Currency Restric- 
tions Not 
Necessary 
Notes Against 
Bankers Bills 
Counter Money 
Notes Against 
Gold 
0 
COMMITTEE REPORT 
that is supplied. It has previously been argued that in encouraging 
the desirable type of member bank operations dependence should be 
placed largely on the condition of the member banks. So far as con- 
cerns the general encouragement given to business to expand or con- 
tract, what counts at any particular time is the amount of deposit 
credit reserve banks extend to member banks. It is these deposit 
accounts which constitute the legal reserves of member banks. The 
problem of the reserve banks is thus to insure that the total supply 
Of credit is properly adjusted to the country’s requirements. So far 
1s note issues and currency are concerned, the problem is merely to 
relate these properly to the supply of credit. If the outstanding 
supply of credit is correct, any excessive supply of currency would 
be promptly returned to reserve banks. On the other hand, under 
liffering conditions, a deficient supply of circulating currency would 
de met by member banks requesting currency in place of their credit. 
(f the credits thus checked against are not provided contraction is 
liscouraged. 
By the use of their discount and open-market weapons the re- 
serve banks must endeavor to provide the country with the proper 
supply of credit. It is not necessary, or in fact desirable, to impose 
special restrictions upon currency issuance. Advocates of such spe- 
cial restrictions appear to lose sight of the fact that credit control is 
the principal problem of the reserve banks and that in the regulation 
of their credit activities the reserve banks are provided with certain 
powers. These powers should not be confused by establishing any 
-estrictions which might interfere with the free exchange of currency 
‘or credit. 
To prohibit the issuance of reserve notes against bankers bills 
would produce difficulties. Reserve banks in the interior districts 
subjected to currency demands may not be provided with an ade- 
juate quantity of discounted paper to collateral note issues. To ob- 
ain the necessary collateral they may now purchase bills in the cen- 
ral money markets. To prevent the use of this type of collateral 
15 the security for reserve notes might interfere unduly with reserve 
banks whose territory does not include any large money market. 
At the present time, furthermore, the outstanding currency of 
:he country is very largely utilized for counter-money purposes. In 
‘he future some of the present elements in the currency, such as 
rational bank notes, may be reduced in supply. To prevent the re- 
serve banks from using bills as collateral for reserve issues might 
‘hen interfere unduly with the ability of the reserve banks to provide 
‘he country with the desirable quantity of currency. 
Permitting the issuance of reserve notes against the collateral 
of gold is now desirable for the purpose of simplifying the enforce- 
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