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6th. All the banks in the United States, whether under State or national laws, shall make and publish "weekly statements,” as is now done by the New-York city banks.
Upon the above suggestions we would add the following
NOTES. In 1854, under a sudden drain of specie, a violent and ruinous panic occurred, and a suspension of the banks seemed imminent. At the urgent solicitation of the bankers and merchants, the Secretary of the Treasury resorted to every lawful means to release the coin locked up
in the sub-treasury, and, by a happy liberality of construction, several millions of its own bonds were purchased by the government with coin, and at a very large premium. The specie was released, and the banks and the community were saved. What wrought so beneficially then, it is now proposed, in section fourth, to incorporate, as a conservative principle, in the proposed national banking system. This outside and ultimate reserve is wanting in the Bank of England, nor could it be introduced there without a fundamental change.
The funds of the government are already deposited with it; consequently, the government has no resource upon which it can draw to aid the bank by the purchase of consols from it when its specie reserves are exhausted. So far from this, the drafts of the government in times of pressure only aggravate the difficulty. With us, on the other hand, the machinery for the occasional purchase of government bonds in aid of the banks and the public, is already so organized in our admirable sub-treasury, that it has “gone itself."
The fifth section, authorizing the banks to receive bank notes equal to the specie deposited as security therefor, turns what has been a point of weakness in all the State systems into one of strength. The banks have excused themselves from keeping a full supply of coin on the plea that their notes were already secured by State stocks, and that they could not afford to secure it again by holding unproductive coin. This provision relieves them from carrying so much dead capital, and invites the increase of their specie by giving them its equivalent in bank notes; while at the same time it multiplies the power of the specie as a basis of credits and confidence by aggregating it in the bank department, where it may be measured and known, and where it may be always available.
It is believed that a system embracing the above principles, including, of course, all the best details of the New-York State system, such as redemption at the commercial capital, &c., would have at once more strength and more flexibility than even the Bank of England.
The Bank of England may be considered absolutely secure as a bank of issue and circulation, and, so far, a safe model; but it is also, on a great scale, a bank of deposit. But here, as before intimated, it is weak. Having nearly its whole capital in the government bonds, its chief resort for any heavy and sudden demand upon its deposits (after its reserve of notes is exhausted) is in its bills receivable. If these are called in too rapidly, the distress produced is so great that the government must interfere, or the merchants or the banks must fail. This has occurred at several periods since Sir Robert PEEL's charter of 1844 was adopted.
In the United States, however, we have in New-York alone a strong
body of deposit banks, with a paid up capital of seventy millions, and a separate and large supply of coin. Supplement these by well fortified banks of issue, resting independently on their own specie and securities, and we have an unequalled system,
And from this last statement there is one important inference. The government should not imitate the error of England, and weaken its own system, by using the banks of circulation as banks of deposit. If any departure is made from the most solid thing in all our building, the subtreasury, the funds of the government should be placed only in the legitimate deposit banks of the great cities, whose heavy capitals alone could afford a reasonable guarantee for them. But even then they would be an element of weakness and danger.
The money belonging to the government, and wanted for its expenditures, is not a legitimate basis of banking. Government deposits are a disturbing element in the affairs of the banks and of the people. If placed in the banks, they, of course, go to swell the loans, and then the apprehension of sudden and heavy drafts introduces fear and trembling into our daily business. These drafts always come heaviest and most imperative when they can least be borne. When trade languishes and imports decline, then, of course, the revenues fall off; then it is that government wants, and must have, its reserved funds; but then, also, business is depressed, and merchants are “short," and are most distressed by the calling in of loans. In a word, government deposits stimulate trade and credits when they already tend to excess, and fall on them like a millstone when they are depressed. If they were forced upon us by some malignant power, they would justly be regarded as a curse. How different the effect when, as of late years, in times of distress, the government, with paternal hand, unlocks its solid reserves of coin, and makes its heaviest disbursements just in the crisis of the people's sorest need.
As an exceptional act, and as a measure of reciprocal service, nothing could be more just than that the government, having borrowed nearly all the capital of the deposit banks of the three chief cities, should leave with them a large deposit, to aid them in carrying on profitably their ordinary business of discounting mercantile paper. But that should be done with a clear purpose to make the deposit permanent until the banks are relieved of their patriotic burden. And to that end, large reserves should be kept in the sub-treasury; or, if government paper is resorted to, the disbursements should be so managed as to leave, as nearly as practicable, a uniform balance in the banks.
New-York, January, 1862.
It is now a well-known historical fact, that in the infancy of our Republic, we were but little respected by foreign nations, and by some scarcely acknowledged, until we had established a sound and eficient national system of finance. The Bank of the United States, exhibiting the profound wisdom of its projectors, tended greatly to establish, not only stability of character at home, but to command respect abroad.
A NATIONAL AUTIENTICATED CURRENCY.
THE PLAN STATED—ADVANTAGES TO THE GOVERNMENT-ADVANTAGES TO THE PEOPLE-A
UNIFORN CIRCULATING MEDIUM-NATURAL EXCHANGES-REGULATION OF THE EXCHANGESSECURITY FOR THE BANK Notes-SAFER THAN THOSE OF THE BANK OF ENGLAND--ADVANTAGES TO THE BANKS-SOLVENT BANKS PROTECTED AGAINST THE INSOLVENT-THE CURRENCY MADE LESS FLUCTUATING—THE BANKS MADE MORE SECURE_OBJECTIONS TO THE PLAN-INOPPORTUNE-ITS BASIS NOT PERMANENT_TAKES CAPITAL OUT OF TRADE-ALLEGED TAMPERING WITH THE CURRENCY-CONCLUBION.
The Secretary of the Treasury, in his report made to Congress at the commencement of the present session, proposes a plan which, in his opinion, will secure to the people of the United States a uniform currency, obriate many defects of the present system of State Bank issues, and, at the same time, afford assistance to the general government. It is as follows:
“ First. A circulation of notes bearing a common impression, and authenticated by a common authority.
" Second. The redemption of these notes by the associations and institutions to which they are delivered for issue.
“ Third. The security of that redemption by the pledge of United States stocks, and an adequate provision of specie."
This plan commends itself to our favorable regards by its simplicity and evident feasibility ; but will it answer the expectations of the Secretary? Is it expedienti These questions we propose to consider.
İn carrying out this plan, if we understand the matter aright, the national treasury will furnish notes of various denominations, "authenticated” by the certificate of the department, that the same are secured by a deposit of United States bonds. These notes will be made with certain blanks, which the banks receiving them can fill out, making themselves responsible for the payment over the signatures of their officers.
In order to obtain these “ authenticated notes," the banks must deposit an equal amount of bonds with the government, to ensure final payment, if they fail to redeem them at their own counters.
For example, if we suppose the Merchants' Bank, Boston, has a usual circulation of $400,000, and now wishes to come into the new system, it must, for that purpose, purchase $400,000 of United States bonds, pledge the same at the treasury office, and receive $400,000 of the authenticated notes for circulation.
These it will loan to its customers just as it previously did its own notes. The bank drawing interest on its United States bonds, of course, and also the interest on its circulation, and the income it derives from both these sources goes to swell the dividends of its stockholders.
The condition of the Merchants’ Bank is now, in no essential respect, different from what it was before the change, except that it has loaned the government $400,000, instead of loaning the same amount to its ordinary customers; and the operation cannot affect the profits of the bank, unless it actually got a higher net rate of interest from its customers than the government pays on its bonds.
If this be true, can the Merchants’ Bank, or any other placed on the same footing, have any objection to the change?
It may be insisted that the bank could obtain, at least at times, if not always, a higher rate of interest, by charging exchanges on loans to customers, than the interest the government allows. But if the fluctuations in the currency are to be as frequent and violent in future as in the past, as, without some change, they must be, will the average net amount, for a series of years, be greater than what the government bonds will pay? We think not, because the banks often make heavy losses from the bankruptcy of their customers, occasioned by the periodical explosions of the currency.
ADVANTAGE TO THE GOVERNMENT.
While the plan, then, in nowise, as we believe, injures the banks of the country, by curtailing their profits, it will confer great advantages on the government.
For, first. If the circulation of the country is to be based entirely on national stocks, then there will be, of course, a demand for those stocks created equal to the whole of that circulation; say from $150,000,000 to $200,000,000. This will aid the government so far—a circumstance of much importance in this great crisis of difficulty and danger.
Secondly. The connection which will be thus created between the banking institutions and the government will strengthen both. It was a grand stroke of policy when the British Parliament authorized the savings institutions of the empire to invest their funds, on advantageous terms, in the national stocks. Before that time the holders of the public debt amounted, if we remember aright, to less than three hundred thousand; now, by the investments of the savings banks in government securities, the virtual holders of the public stocks amount to nearer three millions. What better calculated to assure the final payment of the public debt? What better adapted to prevent internal commotions that might overthrow the
government? So would it be here. By the arrangement proposed, an immense number of persons, in all parts of the country, and in all the various relations of civil and social life, would be interested in the preservation of the public credit. This is a circumstance which, in the present and prospective condition of the nation, ought not to be disregarded.
By this plan, then, the government gets assistance and sympathy.
A UNIFORM CIRCULATING MEDIUM.
What do the people gain!
1st. They are insured a uniform circulating medium, the soundness of which will be known and admitted everywhere, and which, as it is receivable for all government dues, except customs, will be current in all parts of the country.
The bills of the banks of Maine will be current in Missouri; those of Iowa in Vermont. Standing on the same level, all will pass equally well everywhere. This alone will be an incalculable advantage, and secure a wide circulation for this kind of currency. With these notes, no matter where issued, a person will be able to travel in all parts of the nation, and purchase property or discharge contracts.
2d. As a consequence of this, all those exorbitant and uncertain rates of exchange that have heretofore existed, will be done away with. This
will relieve the productive classes of an immense burden, though it will doubtless very much reduce the incomes of those who have heretofore dealt in uncurrent bank notes.
The natural exchanges of the country will still exist, as they ought, and these authenticated notes will, at certain places and under certain circumstances, be at a small discount. But, then, they will as often be above par, for gold, as below it. All domestic exchange, under this system, would be merely the real natural difference between the value of funds in different localities, under the varying circumstances of trade; but the high rates we have been familiar with, of five, ten or twenty per cent., would be hereafter entirely unknown. They can never be greater than the expense of transporting the gold, while the banks maintain specie payments.
REGULATION OF EXCHANGES. 3d. This system of currency will accomplish what, by many people, has been thought a great object, viz.: it will “regulate the exchanges of the country. More properly speaking, however, it will regulate the currency, and that is all that is, or ever has been, wanted. To talk of regulating exchanges" is as sensible as to talk of regulating the rising and setting of the sun, or the ebbing and flowing of the tide. Exchanges exist by the laws of trade; they indicate where the balance of trade is, and that is a point of great importance to all business men; and hence exchanges should never be interfered with by government or banking institutions. It was one of the greatest objections that could have been brought against the late United States Bank, that when it was at the zenith of its power, it did literally “regulate exchanges," that is, it established artificial ones everywhere, and thus not only imposed a great tax on the business community, but destroyed the true index of the balance of trade.
For example, it would charge two and a half per cent., perhaps, at Boston, for à check on New-Orleans, and, at the same moment, charge at New-Orleans the same rate of exchange for a check on Boston. Now every intelligent man knows that these two exchanges could not co-exist, that one or the other was fictitious.
Ever since the closing of the national bank, exchanges have regulated themselves most satisfactorily and economically, except when disturbed by the depreciated currencies. The authenticated currency will remove all danger of depreciation, and, therefore, will insure universally' satisfactory exchanges.
SECURITY FOR THE CIRCULATION. 4th. Not only will the question of exchange be placed on a proper basis, but all danger from holding bank notes will be obviated. There will be a well-deserved confidence placed in this kind of currency. The losses which have, in times past, been sustained by bill-holders, have been immense, and have fallen mainly on the poorer classes. It has been satisfactorily ascertained, by careful examination, that the people have suffered to the amount of more than one hundred millions of dollars by broken bank notes, since our present system ca me into being.
Under the proposed arrangements there can be no such losses ; and after a short time, when the public have become accustomed to this kind of currency, and tested its solvency by their experience, these notes will