But gold and silver are heavy and inconvenient to carry about in large, or for that matter in small, quantities, and for convenience the following kinds of paper money have been established:
1. Gold Certificates are issued with the government's guarantee that there is gold deposited in the Treasury equal to the amount of the face of the bill. At any time the one holding such a bill may demand of the Treasury that he receive gold for it.
2. Silver Certificates are similar to gold certificates, except that silver is deposited in the Treasury instead of gold.
3. United States Treasury Notes are promissory notes of the government to pay the sum indicated. They are not payable on demand.
4. National Bank Notes are promissory notes issued by the national banks and are payable on demand of the bearer. Before a national bank may issue such notes, it must own United States government bonds of at least the amount for which it issues notes. These bonds are held by the Treasurer of the United States as security that the bank will pay its notes. According to the Owen Glass Bill, passed in December of 1913, national bank notes may at the option of the banks be gradually withdrawn from circulation.
Credit
Credit is a promise to pay at some future time for a thing which you receive now. Its use is probably as old as the practice of exchange and quite as important. The simplest and most extensive form of credit is "book" credit, such as you get at the grocer's or butcher's or at the department store. To explain a little more complex kind of credit: Suppose you owe Smith one hundred dollars. At the same time Smith owes Jones one hundred dollars. Because you owe Smith, he may give Jones an order to collect the money from you. With this order Jones may pay his lawyer, let us say. Perhaps the lawyer has bought a bill of goods from you. He pays you with the same order. You destroy the "note," and thus four actual transactions have been taken care of without the use of any money. The business institution which deals especially with credits is the bank.
Banks
A bank which fulfills every banking function must have these three departments: (1) the commercial department, (2) the savings department, (3) the trust department. Some institutions specialize in one department more than in either of the others, and thus, taking the name from their principal function, banks are known as follows: (i) commercial banks or banks of deposit, (2) savings banks, (3) trust companies.
Banks of Deposit