The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1933-03-06
PRICE INITIATION
FORECAST WITH
CRISIS MONEY
Substitute for Cash May Be
Spur; Can Be Controlled
by Government.
BY HERBERT LITTLE
Times STAFF Writer

~ AALANOAAN La LIZ
Times STAFF Writer
WASHINGTON, March 6.-The
Roosevelt bank order today put in
motion the greatest effort ever made
for an entirely new overnight system
of substitute money"
The chief question of the poll
ticians and experts here is: Will it
bring price imitation? If so, how
much?
The answer lies in whether prices
will rise at once in relation to the
new clearing house certificates
which are to be issued by banks in
place of the usual currency. 1t is
deemed possible they will rise, Off
setting some Of the calamitous fall
of prices that has made the de
fated" dollar so "dear"-hard to
get.
The degree of imitation, if it comes,
is controlled in this case, because
of the limits of the bank deposits
upon which the certificates are
based.
Some Fear of HOarding
Another major question put by
money experts is: Will "Gresham's
law" operate? This is the economic
truism that bad money drives out
good money" that is, that when a
currency not backed by gold begins
to circulate, people hoard their gold
money, or gold-backed money, ana
put into circulation, by spending,
their new money, backed by what is
not deemed so valuable a security.
The banks under President Roose-
velt's order are not permitted to pay
out the old currency, or legal tender
bank notes, federal reserve notes,
gold and silver certificates-but near
| " seven billion dollars worth Of this
sort of currency now is in circula-
ton, much Of it boarded already.
The unique quality of the Roose-
welt emergency plan lies in it's scope.
CLEARINGHOUSE certificates have
been used many times in place of
money in past United States bank
operations, and in 1907 such "certifi-
Gates of deposit merely showing
that the bank depositor had the
money on deposit in bank-Were
widely circulated
Saved Small Towns
They were credited with being the
salvation of small towns and rural
areas in a time of currency starva-
ton. In 1907 also ''pay-checkS pay
able to bearer" were widely used but
in all cases these issuances of money
substitutes were local.
In earlier financial crises, notably
several times during the Civil war
period, bank loan certificates were
used in place of cash to even up
accounts among banks which
cashed each others checks. This
function now is carried out by the
federal reserve system, created in
! 1913.
But the need at the present time
is for a medium to permit the cir
culation of all or part of the
S42, 000,000000 in bank deposits
Ordinarily, this circulates by con-
tinued transfer of approximately
| $500, 100000 in currency, mostly
bank notes and other legal tender
paper.
Measure Is Temporary One
Now, however, large percentage
of this amount has been boarded,
or drawn out by depositors to meet
emergencies. The result is a dearth
of currency, and the total amount
of gold backed currency in circula-
ton mounted to $7000,00O000 a few
days ago. Even then the with
drawals came too fast, and the
banks had to restrict or close down.
Use of such substitute money" as
deposit certificates admittedly is a
temporary measure. It's net effect
will be to enable essential functions
of life and labor to be carried out.
1t will be used for pay rolls, grocery
bills, rent. 1t probably will have a
rapid turnover.
Banks permitted by the treasury
to issue these certificates also will,
Of course, operate checking &C
counts. That is, only in return for a
check or other order will the banks
issue these certificates. Presumably
the issuance will be limited to the
sound assets of the bank, which will
pay out in the long run, in the
governments estimation.
Bank credits outstanding in re-
cent years have averaged round
$45, 1000, 100000, and cur entire ma
tlonal economy has operated on this
and the approximately $4,000, 900, 900
of currency.
This issuance Of the new substi-
tute money is expected to release a
huge volume of this bank credit.
LANES Fills 0IEc