Evening star., 1914-10-24
Report Had Situation in Mind.

The report on the bill, from the House
| banking and currency committee, shows
| that the cotton situation was in mind
and that the southern banks were be-
ing thought of, for that document says:
1T so happens that many banks. es-
pecially In the south and west, have |
not enough investment in bonds and
other securities to enable them to put
out the amount of circulation which
they now require and to which they
should be entitled within the limitation
provided by the act of August 4, 1914.
These banks, however, have an adequate
supply of commercial paper and mas
much as this security is now recognized
as the most liquid of assets there seems
to be no reason for denying the issuance
of emergency currency to national
banks which are able to offer it as Sc
curity.
| "Just at this time considerable
amount of additional currency is de-
manded and the demand seems to be
| justified. Crop-moving season is at hand.
and at this time of year the amount OF
currency in circulation is greater than
| at other seasons. Over and above the
usual seasonal demand there is now an
Exceptional demand owing to the fact
that the necessities Of Europe growing
out of war have caused a substantial
gold export movement.
Emergency Notes for Any Shortage.
There is reason to believe, too, that
doubts and fears arising from the
great European war have prompted a
| certain amount of boarding of specie
| in this country. ~ 1t is desirable that
| the shortage of currency growing out
| of these causes should be promptly
supplied by the issuance of emergency
| notes which will be retired whenever
! the emergency may be. passed. The
progressive tax imposed on the emer-
gency notes by the Aldrich-Vreeland
act as amended. and the discretion
given the Secretary of the Treasury
to require of the issuing banks addi-
tional gold deposits in the redemption
fund, will have the effect. of causing
the retirement of the notes when they
are not needed to supply an actual de-
mand for Il circulating medium
The bill for the mobilization OF the
reserves. by which Dallas and Atlanta
alone two important cotton centers)
could increase their facilities from
$12, 100000 combined to s42.600.O0O at
once, is needed badly, according to the
be federal reserve board, and two lead
ing members of the House banking and
currency committee said freely today
that failure to enact this measure
would undoubtedly delay the beginning
of the operations of the federal reserve
system
A simple explanation of this state
ment is as follows:
When the federal reserve system was
created it had for its purpose the grad
ual concentration into twelve federal
reserve banks of the scattered gold
boards. or reserves, asld by many
thousands of banks and the gradual
elimination of balance kept as reserves
with reserve agents. t. -.-e.'..'
| Purposes of the Reserve System.
| The system was planned to begin
| with paid-in capital of only VS.
100000 and reserve deposit of $25O,-
| 100000. while there remained in the
vaults of the member banks 1884,
10000 and $3.50, 100000 with reserve
;agents.
/ After three years, under the original
plan. the federal reserve banks are to
show $54.00O.000 capital, S6S4.OO0,O0o
reserve deposits and $343,00O.000 in the
vaults of member banks. Thus In three
lyears' gradual shifting and Withdraw
ing the system should show maximum
resources of S.38. .000, 900, an increase OF
S358, 100000. of which $3.50, ,000, 900 would
be withdrawn from reserve agents. the
balance from the vaults of member
banks.
This gradual change suited the con-
ditions existing at the time OF the
creation of the system, but the unex-
pected upheaval. following the Euro
opinion of the federal reserve board.
most desirable that the gold boards
be released and that the initial strength
of the system be increased as much as
possible. If the almost $400,00O,000
now impounded by the member banks,
in their vaults behind lock and key.
could be turned over to the FEDERAL
reserve banks, an additional loan
ing power over the country would
6e reached to the extent of 100000
900.