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WAR BORROWING

curtailment of banking credit in other quarters.
The deposit currency created in this manner is not
unfairly described as fiat — not a deduction from an
existing limited stock but the provision of a new
additional supply with no limitation short of the
remote check of an ultimate gold reserve. Where
the mechanism creaked and some degree of pressure
developed, it was because of the banks’ failure,
through conservatism or inertia to utilize adequately
the facilities afforded — qualification as government
depositary and payment by credit. There could ob-
viously be no question of monetary strain or dis-
location incident to a borrowing device when the
accompaniment of that device was a mechanism
which supplied, for the asking, a practically unlim-
ited fund of the thing borrowed.

(B) Certificate borrowing exposes the money
market to possible strain and dislocation at three suc-
cessive stages: (i) in providing the credit or cur-
rency to be put at the disposition of the Treasury;
(2) in meeting the withdrawal of government de-
posits in the course of public expenditure — assum-
ing the borrowed funds or established credits to
have been redeposited in the lending banks; (3) in
paying subscriptions to the Liberty Loan in an-
ticipation of which the certificates of indebtedness
have been issued. We have seen how redeposit of
borrowed funds, payment by credit and exemption
of government deposits from reserve requirements
have been competent to avert monetary strain at
the first stage. It remains now to point out how the
rediscount facilities of the Federal Reserve System