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WAR BORROWING

The measures taken have thus been of two gen-
eral kinds: (A) those designed to enable the lend-
ing banks to make the necessary advances to the
Treasury without corresponding curtailment of or-
dinary business accommodations, and (B) those de-
signed to permit (i) the withdrawal of government
deposits and (ii) the payment of subscriptions to
the Liberty Loans, without strain upon the banks’
resources and upon the general money market. In
the first group have been the redeposit of borrowed
funds, payment by credit and exemption of govern-
ment deposits from reserve requirements. In the
second group have been the rediscount facilities of
the Federal Reserve Banks, extended and modified
to meet the new exigency. The nature and growth
of these policies may now be briefly reviewed:

(A) One of the important reforms which the
Federal Reserve act of 1913 was designed to ac-
complish had to do with the deposit of government
funds. Many of the advocates of the new system
“ believed that the practice of depositing govern-
ment funds in thousands of banks scattered over
the country was a vicious and expensive one ” and
desired that the new law should “ make the federal
reserve banks the depositories of practically all
general funds, dispensing with the use of individual
banks as depositories and ultimately with the in-
dependent treasury system.” 13 As passed, the
measure vested the Secretary of the Treasury with
full discretionary powers in this respect. But it
was expected that this officer “ in the exercise of

13 Kemmerer, “ The A B C of the Federal Reserve System ”
(Princeton, 1918), p. 83.