28 
Li It may be agreed that open-market operations on occasions are 
Banks competitive with member banks but the limitations upon the reserve 
banks’ open-market powers serve to soften some of the objections 
which otherwise might be made against their utilization. If in add- 
ing funds to or withdrawing them from business use through open- 
market operations the reserve banks could disregard the special re- 
Juirements of the bill market and if they were under no obligation 
to heed the direction and volume of gold flows, there might be de- 
cided objection to bestowing such powers upon the reserve banks. 
As it is, however, the reserve banks’ open-market powers are usually 
of limited influence only, but they are important in that they serve 
to increase the effectiveness of other powers. 
COMMITTEE REPORT 
government 
Securities 
The bulk of open-market transactions are in government securi- 
ties and bankers’ acceptances. The maintenance of a discount market 
‘or foreign bills in New York, and the necessity of support of an 
mncompletely understood type of bill—the acceptance—require at 
times that rates of acceptances be fixed with a view to considerations 
other than the use of the acceptance as a credit volume control. It 
is essential, therefore, that there be some asset of unquestioned value 
available in substantial supply, which can be dealt in by reserve 
banks. Fortunately government securities, especially short-term 
Treasury Certificates, have met these tests. Without the right to buy 
ind sell governments, reserve banks would be unable to exercise any 
i1dequate control over the volume of reserve credit. 
Recommendation 
The Committee recommends that the present powers of the reserve 
hanks to engage in open-market operations should be continued. 
Note Issues 
In the early days of the banking reform movement remedial 
plans frequently were centered upon changes in note issue provi- 
sions. This emphasis upon note issue was due in large part to the fact 
that the cause of each major disturbance was manifested superficially 
oy a shortage of currency and attention was concentrated upon this 
rather than upon the credit developments which may have been 
responsible for the currency strain. Since, furthermore, the provi- 
sion of currency was generally regarded as a government function, 
reform plans were careful to specify that the central institution’s 
10tes should be issued only under certain tlearly indicated condi- 
ions. In the original Reserve Act attempt Was made to emphasize 
‘he special serviceability of the new system to commerce and agri- 
culture by providing that reserve notes should be issued only against 
he collateral of paper obtained by rediscounting. 
Original 
Provisions of 
Law 
Supply of Credit 
Not Collateral, 
{s Critical 
Factor 
The main consideration, however, as experience has shown, is 
10t the collateral, but the character of operations member banks 
are encouraged to engage in and the adequacy of the mass of credit 
(Continued on page 30)