New-York tribune., 1918-03-11

| business through the rediscOunt. under
! the general management of the Federal
Reserve Board. of paper of this char
! actor between themselves. An arrange.
ment which might prove practical
would be to rediscount with the Fed
eral Reserve Bank Of each district the
paper of firms in that district.
Would Help to Equalize Burden
In such times as the present, the
country as a whole cannot participate
equally in some Of the larger financial
operations, the burden of which con-
centarates at the principal centres, par
ticularly New York, which is the coun-
try's great security market and the
principal centre of export and import
transactions, as we'll as of govern
mental financing ad domestic credit
operatios. intimately concerning the
whole country.
There are times ad seasons of ex-
treme demands on these centrs, as
when W are financing the movement of
the country's crops abroad or the i'm
portation of goods for national con-
sumption, when securities from other
parts of the country or from abroad
are sold in our markets and the pro-
ceeds drawn against creating condi-
tions in which it is desirable that the
Federal Reserve System should operate,
as was intended from it's inception, as
a unit; that is to say, as a government
bank. distributing through the medium
Of the Federal Reserve Board the bur-
to each Federal Reserve Bak that por-
tion of the task for which it is best
qualified, in order that no legitimate
activities may be curtailed.
In times of stress the merchant could
use the trade acceptance to advantage
both in buying and selling. In fact, the
war creates condition where sound
reasons of public policy may exist for
SO doing, and if all merchants alike
ances, the practice would operate to re-
move apprehension Of any impairment
of credit on the part Of firm giving
a trade acceptance. The expediency Of
giving trade acceptances is in all cases
a matter of individual determination,
which would be governed by money
tension, restriction of credit, relative
interest rates, cash discounts and SINH
| lar conditions.
in given city under such conditions
finds it expedient, profitable or desir-
able to give an acceptance in a certain
transaction in lieu Of cash, to mer-
chant in another city, the merchant to
whom the acceptance is given would
ordinarily discount it with his home
bank. But if it should happen that
money is more plentiful or rates lower
in the city of the buying merchant, it
range for the discount of the paper at
his end and settle in cash with the
seller, subject to such a cash discount
as may be reasonable and fair under
the circumstances. AS war measure
the burden Of financing large opera
tions under this system may be distrib-
uted over the entire country, reliev-
ing the excessive burdens on main CEN
tres and placing the entire financial re-
sources of the country effectively be-
hind banking and credit transactions,
thus realizing maximum efficiency and
a minimum of tied-up capital and fully
utilizing the functions of the Federal
Reserve banks, through which such
credits would be largely cleared against
each other.
I Initiation Is Eliminated
When the trade acceptance is paid,
there are debt and deposit cancelled.
There is no imitation, because the ac-
ceptances are based on goods going
into consumption. Imagine ten men
sitting around a table. The second says
to the first, "You owe me $40, pay me-"
Payment is made with a $40 bill The
third says to the second, "You owe me
$40, pay me-" And the same operation
is repeated all round the table. s100
worth of debts are cancelled with a
$40 bill. The same able-bodied $40 bill
can go on indefinitely cancelling debts.
Substitute the Federal Reserve credit
for the $40 bill; the principle is the
same. The main thing is to organize
your elf-liquidating credits to connect
up with the Federal Reserve Bank.
Tho Epdnro1 Roc pr,
something on the order of a national
clearing house, and the results would
be similar in some respects to clearing
checks through the clearing houses
Could you imagine the amount of cash
which would be necessary to effect the
country's daily settlements without
clearing house system? The increased
of credit might be compared to stand
ardlzatlon of models and parts in man
u1acturlng. The employment of the
trade acceptance is the "jiu iitsu" of
commercial finance.
There will be dire forebodincs of
overtrading, bad management, too great
expansion of liabilities, perhaps kiting.
accommodation paper, and other oh
Jectlons. AS matter of fact. as in
the sale of paper through brokers in
the open market, it will be altogether a
matter OF good management, scrutiny
and information. Credit relationships.
in the last analysis. are based upon
this, knowing with whom you are doing
business and confidence Under ex-
perienccd observation, devious methods
will not go far. Under this or any
system the bankers risk is predicated
upon the good management. conserva
tism, financial responsibility and in
tegrity of the borrower. Without
these, under any system disaster will
follow. No system affords better basic
! conditions of commercial credit or of
observation and scrutiny
Acceptances in Long Use Abroad
The use of trade acceptances abroad
is as old as the hills, and has salts
1factorily stood the test of time in
banking and open market transactions
IN the leading European countries
where credit standards are on the high
est plane.
To the banker, the trade acceptance
has the merit of keeping IN view the
character of credit operations into
which his money is going, distribution
of the risk, prima facie evidence OF
llquidity and immediate availability
for red scount.
The commerce or banking of nation
cannot proceed on better fundamentals.
The trade acceptance and bankers' ac.
| CeDtancp are idaol unite -, L.41 =