﻿66

WAR BORROWING

short-term certificates. This method was prudently
rejected by the Treasury as tending to defeat the de-
sired ends of keeping the banking resources of the
country in so far as possible liquid, and of securing
the widest popular absorption of the bonds.43

The actual procedure has been for each loan
flotation to take the form of an intensive popular
campaign in which bonds were subscribed by in-
dividuals through banks and by banks on their own
behalf, such subscriptions being forwarded to the
Treasury through the Federal Reserve Banks acting
as the fiscal agents of the Treasury. In due course,
allotments have been made by the Treasury through
the Federal Reserve Banks to the subscribing banks
for the amounts taken in their own behalf and for
their clients. Individual subscribers have made
payment for bonds through their banks by drawing
upon existing deposit accounts, by creating new
loans and deposit credits and drawing directly or
indirectly thereon, and by tendering cash items —
withdrawn (unless taken from hoards) from cir-
culation or from savings or from other banks but
coming ultimately from the liquid resources of the
banks, that is, from cash in vault in the first in-
stances and from Federal Reserve notes obtained
by rediscount thereafter. In turn, subscribing
banks have made payment, over-payment or pay-
ment in full through the Federal Reserve Banks for
bonds allotted to them for themselves and for their
customers, in three forms — by tender of certifi-
cates, by credit, by cash items. These modes of
payment have figured in the heavily over-paid first

43 Federal Reserve Bulletin, April, 1918, p. 251.