Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-06-09
NEW BILL POLICY I
AIDS RESERVE BANK
u. S. Agency Now Has Bet.
ter Control Over the
Money Market.
BY DAVID LAWRENCE.

Just two years have elapsed since the
Federal Reserve System put into effect
its policy of buying bankers accept
anceS or bills as means OF easing the
credit machinery of the country
Looking back over what has happened.
satisfaction is expressed here that the
method of purchasing bills by the Fed
eral Reserve banks has afforded an or
portunity for elasticity. which has now
been coupled with adjustments in re-
discount rates in such a way as to give
the Federal Reserve a better control
on the money market than it has had
since the system was created
Back Bone of Financing.
Two years ago controversy was rag
ing in the banking world as to whether
raising CT the rediscount rates would
end speculation and cause deflation,
The Federal Reserve Board was reluc-
tant TO agree to an increasing redis-
count rate and did so only by introduce
ing at the same time a bill policy which
was intended to make the whole credit
machinery of the country function more
smoothly
Bankers acceptances in the last two
years have grown in usefulness and,
while there is not much going on in
foreign trade now, the same bills will
undoubtedly be the backbone of foreign
trade financing when the revival in
trade dCeS materialiZe.
The easy-money policy of the Fed
eral Reserve took on more definite pro-
portions shorty after the October. 1929
STOCK market decline, until now it is
aggressively carried on, in the hope OF
stimulating he bond market and as
s1sting in the general revision Of in
terest rates.
The Treasury Department has I'M
questionably benefited by the low money
rates, because its issues have been
brought out at great saving in inter-
est over previous Government borrow
ings 1t is still conjectural as to what
has been accomplished in the CONNER
cial world by the easing of money.
Those who looked for revival of busi-
ness through a strong bond market
have been disappointed because the
banks show reluctance to become heavy
purchasers of bonds. Notwithstanding
the fact that they have accumulated
large funds which they cannot profit
ably invest in the call money market,
or even in Government securities, which
are now selling at such a low yield.
Bill Policy Important.
The belief exists here that ultimately
the Federal Reserve policy of low money
rates will have a substantial effect on
business revival but that it will take
many HlCIlJllS, perhaps, pSlOIS lHe gem
eral revision in interest rates Is
achieved.
Banks generally are beginning 10
question the wisdom of paying interest
on demand deposits. and there is a
tendency to 7hun new savings accounts
at the old rates of interest.
1t is precisely this Encouragement
of interest rates which takes so much
time and which is delaying the full
effect of the low money rates estab-
lished by the Federal Reserve both on
rediscounts and on the rates quoted
for bankers acceptances or bills.
Slowly but surely, however. the Fed
eral Reserve bill policy has become as
important almost as the rediscount
rate as a means of controlling money
rates. and this has been done within
"a months under conditions which
have successfully tested the feXibility
of the entire Federal Reserve system.
(copyright. 1931)