CIRCULATION 
Fes nearly half a century it was obligatory upon every national 
bank to keep a certain amount of government bonds on deposit 
with the Treasurer of the United States, regardless of whether or not 
the bank desired to issue circulation. But with the passage of the 
Federal Reserve Act, this requirement—hitherto an outstanding 
feature of the national banking system—was eliminated, except 
where a bank desired to issue circulating notes. 
Although the Federal Reserve Act provides for the issuance of 
currency by the Federal Reserve Banks (secured by either govern- 
ment bonds or by other collateral), there is nothing in the Act as it 
now stands which would abrogate the right of the national banks 
to issue currency secured by government bonds. It appears that the 
purpose of those who drafted the Federal Reserve Act was that the 
Federal Reserve Banks should ultimately share with the Government 
the sole right of currency issue, but up to the present there has been 
only one official step to bring about this situation. Under Section 18 
of the Federal Reserve Act, the volume of 2%, gold bonds eligible for 
national bank circulation has been reduced by $56,256,500. Bonds 
to this amount have been acquired by the Federal Reserve Banks, 
and converted into 89, bonds and 39, one year notes, without the 
circulation privilege. 
Every national bank is entitled to issue circulating notes to the 
amount of its paid in capital. These notes are secured by United 
States interest bearing bonds which are deposited with the Treasurer 
of the United States. Circulation is issued not on the basis of the 
market value of these bonds, but on the basis of their par value. 
There are at the present time two classes of government bonds 
which are acceptable as security for national bank circulation, viz.: 
29, consols of 1930. 
207 Panama Canal bonds. 
Nearly all of these bonds outstanding at the end of 1926 were on 
deposit with the Treasurer to secure national bank notes. Bonds to 
secure national bank circulation cannot be procured from the Treasury 
Department, but may be purchased in the open market through 
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