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WAR BORROWING

or the successive long-term bond issues are absorbed
directly by ultimate investors or are taken over by
and paid for by the banks as intermediaries and
simultaneously or subsequently distributed among
investors; in short, that all payments are made in
cash or exchange without the creation of additional
credit.

It is possible however that the borrowing process
may be accompanied by the creation of new bank
credit against which no additional cash reserves
need to be held. The installment quotas of the
long-term loan or the principal sums of the cer-
tificate issues may in such case be paid to the
Treasury by subscribing banks wholly or in part
in the form of deposit credits, the banks eventually
recouping themselves by the payments of ultimate
investors, in cash or from out newly created de-
posit credits. Under such circumstances there will
again be notably less strain upon the money market
whether the Treasury effect its borrowings by short-
term certificates or by installment payable bond
issues. The elements of relief in either procedure
will consist in the facts (i) that the strain of pro-
viding the amount borrowed is taken off the banks
by their ability to create additional deposit credits
against which no reserves need be held; (2) in the
ability of the banks to create by rediscount clearance
balances to meet government withdrawals; (3) in
the ability of ultimate investors to meet the strain of
bond payments by bank borrowings or from out
existing resources augmented by the proceeds of
public expenditure.

The possibility of avoiding monetary dislocation