The Carbon County chronicle. [volume] (Red Lodge, Mont.) 1924-1924, 1924-09-24
WHAT ARE FEDERAL
RESERVE NOTES?
Nay in Which Currency Is In
creased or Decreased Accord
inc TO Business Needs.

Federal reserve notes are direct OBJ
Egations of the United States and are
sreceivahle by all national banks and
lrnernber banks and by Federal reserve
banks. and for all taxes. customs and
aoaher public dues. but they are not
legal tender for private debts. These
notes are redeemable in gold upon
nry Department OF the United States
m Washington. or in gold or lawful
money at any Federal reserve bank
The means by which Federal re-
s.rve notes are issued and the securi
ay behind them is of considerable In
seresl ANY Federal reserve bank
may make application to the Federal
reserse agent 1.-THE local representa-
live OF the Federal Reserve Boardl
Sns such amounts as II may require
accompanying its application by a
trnder OF collateral equal to the
amount OF notes applied for This
collateral consists of notes or bills
acquired either by redscount from
member banks or by purchase In the
spen market or gold or gold certiA.
Exfes
Against its Federal reserve notes
fhaf are In active circulation a Fed
Kr1l reserve bank Is required to hold
q gold reserve of 40 per cent. But
any gold deposited with the Federal
reserve agent as collateral may be
r~unted as part of this required re-
serwe- In order to redeem its notes
m gold when presented at the United
Bamtcs Treasury each reservs bank
xrnst carry gold fund with the treas
nrer OF the United States OF at least
8 per cent of its outstanding notes
nua covered by gold collateral. but
this redemption fund counts as part
III the required reserve of 40 per cent
Federal reserve notes, then. are Sc
rured as follows: ~ they are a di.
rex1 promise or obligation OF the
limited States and OF the issuing Fed
Erzl reserve bank: (2) they have col.
lateral behind them OF at least 100
Fer cent. consisting OF eligible paper
ux gold. 49, a gold reserve OF 40 per
reni Is required. "a they are first
fssD On the assets of the issuing Fed
sraI reserve bank
One OF the prime reasons for pro
riding for the issuance of Federal re-
Tsarwe notes was to secure an elastic
<mrrenry-that is. a currency that
~o1id expand and contract with the
nrsrss of business This was accom-.
s2sshed by permitting the issue Of
xas~e notes largely against CONNER.
zia9 pap For example, when mem.
Ees banks are being called on heavily
Fer lDans they rediscount with their
FEDERAL reserve bank some OF their
aHEshse notes The reserve bank In
TURN deposits this paper with the Fed
asuf reserve agent. receiving tom
Ajx0 n like amount OF Federal reserve
xEsnSss which may be turned over to
sAsenber banks In return for the notes
n has rediscounted. or circulated In
sssne ether way
Contraction is practically automat-
sr III The needs of business diminish
ahexe In less need for currency and
Aess borrowing at the member banks.
These In turn reduce their rediscounts
MI their reserve banks by turning over
10 IA funds received from the repay,
nena Of loans and from deposits In
hrnes of declining busin q il is usual
yor the member banks to repay much
lwf their borrowing with Federal re.
serse notes deposited with them by
gaa&sr customers