The sun. [volume] (New York [N.Y.]) 1916-1920, 1918-07-01
THE MONEY MARKET OUTLOOK AS MODIFIED
BY THE DEMANDS OF WAR FINANCE.
Extraordinary Which
Needs of Railroad and Industrial Corporations the Government
Banks Reflected by the Temporary Borrowings
By WILLIAM JUsTUs BoIEs.

the past year, II represents only ~
per cent. of the LIQUID banking re-
sources OF the United States This
means that 80 per cent. OF such re-
sources are not yet affiliated with the
system which Is furnishing 100 per
cent. of the vast credit needed to sun.
port the Government in It's extraor-
binary war enterprise. The Federal
Reserve system of the United States
has been called Foch's financial re.
serve, Just as our army has been de-
scribed as Foch's military reserve. In
a large sense this is true, as the
task of financing a good part Of the
Allies campaign has been assumed by
the United States Government. Such
a contingency has long been foreseen.
and through the skilful leadership of
the Federal Reserve Board the couu-
try's banking system has been safe
guarded in a way to provide Just such
protection as is vitality needed at this
time.
Loans to Other Governments.
Canada would like to obtain a $780,
100000 credit from the United States
in order to protect its exchange mar
ket. Negotiations have been in prog
ress between the United States and
the South American republics OF Chile
and Peru to secure substantial credits
for this country. Credits aggregating
$5O,000,000 will probably be available
for correcting the abnormal situation
existing in the market for dollar ex-
change Similar arrangements may
be undertaken with Spanish interests
in the effort to support dollar ex-
change at Madrid and other cities
All the exchange markets have been
upset by the extraordinary compiled
tons which have grown out OF the
war and which may be expected to
continue in one form or another for
considerable period after the world
conflict ends. These are some of the
incidents which have attended the de
velopment of the United States as
centre of international finance ana
great Importance.
New Commercial Borrowings.
The growth Of the acceptance sys-
tenn Is causing scvcra! thousand firms
and business organizations to aoan-
don the use of single name paper in
favor OF that form of security which
has an International market. A trade
acceptance represents merchandise
that has been actually purchased and
puts an unmatured commercial credit
in negotiable form. With the extern
sion Of this system the money market
is undergoing further change which
Is likely to have interesting bearing
upon methods of borrowing by corpo-
rations and important firms through
out the United States. A bank is per
mitted by law to invest in trade &C
ceptances without reference to its loar
limit, which restricts its advances to
all other borrowers. The Federal Re.
serve banks are also permitted to pur.
chase trade acceptances in the market
but not plain commercial paper An
active campaign Is being waged TO
push the acceptance system and TO Sc
cure its Endorsement by trade organI-
cations throughout the country. These
measures have been largely successfU!
since the acceptance system permit
easy transfer OF funds from one sec
ton OF the country to another and
provides protection not otherwise al
forded. While this system has made
remarkable strides, however. since
the world war started, the business OF
the country is for the most part
financed through the use OF single
name paper. This has come TO be re-
garded by banking institutions as
most trustworthy form of secondary
reserve.
Other Demands Coming.
Enough has happened within the
last few weeks to suggest that the
coming six months are likely to prove
the most interesting half year in the
history OF the American money mar
ket. The banks of the central re
serve cities could easily invest their
surplus funds at very attractive rates
in the securities of neutral countries
IL they We're inclined to do so. This
Government has advanced about So
600, 100000 to its allies, and unless
the war ends within year or two the
probability is that these advances will
be doubled. After IA peace compact
has been signed and the serious work
of restoring the normal order Of
things is taken up, the leading inSt.-
tutions OF this country will have
many opportunities to lend their sur
plus funds at very attractive rates
The Government financing has been
skilfully handled by the Treasury off,
Gals and the most perfect cooperation
exists between the Government au-
thorities, the Federal Reserve Board
and nearly all of the thirty thousand
banks and trust companies which
finance the business operations OF this
great country. The money markets
position, therefore. is we'll protected
and the indications are that while
money will continue in active demand
during the remainder OF the year there
will not be serious disturbance OF any
kind, so long as the banks continue
their policy OF discountenancinG the
financing of reckless speculative ven
lures.
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