THE  MONEY  MARKET

125

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  certificates, ­
  and  it  would  also  be  reduced  in  the  case
of  loans.  Not  the  particular  borrowing  device  but
the  accompanying  credit  apparatus  becomes  the  essential ­
  element  in  the  situation.
Let  us  now  seek  for  verification  of  these  hypotheses ­
  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  borrowing ­
  has  been  made  up  of  four  elements:  (a)
redeposit  of  borrowed  funds  in  depositary  banks
until  required  for  public  expenditure;  (b)  permissive ­
  payment  by  credit  on  the  part  of  lending  banks
for  certificates  of  indebtedness  and  Liberty  Loan
subscriptions;  (c)  exemption  of  government  deposits ­
  held  by  depositary  banks  from  reserve  requirements; ­
  (d)  rediscount  facilities  of  member
and  non-member  banks  for  themselves  and  their
customers  with  the  Federal  Reserve  Banks.