Comment:—This section provides a true bank note by erasing that barbaric superscription that makes our present bank notes a bond speculation; and by bold numbers identifies every bank note with a zone and with the bank issuing it, thereby greatly facilitating the quick redemption of the notes.
Mr. Merchant: How much more economical would this currency be than a currency furnished by the Government or purchased from some central bank or other central institution?
Mr. Banker: It would cost just one-fifth as much, or the difference between par that would have to be paid for the currency purchased and the average reserve carried; or about 20 per cent. The average per cent of gain to the banks would be about 5 per cent upon the amount of notes outstanding (approximately $1,250,000,000) or $60,000,000. Of course, this gain would come to the people, sooner or later; in the end, the expense of the bank is borne by commerce. The present enormous cost of shipping currency to and fro across the country would be saved also, and this amounts to several million dollars a year, to say nothing of the added trouble of shipping commercial paper with which to pay for it.
Section 39. That upon the completion of the organization of the several commercial zones as hereinbefore provided any national bank may retire all or any part of its present bond-secured note circulation by depositing with the United States Treasurer an amount of the present bond-secured notes or lawful money, or both, which shall be equal to the amount of its circulation so retired, and may thereupon, with the approval of the Comptroller of the Currency, take out for issue and circulation an amount of bank notes, which shall be known as "national bank notes," that does not exceed in amount its paid-up and unimpaired capital without depositing United States bonds or any other securities to secure the payment thereof as now provided by law: Provided, however, That before any national bank shall have the right to retire its present bond-secured circulation and take out national bank notes for circulation as in this section prescribed, it shall first, unless located in its financial centre, make arrangements with a national bank which is located in its financial centre for the redemption of its bank notes in gold coin or other lawful money: And provided further, That it shall first deposit in gold coin or gold coin certificates with the American Reserve Bank an amount of money equal to 7 per centum of its average deposits during the preceding calendar six months, and in addition thereto an amount equal to 7 per centum of the national bank notes it proposes to take out for issue and circulation.
Comment:—The amount of notes is limited to the amount of capital as a matter of convenience only. Some banks will not be able to keep out 25 per cent of their circulation, because their customers use checks; other banks will need at certain times of the year in some sections of the United States an amount of circulation largely in excess of the amount of their capital. The habits of the people will always determine what the amount of currency in use is, if permitted to choose between checks and notes; but crop-moving times will greatly increase the normal demand, as we have seen in the case of Canada.
Section 40. That thereafter every national bank shall have upon deposit upon the tenth days of January and July of each year with the American Reserve Bank an amount of gold coin equal to 7 per centum of its average deposits during the preceding calendar six months and 7 per centum of its national bank notes taken out for issue and circulation: Provided, however, That this reserve shall be increased at the rate of 1 per centum each year for a period of three years thereafter; and that thereupon and thereafter every national bank shall have upon deposit upon the tenth days of January and July of each year with the American Reserve Bank an amount of gold coin equal to 10 per centum of its average deposits during the preceding calendar six months and 10 per centum of its national bank notes taken out for issue and circulation.
Section 41. That every national bank shall carry a cash reserve of 6 per centum of all of its individual deposits subject to check up to six million dollars and one-half of 1 per centum additional for each five hundred thousand dollars up to ten million dollars, and upon this and all additional individual deposits a reserve of 10 per centum in cash.
Section 42. That every national bank shall carry a cash reserve of 20 per centum of its deposits from banks, or upon its bank balances.
Comment:—There is no doubt whatever that banks should carry larger cash reserves against bank balances than against those of individuals. The banks of Europe which carry such balances carry all the way from 33 per cent up to 50 per cent.
Section 43. That any national bank may at any time fall 75 per centum below its required cash reserve: Provided, however, That its average cash reserve from January 1st to December 31st shall be equal to its required cash reserve.
Section 44. That the amount that any national bank located outside of a financial centre shall be required to carry with a national bank located in a financial centre for the purpose of redeeming its notes may be counted as a part of its required cash reserve.
Section 45. That any national bank desiring to build up its reserve may rediscount or sell any of the commercial paper or bills of exchange owned by it by applying to the board of control of the commercial zone in which it is located.