Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-04-05

discounting eligible paper rather than
by selling acceptances. Increasing in
debtedness of the member banks has
been factor In stiffening money rates,
and there has been during the period an
advance in rates on all classes OF
loans both on time and on demand.
Reserve Credit, Currency and Gold.
Eat the end of March the volums OF
Reserve bank credit stood at about
81, 400, 900, 900, about $500, 900 above
the average level of the five-year period
1922-1927 The increase In Reserve
bank credit since 1927 has been
due to gold exports. which began
in the Autumn of that year. During
the neriod 1922-1927 gold had come to
the United States in large volumes and
haf heen added In large part to the
reserve balances of member banks.
where 1t formed the basis of rapid
expansion of bank credit. This expan-
sion was more rapid than would other
wise have been possible, owing to the
fact that on the liability side the men,
Der banks increased chiefly their time
deposits, which require only per
cent reserve with the Reserve banks,
while their demand deposits showed
smaller relative growth. Thus. owing
to a gradually declining ratie of MEM
Der bank reserves to their deposits, and
therefore to their loans and invest
merts, the gold which came to this
country during the five-year period
1922-1927 gave rise to an expansion at
the unusually high rate of SIS of MEM
Der bank credit to 81 OF member bank
reserves.
1.-THE gold received during the period,
having been deposited with the Reserve
banks to the credit of the member
banks, became available as reserves and
enabled the member banks to expand
their own operations. The Reserve
banks, however, which are not operated
on a profit-nlaking basis, did not ex-
pand the volume of their credit on the
basis of the additional gold received,
but maintained it in accordance with
the systsn1's policy with reference to
general credit conditions. Taking the
period as a whole, Reserve bank credit
showed little change and the imports
of gold alone were the basis of the
growth in currency and in member
bank reserves The rapid growth of
credit, predicated upon gold imports,
was factor in keeping money rates
relatively low throughout the period
and the relative ease in the money mar
ket, in turn, was factor in the
continued active state of trade and
industry.
Reversal Of Gold Movements in 1927.
I'm 1927, after the world had largely
returned to the gold basis, easy money
conditions in this country were factor
in reversing the direction of gold move
mcnts. The Federal Reserve system en-
couraged the outward movement of
gold, as it had always considered bet
ter distribution of existing gold reserves
to be in the interests of better monetary
and trade conditions throughout the
world.
Foreign demand for gold was met by
member banks out of their reserves,
and after November, 1927, this loss of
reserves was not offset by the reserve
banks through the purchase of securi-
ties. To bring their reserves up to the
legal requirements the banks were,
therefore, obliged either to borrow from
the reserve banks, or OF contract their
own outstanding volume Of credit.
Rather than cause a contraction Of bank
credit In sufficient volume to reduce re-
serve requirements by the full amount
of gold exports member banks bor-
rowed the amount necessary to replenish
their reserve from the Reserve banks.
The increase In borrowings, which
amounted to about $500, 000, 900 in the
course of six months in 1928 was larger
than would have been necesSitated by
the exports of gold alone, owing to the
fact that the Federal Reserv banks
during the period sold United States
securities, thus withdrawing funds from
the market.
mot only did the Federal Reserve
system during that period do nothing to