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is paid. This policy continued until 1868, when the people demanded that the notes continue in circulation. Now that the greenbacks were to remain in circulation it was necessary to make them as good as gold. So Congress, in 1875, passed the Redemption Act, which provided that after January 1st, 1879, gold, dollar for dollar, should be paid when the notes were presented to the Treasury for redemption. The result was that the notes began to circulate at par. Under the currency law of 1900 the gold reserve in the Treasury was increased to $150,000,000 to safeguard the redemption of the notes. The greenbacks in circulation at the present time amount to about $346,000,000.

In 1863 Congress created a system of national banks, which became the basis of our banking system as it exists at present. The national banking law of 1863 has been modified from time to time, but its essential features have remained unchanged. tional banking system as it is to-day may be described as follows:

(1) National banks with a capital of $25,000 may be organized in towns of less than 3000 inhabitants; in towns of more than 3000 and less than 6000 inhabitants the capital must be $50,000; in places of more than 6000 and less than 50,000 inhabitants it must be $100,000; in places of more than 50,000 it must be $200,000.

(2) The organizers of a bank (not less than five in number) must purchase United States bonds equal in amount to at least one-fourth of the capital of the bank and deposit these bonds with the comptroller of the currency at Washington. The bank remains the owner of these bonds and receives interest from them.

(3) The bank receives from the comptroller national bank notes equal in amount to the par value of the bonds deposited. These bank notes are not legal tender; they are promises to pay-like the old notes of the State banks; like any bank note, in fact.

(4) The bank notes are secured by the bonds in the possession of the Treasurer of the United States. If a bank should fail in business and be unable to redeem its notes in legal tender money, the comptroller will sell the bonds and get the money with which to redeem the notes. A bank note is thus as good as a government bond, as good as the government itself. Banks frequently fail, but the holders of their notes have never lost a dollar by reason of the failure.

In 1913, Congress established a system of federal reserve banks.

The purpose of these banks is twofold: to bring about a more even diffusion throughout the country of the money that is already in circulation; and second, to make such additions to the present volume of currency as the conditions of trade may require. Under the federal reserve act the United States has been marked off geographically into twelve districts and in one of the cities of each district there has been established a federal reserve bank. The cities which have federal reserve banks are: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City (Missouri), Dallas, and San Francisco. The members and owners of a federal reserve bank are the national banks within the district and such State banks and trust companies as may choose to join under the conditions laid down by the law. The federal reserve bank is a bank of banks : its depositors are the member banks and the deposits in its vaults consist of a certain specified portion of the reserve fund which the member banks within the district are required by law to keep in their possession for the safety of their customers. The borrowers from a reserve bank are the member banks within the district. Before 1914, a very large portion of the reserves of banks flowed into two or three financial centers and there was a harmful congestion of money in those centers, but under the act of 1913 the reserves of the banks of a given district will be kept within the boundaries of that district and congestion will be prevented. Yet under certain conditions reserves may flow from one district to another, for in an emergency funds may be transferred from one reserve bank to another, if in the judgment of the Federal Reserve Board, the transfer is desirable.

Additions to the existing volume of currency are made under the act of 1913 by the issuance of federal reserve notes by any federal reserve bank that desires to issue such notes, but no federal reserve notes can be issued without the authority of the Federal Reserve Board. Federal reserve notes are secured not by bonds, as in the case of national bank notes, but by a gold reserve equal to 40% of the face value of the note plus an amount of commercial paper (promissory notes) equal to 100% of the face value. Furthermore, the United States Treasury is pledged to redeem in gold all federal reserve notes actually presented to it for redemption.

The federal reserve banks are wholly under the control of the Federal Reserve Board. This Board consists of the Secretary of the Treasury, the Comptroller of the Currency, and of five members appointed by the President.

In 1916 Congress provided for the establishment of twelve Farm Loan Banks, whose primary purpose is to enable farmers to borrow money on farm-mortgage security at a reasonable rate of interest for long periods of time, and repay the debt in small an. nual or semi-annual payments. These banks are under the control of the Farm Loan Board.

The following is a summary of our monetary system:

(1) The federal government has complete control of all currency issues whether metallic or paper and may issue legal tender paper money as well as gold and silver currency.

(2) The gold dollar of 23.22 grains is the unit of monetary value, and the coinage of gold is free. The amount of gold coined from year to year is wholly a matter of private initiative. Government does not regulate it. The amount is regulated by supply and demand—the supply of gold bullion and the demand for gold coin.

(3) Silver dollars and silver certificates, the treasury notes of 1890, federal reserve notes and United

States notes (greenbacks) are exchangeable for gold at their face value upon presentation at the treasury of the United States.

(4) This redemption is made possible by the reserve fund of $150,000,000 in gold and other reserves in gold which are at the command of the government.

(5) The paper money, when redeemed with gold, is again used by the government in the payment of its debts, and thus again finds its way into circulation.

(6) The volume of money in circulation is increased by the coinage of gold at the mints and by the notes issued by the national banks and the federal reserve banks.

(7) Bank notes are as good as gold because the government bonds, and other securities which are back of them, are as good as gold.

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