The Rathdrum tribune. (Rathdrum, Idaho) 1903-1963, 1924-11-28
WHAT ARE FEDERAL
RESERVE NOTES?
Way in Wh!oh Currency Is In
creased or Decreased Accord
ing to Business Needs.

| Federal reserve notes are direct OBJ
legations OF the United States and are
receivable by all national banks and
member banks and by Federal reserve
banks, and for all taxes, customs and
other public dues, but they are not
legal tender for private debts. These
notes are redeemable in gold upon
the demand OF the holder at the Treas
ury Department OF the United States
in Washington, or in gold or lawful
money at any Federal reserve bank.
The means by which Federal re-
serve notes are issued and the securi-
ty behind them is of considerable in
terest. Any Federal reserve bank
may make application to the Federal
reserve agent (the local representa-
tive of the Federal Reserve Board)
for such amounts as it may require !
accompanying its application by a
tender Of collateral equal to the |
amount of notes applied for. This ;
collateral consists of notes or bills
acquired either by rediscount from
member banks or by purchase in the
open market, or gold or gold certif'
Gates.
Against its Federal reserve notes
that are in active circulation a Fed
eral reserve bank is required to hold
a gold reserve Of 40 per cent. But
any gold deposited with the Federal
reserve agent as collateral may be
counted as part of this required re-
serve. In order to redeem its notes
N gold ub 81 ha mi |
States Treasury each reserve bank
must carry gold fund with the treas
lrer of the United States OF at least
per cent of its outstanding notes
lot covered by gold collateral, but
his redemption fund counts as part
4 the required reserve OF 40 per cent =
Federal reserve notes, then, are sc.
ured as follows: ~ they are a di n
ect promise or obligation of the n
United States and Of the issuing Fed !
raj reserve bank; (2) they have col :
ateral behind them OF at least 100
er cent, consisting Of eligible paper y
r gold; (3) a gold reserve of 40 per \
emit is required; (4) they are a first N
en- on the assets of the issuing Fed :
al reserve bank
One Of the prime reasons for pro-
ding for the issuance of Federal re- .
rye notes was to secure an elastic /:
Is, q currency that
ould expand and contract with the
'eds OF business. This was accom-
ished by permitting the issue OF
csc notes largely against CONNER 81
Al paper. For example, when mem =
r banks are being called on heavily M
r loans they rediscount with their =
deral reserve bank some Of their
gible notes. The reserve bank in
m deposits this paper with the Fed =
Il reserve agent, receiving from
n like amount of Federal reserve
tes which may be turned over to
mber banks in return for the notes
has rediscounted, or circulated in
ne other way.
Contraction is practically automat-
II the needs of business diminish
re Is less need for currency and 4.
8 borrowing at the member banks. =,
sse in turn reduce their rediscounts
heir reserve banks ny turning over
1t funds received from the repay
ut Of loans and from deposits. In
es Of declining business i. is usual
the member banks to repay much
their borrowing with Federal re-
re notes deposited with them By T,
r customers. mo,