CIRCULATION
Fes nearly half a century it was obligatory upon every national
bank to keep a certain amount of government bonds on deposit
with the Treasurer of the United States, regardless of whether or not
the bank desired to issue circulation. But with the passage of the
Federal Reserve Act, this requirement—hitherto an outstanding
feature of the national banking system—was eliminated, except
where a bank desired to issue circulating notes.
Although the Federal Reserve Act provides for the issuance of
currency by the Federal Reserve Banks (secured by either govern-
ment bonds or by other collateral), there is nothing in the Act as it
now stands which would abrogate the right of the national banks
to issue currency secured by government bonds. It appears that the
purpose of those who drafted the Federal Reserve Act was that the
Federal Reserve Banks should ultimately share with the Government
the sole right of currency issue, but up to the present there has been
only one official step to bring about this situation. Under Section 18
of the Federal Reserve Act, the volume of 2%, gold bonds eligible for
national bank circulation has been reduced by $56,256,500. Bonds
to this amount have been acquired by the Federal Reserve Banks,
and converted into 89, bonds and 39, one year notes, without the
circulation privilege.
Every national bank is entitled to issue circulating notes to the
amount of its paid in capital. These notes are secured by United
States interest bearing bonds which are deposited with the Treasurer
of the United States. Circulation is issued not on the basis of the
market value of these bonds, but on the basis of their par value.
There are at the present time two classes of government bonds
which are acceptable as security for national bank circulation, viz.:
29, consols of 1930.
207 Panama Canal bonds.
Nearly all of these bonds outstanding at the end of 1926 were on
deposit with the Treasurer to secure national bank notes. Bonds to
secure national bank circulation cannot be procured from the Treasury
Department, but may be purchased in the open market through
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