The Challis messenger. (Challis, Idaho) 1912-current, 1924-09-17
WHAT ARE federal
RESERVE Notes?
Way in Which Currency Is In
creased or Decreased Accord
ina 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 ana
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
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 certifi
Gates.
Against it's Federal reserve notes
that are in active circulation Fed
eral reserve bank is required to hold
a gold reserve OF 40 per cent But
any sold deposited with the Federal
reserve agent as collateral may be
counted as part Of this required re-
serve. In order to redeem its notes
in gold when presented at the United
States Treasury each reserve bank
must carry a gold fund with the treas
urer Of the United States Of at least
s per cent Of it's outstanding notes
not covered by gold collateral. but
this redemption fund counts as part
of the required reserve of 40 per cent
Federal reserve notes, then, are Sc
cured as follows: Cd they are d.
rect promise or obligation of the
United States and of the issuing Fed
eral reserve bank; (2) they have col
lateral behind them of at least 100
per cent, consisting of eligible paper
or gold; 90 a gold reserve of 40 per
cent is required; az they are first
lien on the assets of the issuing Fed
raj reserve bank.
One Of the prime reasons for pro-
viding for the issuance of Federal re-
serve notes was to secure an elastic
is, a currency that
would expand and contract with the
needs of business This was accom-
olished by permitting the issue OF
hese notes largely against CONNER
,ial paper. For example, when mem
)er banks are being called on heavily
or loans they rediscount with their
Federal reserve bank some of their
eligible notes. The reserve bank in
urn deposits this paper with the Fed
raj reserve agent, receiving from
lin like amount of Federal reserve 1
totes which may be turned over to
member banks in return for the notes
has rediscounted, or circulated in
ONE other way.
Contraction is practically automat-
:. If the needs of business diminish
here is less need for currency and
ass borrowing at the member banks.
hese in turn reduce their rediscounts
t their reserve banks by turning over j
} it funds received from the repay
lent of loans and from deposits In
mes Of declining business it is usual 4
,r the member banks to repay much
7 their borrowing with Federal re-
srve notes deposited with them by
leir customers, /