new FEDERAL RESERVE SYSTEM IS
IN OPERATION; KAD00 ORDER PUTS
Plan IN Effect; means BIG CHANGE

Warrington, Nov. 16.-Secretary
McAdoo today signed the formal or
der announcing that IL federal re-
serve banks are established and ready
Tor business. The final step required
to set In motion the nations currency
system found all regional reserve
banks ready for operation.
Washington, Nov. 16.-With the op-
ening today of the twelve f%ederal-re-
serve banks. the nation begins ac-
tual operation of its new currency sys-
tenn designed to provide an elastic cir
culating medium based upon modern
ideas of finance and economics.
1t q taken the reserve bank or
reserve board almost twelve. months
% work out details Of organization to
the point where an opening date was
chosen. Notwithstanding careful de-
nberations which preceded every pre-
liminary step, the twelve bunNs al
not for many weeks take up and e1-
ercise all the functions bestowed up
as will result from the old national
banking system of necessity will in
most respects be slow. The reserve
board, the guiding spirit of the new
system, is itself feeling its way over
strange ground and the men in charge
OF the twelve banks probably will teel
h same desire to york slowly and
some. v
Is . Compromise.
The new system IS generally con-
coded to be q compromise between q
central bank and the present system
with its thousands Of units, scattered
reserves and fixed limits Of currency.
It's chief attraction and value, those
who interpret it find in the elasticity
It will give to recognized paper cur
rency. Under the present law nation
al bank currency is almost q fixed
quantity based upon national bank
capital, issued upon United States
bonds and unresponsive to the chill Of
hard times or the exultation Of boom
days. It's use led, the experts say. to
=. unrestricted loans and speculation. In
the days when money was easy and to
a boarding OF resources and a tighten
ing Of the purse strings Of credit when
they e hard. 1t is said to have bred
the panic Of 1907 when solvent banks
with large credits in reserves: and CEN
trail reserve cities, were helpless and
could get back to their WI counters
none Of the millions they had placed
with their larger and stronger corre-
spondents.
Under tho new system the federal
reserve notes, which. in time, prob
ably will entirely replace the national
bank notes, now so familiar, will be
issued upon commercial paper arising
out of actual business transactions. 1t
seems plain that they will rise and
fall in amount as the tides of business
rise and fall, and that there will be
no plethora of money to lie idle. They
will be obligations of the United States
government, which national bank
notes are not, and will have back Of
them q large reserve of gold in the
regional banks. Through them the re-
serve banks are expected to come to
the aid Of any needy member bank
which has plenty Of good paper but
needs cash. To further insure the flow
Of money. reserve banks themselves
may be required to r%ediscount tho dis
counted paper of other reserve banks.
Mass of New Notes.
More than $3.50, 600, 900 Of the new
notes have been ordered by the comp
troller Of the currency for the twelve
banks. They are in -. $40. $40, $50
and 800 denominations. and are to
be accepted BY ali member banks and
for all customs taxes or other dues.
The federal reserve agent Of every
bank In the system. who is the gov
eminent representative there, has
these notes In custody ready for the
application Of member banks.
Next to tho elasticity Of the new
currency. officials value the "mobiliza-
ton" but no concentration of reserves
which it will insure. This, they point
out, does not mean the concentration
of vast sums from country banks in
reserve cities and central reserve
cities as under the national banking
act, but their appearance in large part
on the debit balances of the twelve
reserve banks in widely scattered
parts Of the country. These reserves
Will be as near as possible to the door
Of the member bank to which they be-
long in times Of need and there can
be NO refusal from q reserve bank to
return them in cases of exigency.
Remnant of Present System.
A remnant Of the present system
still remains in the provision by
which banks may keep a certain pro-
portion Of their reserves with other
as reserve and central reserve cities.
At the end Of three years. however,
that will be changed and all reserves
will be held either in q banks
vaults or with a federal bank. An ef-
fort was made in congress a few
weeks ago to permit member banks to
deposit all their reserves with this re-
DOL vC UdlAh dI OIlCc. Az IIl0 law SLanQS
their process Is to be spread over a
period Of thirty months. # it is re-
newed successfully next winter It will
a marked increase in tho avail
able funds Of the reserve banks. AZ It
stands the twelve banks will start out
with a total cash reserve Of about
4 5000, 600.
Another point not forgotten by adj
mirers Of the law is the fact that the
different reserve requirements will re-
lease about $464,000, 900 now tied up
in reserves and will afford far greater
opportunity for q borrower to get a
hearing and q loan.
The reserve banks are not to do a
banking business except with member
banks. They are empowered, however,
to engage in open market transactions
in. the buying or selling of cable. trans
fers and bankers bills Of acceptances
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