The Washington times., 1915-05-06
j. s. GOLD TO
MEET WORLDS
TRADE NEEDS
Federal Reserve System Ex.
pected to Stretch to Meet
Extraordinary Situation.
BY JUDSON C. WELLIVER.

BY JUDSON C. WELLIVER.
The new Federal reserve banking sys-
tenn is depended upon to prove one Of
the most useful instruments in stretch
ing the worlds gold supply to cover
the extraordinary needs created by the
world war.
Business in the United States does
not need more gold at this time. As
has been pointed out in a previous ar
ticle, financial opinion is that-business
In this country would be bettered by
making arrangements that would per-
NIT the gold to remain where 1t is most
needed to maintain the gold standard,
namely, in the warning countries of
Europe.
But" was suggested to an Official
who is in touch with the Governments
fiscal measures. 'if the gold is of more
use to us abroad than here. how do you
propose to adjust commercial cOnd-
tons so that it may remain abroad"
Settle Trade Balances.
Foreign governments he replied,
have generally been increasing their
gold stocks since the war began. They
are making every effort to maintain
their supplies in order to maintain con-
fidcnce in their currency. They are all
buying especially from the United
States. So the tendency is to compel
shipments of gold here to settle trade
balances.
conceivable that the banking authority
in this country may before long find it
desirable to authorize our banks to deal
in acCcptanCcS as between foreign Coun-
tries. That would be lending American
credit to finance operations between
other countries, and thus enabling them
10 carry on their extraordinary busi-
ness without. for the time being, send
ing away their gold OF course the bills
would have to be paid some time; the
mands of the moment"
Explaining what would be meant by
American banks dealing in foreign ac-
ceeptances. the speaker went into an
elemental discourse on the methods of
international trade. His illustration
was given for the purpose Of showing
just how American banking credit might
be used.
Illustration of System.
Swift & Co.. of Chicago. have
branch establishment in Argentina
Suppose that that establishment ships
n cargo of mutton to New York. Along
with the papers representing the cargo
Is sent draft for. say, the 500, ,0O0
which the cargo is worth. This draft
is tho payment Is not required to be
made for that time which gives op-
portunity for the consignee to turn
Tho cargo into cash: the bank mean
while, on acceptance of the draft by
the consignce. providing the credit to
carry the transaction.
me acceptance Is piece of COM
nercial paper, taken ty the bank As
any other commercial paper would be-
But suppose there is no market for
mutton in New York, and it is decided
that the cargo shall go to Rome. which
IS afording good market. What them
me Argentine consignor makes his
draft through the bank Garibaldi 4.
Co.. of Rome. and the mutton is sent
on there. Thus the transaction Is
really between Buenos Aires and Rome :
the United States is not party to il.
and that acceptance would not be, un-
der present banking regulations avail
able for investment OF a banks funds
in this country.
Advantages in System.
Yet II the credit of a New York
| bank, with its vaults full of money.
could be employed. through its taking
| that acceptance, to further the trans
| action. the result would be that the
meat would get to Rome, where there
| is the best market for it, Swift & Co
would have got the benefit of that
market. the Argentine meat business
would have been required to be moved
| in making the transa ction. The draft
| being at 80 or 10 days, would have been
| carried by the New York bank, and
| the meat sent ahead.
That Is a simple statement Of the
method of using American banking
| capacity in financing operations be-
| tween other countries so that our goic
stock and credit may work for them
| In this instance. the bank gets the ad
|
| it has the security OF the best com.
! mercial paper; Swift & Co. are turn.
| ing over their products and keeping
business moving: ltsly gets the meat II
| needs. without having Immediately Il
| send away the gold which II also needs
and South American industry bene
| tts.
But that transaction would not b
possible at present. because American
| banks are not allowed to buy accep.
tances representing transactions be-
tween citizens of foreign countries. II
such transactions were permitted-and
it is declared to be quite likely that new
| regulations will be devised to permit
them before long-the United States
could, very obviously, give very great
| assistance to the promotion of trade as
between other countries
Especially would 1t he possible to en-
courage the South American countries
all of them just now in great need O.
stronger credit resources than they
possess: 1t would get them accustomed
TO looking upon the United States as
real center of ultimate financial re
| sponsibiity. 1t would introduce them Il
our banks. business houses. and com
merCial methods.
And 1t would help stretch out tn,
great credit resource OF this big anC
rich country, and take under its wint
the less powerful business enterprise
or countries that We're given the privi
lege of having their high grade accep
tances discounted in this country.
Tendency of Gold Stream.
The tendency to force gold to flow II
ward the United States this summe
gets stronger constantly. A New Yor'
firm has Just received So 900 900 for tn
account OF the Bank of France, the frs
imported from Europe since the begin
ming of the year. Without unccrtainty
according to financial experts, there va
be more of such movement, a good de.