Washington telegraph., 1925-07-03
MAKING MONEY Z.
FIT BUSINESS
When Times Are Active the Sup:
ply Increases-Contraction Fol.
lows Seasonal and Periodic
-, Slackening. e..

New York. - Demonstration that
complete elasticity has been impaired
10 the currency in the United States
by the Federal Reserve System do
spite assertions to the contrary is Civ
en- in the American Bankers Associa.
ton Journal by W. Randolph Burgess
assistant agent at the New York Fed
e-al Reserve Bank. N
"Of all the money in circulation In
the United States, Federal Reserve
notes now make up almost one-half,"
he says in part. ''In 1920 they were
10 per cent. The increase in cur-sn'
cy which the war and high wbrM
prices made necessary was provided
almost wholly by Federal Reserve
notes. Just as the increase was whoh
ly through Federal Reserve notes, SO
again the decrease was altogether In
Federal Reserve notes. Reserve notes
In circulation decreased from $500.
600 900 in November 1920, to $f700..
900 900 in March. 1926. Between the
same dates other currency increased
from $500 .00o,000 to $4,000 900 900.
due to an increase in gold certificates.
There are still some few who pro-
duce theoretical arguments TO show
that for some reason the Federal Re-
serve note is not elastic. These va
rious arguments raise interesting
questions. but they make little head
way against the facts, for the facts
show that the Federal Reserve note
has been elastic.
How Currency Changes Volume
The amount OF currency the coun.
Try requires reflects changing prices,
wage. levels, employment and volume
OF trade. As an example, retail trade
at Christmas time is always larger
than at other times. This results in a
considerable increase in the need for
hand to hand currency. Currency
Withdrawals and receipts at the Fed,
eral Reserve Banks illustrate the way
this special demand was met. Prior
to Christmas there was paid out about
| $500, 900 900 Of currency, all OF which
vas returned TO the bank within the
two or three weeks following Christ.
mas.
The mechanism is that when Fed.
eral Reserve member banks need cur.
rency for their customers they draw
1t from the Reserve Bank. Member
banks can secure additional currency
by borrowing at the Reserve Bank.
Conversely, whenever currency in cir.
eulation becomes larger than is re-
Quired by business 1t begins TO return
TO the banks and they Immediately
utilize 4 to pay OF indebtedness at the
Reserve Banks, on which they are pay.
ing interest
The Federal Reserve System has
made all types Of currency, except ma.
tional bank notes. elastic because all
except those notes can be issued IN
amounts required and they all tend 10
how back TO the Reserve Bank when
they are not, requireds There is an.
other phase, OF currency elasticity. A
| 800 Federal Reserve laote NAV repre-
sent only $40 IN .gold. because .a.gold
reserve Of opl,s 40 per gent is rsaglred
against Federal Ressgye notes. on
the other hand, 0 sl00.gold certiEeate
must represent s1OO ine gold, Thus
the Federal Reserve Banks can issue,
70 response to commercial demand,
two and onehalf times as many Fed,
eral Reserve notes as gold certificates
before the reserve ratio reaches The
legal minimum.
Secondary Stretch
! rhis secondary elasticity Vas n.