The sun. [volume] (New York [N.Y.]) 1833-1916, 1916-04-13
Padding the Currency for Proat.

Padding the Currency for Pro0t.
Treasury figures as Of April 1. set.
ting forth the statistical facts Of u
redundant currency, show an increase
Of $1,74O.OOO over March 1 in the
bond secured notes taken out by the
Federal Reserve banks. The actual
amount Of such notes put into circula-
ton Is shown in the last weekly re-
turn Of the reserve banks to be
S1.251.OO 0 This is $1.251,00O more
than the total Of such notes outstand-
ing a month ago.
In roundabout ways answers are
being given to the inquiry THE Sun
recently propounded: Why are the
reserve banks helping to pad an ex-
cessive circulating medium in this
way at this time? The answers are
not fully responsive to the question.
but they are Illuminating.
One reply. Of q kind. is contained
in the circular sent TO its member
banks u few weeks since by the Kan
sas City Reserve Bank. This bank be-
gan the process Of exemplifying the
currency reform features Of the Fed
eral Reserve act by the circulation Of
bond secured notes when the circum-
stances of an abnormally easy money
market and an abnOrmally plethoric
state OF the currency argued not for
expansion hut for contraction Of the
circulating medium. The Kansas City
Reserve Bank said In its circular to
its member banks:
within a few days this bank will he
In position to issue the frst of the new
Federal Reserve bank notes, We have
no oub o will be glad to receive
a few thousand OF this new and attrac-
tive currency for local distribution"
Were reserve bank circulating
notes based on Government bonds an
urgent requirement OF the monetary
situation we should not find the ma
tional banks foregoing the profit on
such circulation and giving up, as
they have been doing. their W note
issues to the limit of opportunity az.
forded by the reserve bank purchases
of Government bonds. Business and
money market demand for currency
is Slackening because Of u super.
abundant supply. 81 the Kansas City
Reserve Bank proceeds to stimulate
demand by drumming up trade for
its bond secured notes as Il novelty,
just as an pnterprising grocer would
push the sale of a new article.
Further light on the reasons for
this reserve bank action is thrown
by the survey Of banking conditions
published by the Comptroller OF
the Currency. Comptroller WILLIAMS
makes this point about the Govern
ment bond market:
ANY bank. whether national or Fed
erai Reserve. investing in Government
Is and then reimbursing itself for tn
outlay by issuing circulation against
these bonds, gets a net profit OF approx,
mately M per cent without reducing
its cash resources except as to the {
per cent. redemption fund deposited
with the United States Treasurer"
We are now beginning To see al
though still darkly. why the @
batch OF reserve bank notes, bond se
cured, is being added to the currency
crazy quilt. At a time when a pru
dent regard for money market fact
and the best interests Of the cOun
try calls for no interference witt
any wholesome currency contraction
which may begin, the reserve hank!
are e%ndeavOring to maintain eXpnn
sion. The bond secured notes Of tn
reserve baSks ARE being forced int,
circulation for the profit there Is II
r It for the issuing banks. Yet this l
e only a partial answer to THE SUM-
original question.
I, There are no better authorities n
, the purpose OF the Federal Reserv'
, system than Representative GLAsI
, and Senator OWEN. the chairmen o
the House and Senate committee
, under whose auspices the Fedora
Reserve act was written and passed
Representative GLASS more Than one
: in 1913 declared that the authOritie
= In charge Of the new banking system
would be able to work without an!