necessary to be held as a cash reserve for the immediate redemption of the notes; and in what form, and in whose hands?

A. If the assets of banks consisted of bills certain to be paid that is, of bills representing merchandise in demand for consumption no reserves would be required, payment being a mutual offsetting of bills on one side and notes and credits issued in their discount on the other. Reserves are provided by banks and bankers to take in such issues as are not returned in the payment of their bills. The amount depends upon the character of the bills discounted. To the extent that accommodation paper is discounted, the reserves will be called upon to an equal amount, as the notes and credits issued will be returned, not by the debtors to the banks, but by their creditors. Were no loans made but in the discount of business paper reserves equalling 5 per cent. of the issues would be ample. They should always be in the form of the universal equivalent, and always remain in the hands of the issuer.

Q. 6. In case of notes based on bank assets, what means can you suggest to obtain and preserve a high character of discounts?

A. By restricting discounts to business paper, the constitutents of which by its consumption would always return the issues made without interposition on the part of the issuer.

Q. 7. Can any watchfulness of other banks, connected by locality or business connections, be brought to bear on a bank to prevent bad banking? Can such a scheme be devised as in cities where Clearing House Associations detect and punish weakness, by which country banks can be guarded?

A. The only watchfulness which a bank can exert over other banks is by demanding daily the adjustment of all balances found in its favor. Such "watchfulness" is now exercised in all cities in which clearing houses are established, the rule of the stronger being with all the rule of the weaker. The way to prevent "bad banking" is to forbid the issue of currency except in the discount of merchants' bills. In places where there are no clearing houses the restriction of discounts to merchants' bills is all the provision that is required.

Q. 8. What plan of examination and inspection would you recommend? A. Monthly statements of the condition of each bank, the making of incorrect or false ones being made a high penal offence.

Q. 9. What methods would you suggest by which uniformity of note issues based on assets could be secured throughout the country? If by redemption, state where and how?

A. By the restriction of issues to discount of business paper. Such issues will unerringly return to the issuers in the payment of bills discounted.

Q. 10. What, if anything, beyond provision for immediate redemption is needed for securing the elasticity of note issues in periods of normal business? A. All issues made in the discount of merchants' bills are elastic as they are the measure of the subjects of consumption of the means of expenditure.

Q. II. In times of panic or sudden stringency, how would you provide for additional issues by the banks to enable them to continue discounts and prevent commercial distress?

A. There can be no "panic or sudden stringency" so long as the currency is issued only in the discount of merchants' bills, as the instruments measure the means of consumption, and as they must be used to reach their constitutent, and never, as a rule, for the purpose of reaching gold, as this, as money, has no other function but to reach other kinds of merchandise. So long as the currency is not in excess no commercial disturbances or distress will arise, consumption never being in excess of the provision therefor.

Q. 12. Of what should the bank reserves consist?
A. Of the universal equivalent-gold.

Q. 13. Should any national bank be permitted to pay interest on the current deposits of other banks?

A. Yes. Banks holding deposits for which their owners have no immediate occasion may well make them the basis of loans, that all available capital may be employed in production and distribution.

Q. 14. Should deposits of country banks in reserve cities be authorized to be counted as a part of the required reserve?

A. They should, as they represent the universal equivalent, or merchandise readily convertible into the same.

Q. 15. What should be the minimum limit of capital for national banks? No limit should be imposed. It is not probable, however, that banks with capital of less than $50,000 each will be established, from the expense of conducting them.

Q. 16. Should the existing 10 per cent. tax on State bank notes be repealed? A. Yes.

Q. 17. Should any national bank be permitted to establish branches under its single management? If so, under what limitations, if any?

A. Yes; such branches being subject to limitations and restrictions imposed upon the parent bank.

Q. 18. Should branch banks be obliged to redeem the notes of the parent

bank and of other branches?

A. That is a matter for the determination of the parties thereto.

Q. 19. Should branch banks be required to maintain any specific proportion of reserves to liabilities, independent of regulations for the general accounts of the parent bank?

A. The restrictions imposed upon the parent bank should be imposed upon its branches, as the functions of all are the same.

November 8, 1897.

EXTRACTS FROM "MONEY AND LEGAL TENDER IN

THE UNITED STATES."

BY H. R. LINDERMAN, Director of the Mint.

AUTHORITY TO COIN MONEY AND REGULATE ITS VALUE IN THE UNITED STATES UNDER THE ARTICLES OF CONFEDERATION.

Art. II. Each State retains its sovereignty, freedom, and independence, and every power, jurisdiction, and right, which is not by this Confederation expressly delegated to the United States in Congress assembled.

Art. IX. The United States in Congress assembled shall also have the sole and exclusive right and power of regulating the alloy and value of coin struck by their own authority, or by that of the respective States. The United States in Congress assembled shall have authority to borrow money or emit bills

on the credit of the United States.

PROVISIONS OF THE CONSTITUTION OF THE UNITED STATES AS TO COINAGE, LEGAL TENDER, WEIGHTS AND MEASURES.

Art. I., Sect. 8. The Congress shall have power to coin money, regulate the value thereof, and of foreign coins, fix the standard of weights and measures, . . and to provide for the punishment of counterfeiting the securities and current coin of the United States.

Art. I., Sect. 10. No State shall coin money, emit bills of credit, or make anything but gold and silver coin a tender in payment of debts.

Art. I., Sect. 11. The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

After the Declaration of Independence, and before the adoption of the Articles of Confederation, each of the thirteen original States had, as an attribute or incident of sovereignty, the right to coin money.

In the Articles of Confederation the States expressly delegated to the United States in Congress assembled “the sole and exclusive right and power of regulating the alloy and value of coin, struck by their authority or by that of the respective States."

Under this provision the States retained the right to coin money concurrently with the Government of the Confederation, but only according to the standard of fineness, weight, and value prescribed by the central government.

The right to emit or issue paper money, known as "bills of credit,” had been exercised by the several States, before the adoption of the Articles of Confederation, and by these authority was given to the United States to issue such bills.

Paper money continued to be issued by the States, and was also issued by the Government of the Confederation under the authority delegated in the compact.

The object, in delegating to the United States the sole and exclusive right to regulate the alloy and value of coin, was to insure uniformity as to weight, fineness, and value throughout the several States.

LEGISLATION REGULATING THE VALUE OF FOREIGN COINS.

At the first session of the first Congress, which commenced in the city of New York, March 4, 1789, under the provisions of the new Constitution, an Act was passed, July 31, 1789: "That all foreign coins and currencies shall be estimated according to the following rates: each pound sterling of Great Britain, at $4.44 ; each livre tournois of France, at 184 cents; each florin or guilden of the United Netherlands, at 39 cents; each mark banco of Hamburg, at 33 cents; each rix dollar of Denmark, at 100 cents; each rix dollar of Sweden, at 100 cents; each rouble of Russia, at 100 cents; each real plate of Spain, at 10 cents; each milreis of Portugal, at 124 cents; each pound sterling of Ireland, at $4.10; each tale of China, at 148 cents; each pagoda of India, at 194 cents; each rupee of Bengal, at 55 cents; and all other denominations of money in value as near as may be to the said rates."

The value of these foreign coins was expressed in the terms of the money of account established by the Congress of the Confederation, and on their estimated value respectively as compared with the Spanish dollar.

Different acts regulating the value and legal tender of foreign gold and silver coins were afterwards passed, to which it is not necessary to refer in greater detail, as those coins have long since passed out of circulation. All the legislation upon the subject, except the Act of July 31, 1789, contemplated the substitution, as early as practicable, of a national coinage. The value at which various foreign coins were made a legal tender in United States money was, as a rule, a fraction less than their bullion value, the effect of which was to send them to the mint for conversion into United States coins. By the third section of the Act of February 21, 1857, all former acts authorizing the currency of foreign gold and silver coins, and declaring the same a legal tender in payment of debts, were repealed.

METALLIC MONEY IN COLONIAL TIMES AND UNDER THE CONFEDERATION.

During the period of our colonial history, and down to the time of the issue of national coinage under the Federal Constitution, gold and silver coins of different nations were in use in North America, but silver alone appears to have been legally recognized, for the reason, no doubt, that the silver standard prevailed generally. The colonial money of account was originally an ideal unit called a pound, with divisions of shillings and pence. There was, however, no legal tender; but the Spanish dollar (silver) appears to have been the money generally used in coin-payments and universally current in the Colonies. This dollar was in fact the principal coin of commerce at that time, and for many years before.

Each Colony had its own paper currency, in which the value of the Spanish dollar was, in 1782, according to Robert Morris, "in Georgia five shillings; North Carolina and New York, eight shillings; in Virginia and the four Eastern States, six shillings; in all the other States except South Carolina, seven shillings and six pence, and in South Carolina, thirty-two shillings and six pence."