Evening star., 1914-10-02
Value of Gold Reserve.


the gold pool, its needs and objects.
publication this afternoon, has this to
say:
1.-The establishment of the gold fund
will have the effect Of bringing the en-
tire exchange situation under the Pi- PuI-
committee should soon have a better
knowledge OF the extent. OF. our foreign
Indebtedness, and what 1t Is Tor, ana
body has at this time. The action Of
American bankers in raising the fund Is
a token of their readiness to cooperate
with foreign bankers In again CONNECT
ing up the mechanism or the exchanges
on a working basis.
TT is we'll to remember that the
raison d'etre of a gold reserve is to limit
fluctuations in foreign exchange and In
domestic prices affected thereby. SO long
parity of the domestic currency with
gold will be maintained. That is to say,
although gold is occasionally boarded
for fear of war or possible bank IN
solvencies, it seldom goes to a premium
for any other cause than the demand for
foreign payments. The government Of
India has maintained a large stock Of
silver rupees, estimated at 100000. 900,
at fictitious value. and handled for
eign trade aggregating about $1.50o. .000,-
900 per year, for now fifteen years. on
a very small gold reserve fund. the
larger part OF which is not kept IN SoiQ
at all, but in securities.
.'The 31st of August, 1914, the amount
of gold actually in India in the gold
standard reserve was only $30,000.000.
besides which there was ear-marked
gold and credits 6 together amounting
England and about s70.000.0o0 Of Sc
curities kept in London. The latter is
a doubtful factor in gold reserve in
times like these. This is as large as
~
much smaller for years, but it has
done the business of a gold reserve.
Aldrich-Vreeland Act.
at is reassuring to banker to know
that he can obtain something with
which to satisfy his depositors in the
event of their coming down on him
in a panic, and equally reassuring to
the depositors to be told that untold
millions in cash are within the bank
er's reach. 1t is clearly true, however.
that widespread misconception exists
as to the functions Of currency In
country where most of the people use
banks as commonly as in the United
States. Bank notes are as good as
any money for circulation. but the
amount Of money that can be absorbed
in hand-to-hand circulation Is limited.
Loans are not made by passing cur
rency over the bank counter. but by
credit entries in deposit accounts. Such
loans require a proportionate amount
of reserves, and bank notes do not
count in the legal reserves of national
banks. 1t is a mistake. therefore, to
suppose that the Aldrich-Vreeland act
greatly enlarges the ability Of ma
does for them is to increase their IA
cilities for paying depositors In case
the latter are demanding cash. 1t fs
also true that the A1drich-Vreeland
1o tod tn he AYyA SNf
state banks and thus increase the abil-
ity Of the latter to make loans, but
there is reason to fear that most of
them will eventually reach the national
bank of the central reserve city.
"The notes when issued require only
a per cent reserve. in the redemption
fund, but after being paid out for
produce or labor they will soon appear
call for reserves of Is or 25 per cent.
These deposits in the country banks,
however, will be drawn upon for the
purpose of making payments at the
products Of the country are moving
out and creating bank balances at the
centers, these notes probably will be
forwarded for this purpose. and will
pile up eventually in the central re-
serve cities. The tendency will be for
deposits in the central reserve cities
to Increase, thus increasing the reserve
requirements and compelling the banks
more reserve money. The natural rem
edy would be for them to turn this
currency in for redemption. but if this
should be done rapidly it would very
to the issuing banks but to the Treas
ury. as the per cent redemption fund
is inadequate to deal with anything
like an emergency: An extensive
handle a heavy volume of redemptions,
and even then the Treasury might
have to stand in the breach for con-
siderable amounts II redemptions were
promptly made. t,
The Retirement.