New-York tribune., 1918-06-30
Possibility of Pumping Gold
Out of Circulation

These three notifications in reserve
requirements are of great Importance.
On January 2, 1915, there was $3.50
100000 of gold in the United States,
and on April /, 1918, only three years
later, there was $3,042, ,O00, 900, an in
crease of S1,227, 100000. On April 7,
1918, the Federal Reserve banks held a
total gold reserve of s1,827, 100000, an
amount almost equal to the entire gold
supply of the United States three years
ago and over 60 per cent Of the gold we
now hold. This amount is so large that
one cannot easily or quickly grasp it's
Importance.
The second significant change that
has occurred is in the issue of Federal
Reserve notes. AS originally passed the
apparent intent of the law was that
notes should be issued on the security
OF rediscounted paper placed in the pos
session OF the Federal Reserve agents.
1t was soon realized that the machinery
provided could be utilized as a device
for pumping gold out of general circu-
lation and into the hands of the Fed
erai Reserve agents, who would issue
federal Reserve notes in exchange. I'm
der this plan most of the notes were
secured by gold, and hence were in ef-
1ect, though not in name, gold ceftifi-
Gates. AS recently as about wear ago
there were only $420,00o,0O0 of Reserve
notes in actual circulation, but now
there are outstanding 81 $4,000, 900 Of
the notes. Since last June the volume
of these notes outstanding has been ins ~
creasing ct the rate of nearly S23, ,O00.-
900 week.
The third change of Importance is
the increase in the practice of redis-
counting. This practice is recent
one in American banking. Only a few
years ago it was viewed with disfavor
by most of our bankers. and for some
time they hesitated to utilize the
facilities furnished by the reserve
system. On March a, 1914, our ma
tional banks reported only $8,70OOOO
notes and bills rediscounted On
March 5, 1917, the amount was only
s49, 100000, but by December 81, 1917,
it was $475.000,000. On April 27, 1918,
the Federal Reserve banks reported
bills discounted as 100000, 900, an
amount which is exclusive of any bor-
rowing by member banks from each
other. At the outset most of the bor-
rowing from the reserve banks was
done by rediscounting commercial
paper, and could with much fairness be
said to have commercial transactions
behind it, At present considerable
part is the direct discounting of the
member banks own promises, secured
by United States obligations as col
lateral. Much of this borrowing is
done on fifteen-day collateral notes at
a rate Of only a per cent, rate lower
than that charged for commercial
paper.
We have enumerated three important
changes: a. Reserve requirements of
national banks have been lowered and
reserves concentrated in the reserye
banks; (2) note issues are increasing,
and under our amended laws may be
issued in much larger volume than was
at first possible; and (3) the practice
Of commercial paper and of discount
ing their own direct obligations has
been rapidly acquired by our banks and
is now extensively employed by them.
ments lies in the concentration Of
power that they indicate. Such con
ceptration is desirable and necessary
in our war emergency, but throws =
heavy responsibility upon our Treasury
and banking officials. Wisely used our