Perth Amboy evening news., 1923-08-29
GOVERNMENT BACKING OF
C~HECKSTOLD OF BY HASKIN
Daily Letter by Frederic j. Haskin

WASHINGTON, D. CA brand
new idea concerning money has been
presented to the American Govern
lment and is receiving consideration
at the hands of the Federal Reserve
Hoard. 1t is that the government
ishould exercise the same general
responsibility for the par value OF
checks that it does for the par value
of paper currency.
The idea springs from the iong
standing controversy over the par
check collection system instituted py
the Federal Reserve Banks.
1t was only ten years ago that do
N estie exchange was almost as I'M
lportant in financial transactions ss
foreign exchange. The dollar, when
lit was IN the form of a check. ~oald
be worth less in New York than IN
Chicago, or wee versa, according 10
the flow OF business. When the Foo
erdl Reserve Act was passed, ten
years ago, provision was made Tor
a par check clearing system. A gold
settlement fund was established
which obviated the necessity for the
shipment of gold back and forth
across the country to meet demands.
The gold settlement now amounts
to between six and seven hundred
million dollars. 1t is composed OF
gold reserves of the member banks
OF the Federal Reserve System, and
lis chiefly located at Washington un-
der the custody of the Treasurer OF
the United States.
In The natural flow Of business
more checks will be presented from
one section of the country than an
other in the curse of a days busl-
ness. Under the old system, it was
necessary for the section which had
presented the most checks to ship
rold or currency to the cities which
had eashed the checks. Now these
debts are cleared through the gold
settlement fund. Chicago will advise
New York that it has cashed more
checks for New York than New
York has cashed for Chicago.
Actual Gold Never Touched
The figures are telegraphed to
washington and officials there pay
Chicago by taking part of New YORK
cold and adding it to Chicago's pile.
The next day the situation may De
and the gold will move
hack. All this is done merely by
setting down a few figures on paper.
The actual gold is never touched'
The Federal Reserve Banks maintain
a. private wire system and every day
ali the information on the payment
Of checks is assembled ana the
changes in ownership noted.
Formerly, when one section became
actually to ship the gold or currency
from one city to another to settle
AI,1-a nyara occasional
in transit-in railroad wrecks,
from bank robbers and In various
other ways. This, as well as the ex-
press charges on the shipments mas
all been done away with.
Formerly, when n ection became
heavily indebted to another, h |
of exchange fell, just as happens IN
foreign exchange. With all accounts
balanced every day by telegraph TINS
no longer is the case.
However, it costs something TO
cash and collect checks. Suppose a
st. Louis grocer goes TO Boston 10
make some purchases. He pays the
Boston merchant with a check on a
ST. Louis bank. The Boston mer-
chant deposits the check in his bank.
The Boston bank must send this
check to st. Louis. Through the gold
settlement fund the actual balance Is
adjusted Immediately, but the little
slip OF o must be returned and
the bookkeeping must be done. For
one check this doesn't cost much,
but for the millions of checks that
American business men write 1t
amounts to a great deal in the aggre-
gate. Banks make collection charges
for handling these out of town
checks.
There has been a good deal OF
controversy about who should pay
this charge which usually amounts
to ten cents on each thousand dol
lars.
Let Uncle Sam Pay
The new idea which has been pre-
sented to the Federal Reserve Board
is that Uncle Sam should pay the
bill. Charles deb. Claiborne of New
Orleans and l.. r. Adams of Atlanta
representing the National and State
Bankers Pr4"ective Association, laid
a comprehensive plan before the
Board, the most interesting sugges-
ton in which is that the Government
should bear this check collecting
cost,
The theory on which the SUCCESS
ton is based is that the bank check