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also a paramount lien on the assets of failed banks and on the shareholders' liability, for the redemption of the notes of such banks. Having supplied the government in this way with the means for redemption of bank notes, it provides that the treasury shall receive at par all such notes in payment to itself except for duties on imports, and that it shall not pay them to its own creditors without their consent. Under this plan, therefore, the noteholder can lose nothing, because he can use the notes in payments to the government; and the government cannot lose, because it is armed with the power to recoup itself. It is said by some that if the government is to be responsible for a note circulation it will issue such circulation itself, instead of intrusting that function to banks. That is one of the things that remain to be seen. I suppose that the government will insist upon whatever the people insist upon. It is all a matter of popular education.

EMERGENCY CIRCULATION

ADDRESS DELIVERED BY CORNELIUS A. PUGSLEY, PRESIDENT OF THE WESTCHESTER COUNTY NATIONAL BANK, PEEKSKILL, N. Y., BEFORE THE AMERICAN BANKERS' ASSOCIATION, AT NEW ORLEANS, NOVEMBER, 1902.

MUCH criticism has been made of the currency system of this country; but whatever there is of criticism, our currency is sound beyond question and good beyond peradventure. The great essential in any currency is quality rather than quantity. It is the exponent of value in trade and exchanges, and if it fully meets these demands, the desirability of an abundance of money ceases. One does not need three horses to draw the plow when one will do; and the smallest amount of money which will transact the largest amount of business is a very near approach to the ideal in business connections.

The greatest objection to our currency is that it does not possess flexibility. Its only elasticity is afforded by our mines and the gold settlements of the trade balances for and against us. The present law regulating circulation, whose purpose was not to prevent a too sudden contraction of the currency, but to prevent the govern

ment bonds held to secure circulation from coming upon the market, prohibits the retirement of more than $3,000,000 per month. It has been suggested by prominent bankers that this law should be repealed, and that banks should be allowed to retire their circulation if they chose to do so. Although this might add flexibility to our currency system, yet I am not sure that such action would be desirable, as it would undoubtedly result in a very considerable contraction of the currency in order to reap the profits to be derived from the high prices of government bonds. Possibly, if inducement in the way of a reduced taxation should be made by the government to the banks to retain their bonds after they had retired their circulation, in order that they might have them on hand to reissue circulation upon as occasion might require, it might add elasticity to the currency.

The national banks of this country are compelled to hold as a reserve, gold and silver and United States notes, and yet I see no reason why a national-bank note, which is admittedly more effectually secured than a greenback or a United States bond, should not be counted as a reserve, because I consider it as good for that purpose, or any other purpose, as any obligation in this country to-day. As a well-known banker has said: "It has first an obligation of the bank to pay; second, it is secured by government bonds; and third, the government is pledged by law to redeem it upon presentation, having in turn a prior lien upon the assets of the bank for reimbursement." In Germany I understand that notes of specie-paying banks are so counted as a reserve.

During the panic of 1893 it was necessary to resort to the issuing of clearing-house certificates, and that they rendered the public untold service is unquestioned. The amount of clearing-house certificates issued by all the clearing-houses of the country amounted in the aggregate to about $66,000,000. These certificates were issued merely in the great commercial cities, and were available only between banks in settling debit balances at the clearing-houses. These certificates were the means of affording only indirect relief, as they were not negotiable in the hands of individuals. If a great panic should again befall the country, I am somewhat in doubt whether these clearing-house certificates might prove as desirable under our changed conditions as in the past. It has been stated

by eminent authority that these certificates, if again issued, might impair our national prestige as a inoney power in the world of finance and depreciate our securities as a nation.

This being the case, it behooves the bankers of this country, and the legislative bodies, to prepare such an emergency currency as will take the place of clearing-house certificates and relieve the distress which not only attends a great panic, but results from a demand for additional circulation in the moving of the crops and the undue contraction of the currency resulting from the accumulations from customs deposited in the United States Treasury, which occur almost periodically each year.

Various plans have been evolved for the reform of the monetary system, and a number of bills have been introduced in Congress during recent years, for the purpose of giving greater elasticity to the currency. Among the former are the famous "Baltimore plan,” the plans of Secretaries Carlisle and Gage, and of the Indianapolis Monetary Convention. Of the bills that have attained prominence are Congressman Walker's, the Lovering, and Mr. Fowler's.

As a member of the Banking and Currency Committee of the House of Representatives, I want to say that Mr. Fowler is worthy of high commendation for the thought and laborious work which he has given to these questions. He has rendered a service by bringing these great problems to the attention not only of the bankers, but of the people of the entire country. Another bill, which has been highly commended in certain sections, which provided for the incorporation of clearing-houses to issue an emergency currency, prepared by Mr. Gilman and introduced by me at the last session, had the same purpose in view. Also a bill prepared by Hon. Willis S. Paine, ex-Superintendent of Banks of the State of New York, which provided for the issuing of currency by state banks.

I do not believe the American people are yet ready for an asset currency pure and simple, or for such a radical departure in our currency system as is provided for in the Fowler bill. Mr. Fowler in his addresses refers to the effect or results of branch banks. He states how money would flow out from the great banks as needed; but he fails to state how money would flow in from the smaller institutions to the great centers, and how the branches of the banks 'See House Bill No. 7950, 57th Congress.

of the great cities would eliminate the local institutions throughout the country. These great banks would be able to plant their branches in every city or town where they pleased, and without capital or taxation would soon drive the local institutions out of business. After this has been accomplished, the poor borrowing public, for whom Mr. Fowler expresses such concern, would pay the rate as well as the freight that large institutions would see fit to demand. We do not want a great money power that might become a vast political power in this mighty republic. From such a possibility the American people, every patriot, every lover of his country, may well pray to be delivered.

I believe, however, that an emergency currency, ingrafted upon our present system, might prove beneficial, and would also test the working of an asset currency, to which we may have to come when the government bonds are no longer available as security. Such an emergency circulation, I believe, might be had if the present law should be amended so as to permit all national banks holding government bonds as security for circulation to issue 10 per cent. additional currency on the amount of bonds deposited with the Secretary of the Treasury, the same to be taxed at the rate of 5 per cent. per annum; and also providing that all banks having a surplus fund equal to 20 per cent. of their capital should be authorized to issue 10 per cent. of asset currency, to be secured by approved bonds or by bills receivable specifically set apart for that purpose, as in the Bank of France. As the present law provides that all circulation issued by the government to the banks is a first lien upon assets, there would be no necessity for change of the law in that respect. This 10 per cent. of asset currency should be taxed at not less than 6 per cent. per annum, and the bonds and bills receivable set apart to secure the same should be in excess of the circulation by at least 50 per cent. The bills receivable should have one or more indorsers known to be responsible and guaranteed by the personal bond of the directors that the same are set aside as security for circulation. The setting-aside of the bonds should also be guaranteed in a similar manner, with the infliction of a penalty if the security is not set aside as guaranteed.

These emergency circulation notes should not be printed in any distinguishing color or design, but it should be within the power

of the Secretary of the Treasury and the Comptroller of the Currency to have in hand and to issue such emergency currency, not to exceed 20 per cent. of the bank's capital when in their judgment it should be advisable or necessary, and also to call for payment of this circulation from banks, when it should be desirable that the same should be retired, thus avoiding inflation of the currency, which, in my opinion, might prove more dangerous than a lack of currency at certain seasons of the year. The great requisite should be the quality rather than the quantity. Mr. Dawes, a former Comptroller of the Currency, has very aptly said, "We do not want an asset currency that will help us into a panic when we are out of one, but an emergency currency that will help us out of a panic when we are in one." And better still, and what is needed and required, is an emergency circulation so perfect in its security and availability that it will unquestionably prevent the panic.

If such an amendment to our monetary system should be provided, it would result in sufficient currency, in my opinion, to tide over any conditions of panic or stringency in our circulating medium. It will be remembered that in the panic of 1893 about $66,000,000 of clearing-house certificates were issued. Under the provision that 10 per cent. should be issued by banks having government bonds on deposit, there being about $365,000,000 of government bonds held as security for circulation, an amount aggregating about $36,000,000 would be afforded; and under the provision that banks having 20 per cent. of surplus should be allowed to issue asset or emergency currency to the amount of 10 per cent. I should consider that $60,000,000 more would be available, without having examined carefully into the number of banks that could avail themselves of this provision. The provision that national banks should issue such currency would undoubtedly lead all banks to strengthen themselves, in order that they might avail themselves of the act.

The provision might also be made that this currency should not remain in circulation for a longer period than six months. But this might safely be left to the Secretary of the Treasury and the Comptroller of the Currency, the retirement of the notes being effected, as at present, through the redemption fund, and without disturbing the bonds on deposit. The security of 10 per cent. of

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