Atlanta tri-weekly journal. [volume] (Atlanta, Ga.) 1920-19??, 1922-09-26
Referendum on Par CoIIec-
tons Through Federal Re-
serve System Again Brings
Up Old Issues
BY FREDERIC j. HAsKIN

WASHINGTON, D. c., Sept. o.
A banking fight Of nearly ten
years duration has flared up again
as the result of the issuance by the
chamber of commerce OF the United
States of a referendum on the ques-
ton Of the par collection Of checks
through the federal reserve system.
Since the war in Europe turned
public thought into international
channels, a great deal has been read
in the press about foreign exchange.
1t so happened that it was just about
the same time that domestic ex-
change began to disappear and so
that feature of finance has been
practically forgotten by business
men and others who have checks to
cash.
In reality there is no theoretical
difference between foreign exchange
and domestic exchange. Exchange s
the difference in debts Of two COM
munities. In domestic exchange
these communities are cities, coun-
| ties, or, perhaps, states. In foreign
exchange they are countries and con-
tinentS.
There are many business men who
will remember that when they re-
ceived a check drawn on a bank in
any city but their own they could
nos cash it without paying an ex-
change fee. The charge on a $500
check would run anywhere from 10
to rs cents. This was supposed to
result from the fact that the ow1ngs
of one community to another were
| not balanced and therefore exchange
must be paid. d..
AS a matter of fact 1t was more
often merely collection charge i'm
posed by the bank which cashed the
check.
When the federal reserve act was
passed, it contained provision de-
signed to do away with this charge
| on the public. It provided par
J check collection system. This sys
tenn was put into operation almost
| Immediately and has been working
successfully in nearly every section
i Of the country ever since.
Par collection of checks is operat
ed by means of what is known as
the gold settlement fund. This fund
is actual gold in the form Of bullion
or coin. Each federal reserve bank
pays into this fund an amount OF
| gold in relation to it's volume of bust
ness. 1t is a pool Jointly owned by
all the twelve federal reserve banks
Elaborate Process
In the days before this system op
Grated, the balancing Of accounts OF
the clearing, as it was called. wa:
an elaborate matter. Take for in
stance the relations between New
York and Chicago. On given day
a certain amount of money would be
drawn on Chicago banks and th'
checks would be cashed in New
York. On the same day an amount OF
money would be drawn on New Yorl
banks and the checks cashed in Chi
cago. On a given day Chicago would
New York would cash Chicago
checks. The accounts would not bal
ance. Consequently, New York owet
banks actually would be required t.
bundle up and ship notes, gold OF
any kind of available legal tender by
express.
AS the accounts were changing
from day to day. not only between
New York and Chicago, but between
all cities in the United States, there
was q constant criss-cross of ship
ments of gold and monev.
y It was the hey-day of the trair
robbers. It will be seen that Will,
this actual money was in process O
shipment, subject to all the delay!
and risks Of transportation, it wa!
not in use. This money in trans
is known in banking parlance as 9Th,
float" The float has been estimat
ed at as much as 100000, 900. TIL,
interest on $5,000,00 10000 constantly
out Of use is a big item-at 5 pc
cent it is $250,000,0O0 a year. Thi'
was a dead loss.
Under the gold settlement FUND
plan, the general pool of gold is KEEP
at Washington. 1t now amounts tt
nearly 100000, 900. Now whel
New York, at the end Of the Gay
finds she owes Chicago $4,000, 00
as the difference in the balance.
Geographic instruction is sent to thu
federal reserve board at Washing
ton. 1t tells the boards officers IL
charge of the fund to make an en-
try on the books of the fund trans
ferring $10,000,000 of New York
gold to the credit of Chicago. Thu
very next day the situation may b.
reversed, in which case Chicago will