Third: A credit bank note which will always spring into being, precisely as a check does, to perform some special transaction, is the most efficient and most economic form of currency in the world, because it always just equals the demand for currency, and costs no more than a deposit account, subject to check.
Mr. Manufacturer: Just what do you mean when you say that a credit bank note currency will cost no more than a deposit account subject to check?
Mr. Banker: I mean just this, that if you had a deposit at a bank of $1,000, and the bank upon receiving your check for $1,000 could convert that book account, or book debt, into a note account, or note debt, by giving you its bank notes for $1,000, in exchange for your check, the bank note currency would cost only the interest on the reserve carried against the notes, which would be identical in amount with the reserve carried against the deposit.
To illustrate, if the bank were in the country it would carry 15 per cent reserve, if a National Bank, or $150 in cash against that deposit of $1,000. The interest on that $150 for one year at 6 per cent would be $9. Now, if that deposit were convertible into notes, and you kept the same reserve of 15 per cent against them, the thousand dollars in notes would cost only $9 per year, and could and would in turn be reconverted into a deposit, subject to check.
Not only does this form of currency cost only about one-sixth as much as our present currency in the form of United States Notes and bond-secured Bank Notes, but it is the only form of currency that will always be precisely equal to all the demands of trade. It will never be too great in amount. It will never be too small in amount. It will always just exactly equal the ever varying requirements of business and will always be as good as gold, because currently redeemed in gold.
The principle of converting bank book credits into bank note credits, in accordance with the requirements of the customers of a bank, is the bank credit currency principle and there is not a single instance in the history of banking where it has ever been tried and failed.
Let this be laid down as one of the eternal laws of banking. Current coin redemption is the very soul and breath of life to bank credit.
Mr. Merchant: That is certainly most interesting and I must say a most impressive fact, if we can secure a currency, equal at all times to the requirements of trade, and always as good as gold coin, and at an expense of one-sixth of what our present currency costs us in the form of United States Notes and bond-secured Bank Notes. There are today outstanding $346,000,000 United States Notes and $750,000,000 of bond-secured Bank Notes, or about $1,100,000,000 in all. Now, since any bank must pay par, or 100 cents on the dollar, to get possession of either of these forms of currency, the cost of carrying either of them will be 6 per cent on the total of $1,100,000,000, or $66,000,000 per annum. Of course if the banks are compelled to use such an expensive form of currency, they will have to charge their customers accordingly, and in the end it comes out of me, Mr. Manufacturer and so on down the line, until, finally, the cost or burden reaches Mr. Farmer over there, or Mr. Laboringman over here.
Now, you assert that a credit currency would only cost the country one-sixth as much, or only eleven million per year, whereas the same amount of currency in United States Notes and bond-secured Bank Notes now cost us $66,000,000 a year, or $55,000,000 more than it should. Of course every cent of that must in the end come out of labor.
Mr. Banker: I said one-sixth for the country bank. The average reserve held by all the National Banks is 20 per cent, not 15 per cent. So that the unnecessary cost to the people of our present United States Notes and bond-secured Bank Notes is five times as much as it should be, or we are losing every year $53,000,000, every dollar of which must come out of labor.