﻿THE MONEY MARKET

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and of reducing monetary strain in connection with
war borrowing will thus be a consequence, -not of
the use of anticipatory certificates of indebtedness in
lieu of direct long-term loans, but of an effective
credit mechanism developed and utilized by the
banks in connection with such borrowing. Without
this mechanism there would be strain in the case of
certificates just as in the case of loans. With this
mechanism strain will be reduced in the case of cer-
tificates, and it would also be reduced in the case
of loans. Not the particular borrowing device but
the accompanying credit apparatus becomes the es-
sential element in the situation.

Let us now seek for verification of these hypo-
theses in the nature of the credit facilities actually
provided in connection with our war borrowing, as
well as in the extent to which use has been made of
such facilities.

The credit mechanism developed by the Treasury
in conjunction with the Federal Reserve Board for
the avoidance of jar and reduction of strain in the
money market during the course of certificate bor-
rowing has been made up of four elements: (a)
redeposit of borrowed funds in depositary banks
until required for public expenditure; (b) permis-
sive payment by credit on the part of lending banks
for certificates of indebtedness and Liberty Loan
subscriptions; (c) exemption of government de-
posits held by depositary banks from reserve re-
quirements; (d) rediscount facilities of member
and non-member banks for themselves and their
customers with the Federal Reserve Banks.