124

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  certificate ­
  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  deposit ­
  credits.  Under  such  circumstances  there  will
again  be  notably  less  strain  upon  the  money  market
whether  the  Treasury  effect  its  borrowings  by  shortterm ­
  certificates  or  by  installment  payable  bond
issues.  The  elements  of  relief  in  either  procedure
will  consist  in  the  facts  (i)  that  the  strain  of  providing ­
  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