The Washington times., 1915-04-09

the maximum o. work for rho lrsiness
Of the community, the Federal Reserve
Board is about to put INTO lfect sys-
tenn of clearing balances es between the
various reserve banNs-whiIh, In erect,
means between the several sections or
the country-that is confidently ex-
pected still further to reduce the nsces-
sity of keeping idle cash In reserves or
in transit from one section 10 another.
This system has been organized with
much care and after detailed study or
conditions Some Of these conditions,
however. will be fully understood only
after experience with the actual work
ings of the system For instance, there
are some students of fnauclal opera
tions who believe that there Is, through
out the course Of the year. very little
= ct movement of cash from one part
| to another. They believe that the move
IT nts constantly tend to erualize them
selves, and that the cash supply. like
the level OF the seas, though affected
| temporarily by seasonal movements like
the tides. nevertheless is very uniform
in all parts of the country. and that
no section draws permanently and con-
stantly away from the cash supplies Of
| others.
National Supply of Cash.
| Whether this view is correct Is a
question on which positive determine
ton cannot be reached at this time.
Some other observers Of money move
ments believe. to the contrary. that
there Is a tendency for some sections
to draw to themselves larger shares
than their apportioned interest in the
national supply OF cash. one OF the
most interesting and important results
| of the operation of the new clearing
system viii be to determine which of
| these views is correct. and to snow
| what sections have been getting, by
reason of their trade balances. more
| than their share of the money, and
| what have been compelled to manage
| their business with less.
| When the reserve bank system was
put into eocCt It made possible by
the mobilization and concentration o.
amount Of actual money for the day
| hy-day operations Of the country
business: and this had much the same
effect as II the per capita OF money
this extent IT Is recognized that
every bettermcnt OF financial facili-
tiee that makes it possible to do bus
mess without actually moving money
friness of the dollar, with the same
effect as II more dollars were made
to exist.
In this country, deposit banking is
other In the world everybody has
bank account and most OF the ousl-
ness is done by check and draft IN
stead OF by cash payment. mus ls
presented the curious ERECT OF peo-
ple going about with less money In
their pockets and their safes than
they might nave in countries with o
less per capita Of circulation whiie
at the same time they may be SAID u
have more mone%.
Avoids Shipping Currency.
| Just as the reorganization OF reserves
under the new system released a great
!. fund of cash for business uses in circula
ton. so the new clearing system IL e1'
pected to release another considerable
amount, by doing away with the neces
sity for shipping currenc! around 'he
| country to meet balances
II It he true that the money transr
tjons between parts OF the country tenc
in say, the course of a year-to equal
! ize themselves, then the clearing sSsteir
will make it possible practically to enc
the business Of transporting money. IN
stead, credit and debit entries on z Sc
t OF books at the central clearing Cstap
n lishment will do the business A stoci
y Of cash. representing the reserves cf tn
. reserve banks. will be maintained
II this central establishment. owned joint
- " by all the banks: and once a weei
the interest of each reserve INSTITUTION
in this pile Of gold will be readjuste'
r on the books as their various reports o
e Indebtedness to or claims against eac'
other are received.
Concrete Illustration.
| To explain what the clearance syster
Is designed to accomplish. IT may o
SGT forth very simply by taking %r
crete pair Of transa ctions between Eas
and West The merchant In New Yor
| sells a bill Of goods to a dealer In tn
| West who. II he likes. can send tn
| money by express to pay for them. Bl
| he doesn't do It: II he did. vas
| amount Of money would he at all time
| IN process Of transportation; sew n"r
| would be expressing packages OF cas-
| to Kansas CITY to buy meat. and kaI
sas city would he sending back otht
bundles Of cash to pay Tor sugar M ar
! shoes. The two accounts In the Ion
- rum cancel each other.
Z It|is for the purpose OF perfectir
this process of all-round cancellatic
that the clearance system is being pc
!, fected and centralized. The New Yor
M Kansas City customer for the amour
Id the Kansas City man selling the me-
f. draws on New York for his pay. The
h. drafts are presented and paid by cnet
~ or acceptance. Ihen tne Ne" 10
-, bank informs his Federal reserve bal
~ III that It has claim on Kansas City 4
ne this amount and Kansas City's bai
eri will similarly notify it's reserve instit
I,i ton that It has claim on New for
III No need to ship currency either wa
of the items at length cancel each 9th
w on the books.
We Gold Fund Here.
RI To perfect this process of CANCEL
to tion. it has been proposed that ful
IS Of gold coin be maintained by CONT
10 buttons of all the reserve banks
Washington. which has been fixed u
on on as the best location for the piv
in of the scheme. 1t is not yet possih
n to determine what will he the nece
. sary amount in this fund: only eXpel
enCe will tell. The fund thus mai
tanned will count as reserve for I
H. banks, so 1t will perform a douh
function: it will be both reserve a.
guarantee fund for clearances.
Each week every reserve bank will
nd Thursday forward to the reserve boarc
IT. clearance organization in Washingt
"a by wire. a statement OF its relatio
~ with all the other reserve banl
III showing what it owes to each a
t: what each one owes to it.. With
a this data before 1t, the clearan
In authority will proceed to cancellati