Evening star., 1914-11-16
The New Currency System.

The United States establishes today
for the first time in it's history cur
rency system based upon collateral
securities instead of merely its own
bonds The Importance of this change
In the basic principle of the national
currency is not to be oVerestlfnateo.
It is fundamental in character and
from it is expected to flow benent
affecting all branches of business IN
dustry and trade. In normal times the
former system sufficed. but repeated
experience proves that in emergencies
when panic was in the air. when men
confidence was weakened. the system
failed. There was not a suff1ciency OF
money to meet the demands OF bank
depositors for the withdrawal of their
funds. and thus financial institutions
failed which were intrinsically SOUND
but which could not be saved in the
crisis The new system is designed IN
part to meet this condition and to per-
NIT a strengthening Of bank holdings
against extraordinary calls, as well as
20 increase the volume of currency In
times of other extraordinary demands.
The new system is based upon the
principle of issuing national currency to
the banks in exchange for commercial
securities in addition to government
bonds, heretofore the only basis OF such
issue Historically the device of eur
rency issue on the basis of federai
bonds was designed to insure market
for the governments bond issues, by
putting a premium upon the possession
of these securities by the banks, which
could turn them readily into cash by
depositing them with the Treasury In
lHxrQ
able to command a market at good
rates for its bond issues. But the ulti-
mate effect has been to restrict the
country's, currency system. to render
II inelastic save as the governments
own money borrowing needs enlarged.
Thus times Of national government
prosperity became conversely times OF
commercial stringency.
SafeEuarded at every concelva bic
point, and with an organization that
appears to meet all the requirements
Of the business as we'll as the govern
mental responsibilities, the new cur
rency system is put into operation at
a time Of unusual financial strain. The
war in Europe has interposed a new
condition. causing the steppase of all
exchanges for months and necessitating
tain American industries have been all
but paralyzed by this abnormal situa-
ton It will be for. the historian to
determine whether this crisis has been
passed safely up to the present hour
chiefly because of the expectation that
the new currency system would create
stable conditions and through the en-
largement Of a circulating medium re-
store vitality to business.
Under this heH plan bank failures
as result Of panic pressure should
he viYtualiy prevented. Only through
gross bad management undetected by
the federal supervisory agencies crime
and extraordinary disaster are the
financial. Institutions of this country
likely now to collapse Panic may
arse through the sudden develop
nYe,lt of abnormal conditions, but with
the currency so elastic and with the
federal supervisory administration
rar-reachius and presumably at all
times efficient. the danger to American
prosperity from this source will be
,,r,,- icaily eliminat ed. With an abun-
daace of funds assured for all pur-
poses Of legitimate business and with
2 world market more widely open to
american trade than ever, there Is no
reason why business should not whole
sonlcty ami promptly respond and restore
to. employment the thousands who are
nov out of work.