152

WAR  BORROWING

»

March  and  into  April.  Towards  the  end  of  April,
the  Banks’  actual  holding  of  bills  discounted  in  immediate ­
  preparation  for  the  Third  Liberty  Loan,
rose  above  the  900  million  point,  and  it  remained
substantially  around  that  amount  through  May  and
June.  With  certificate  borrowing  resumed  on  a
larger  scale  in  anticipation  of  the  Fourth  Liberty
Loan  very  much  higher  levels  were  attained  in  June,
July  and  August,  culminating  in  mid-October  and
followed  by  materially  less  liquidation  than  in  earlier
cycles.
In  the  remarkable  growth  of  discount  operations,
“  war  paper  ”—  member  banks’  notes  secured  by
Liberty  bonds  and  certificates  of  indebtedness,  and
customers’  paper  similarly  secured  —  have  played
the  all  important  part.  Not  only  has  the  relative
importance  of  war  paper  increased  with  the  later
progress  of  our  war  financing,  but  the  net  liquidation ­
  of  such  bills  has  been  sensibly  less.  During  the
loan  flotation  months  there  has  been  related  rather
than  sympathetic  increase  in  the  volume  of  discounted ­
  bills  secured  other  than  by  war  obligations.
But  aside  from  this,  the  movement  of  discounts
traceable  to  commercial  expansion  has  been  within
narrow  range.
The  preponderant  part  which  war  paper  has  come
to  play  in  the  discount  operations  of  the  Federal
Reserve  Banks,  and  the  absolute  volume  of  such
paper  now  resting  in  the  Banks’  portfolios  are  facts
of  the  gravest  importance  in  the  nation’s  financial
present  as  well  as  in  its  economic  future.  But
tempting  as  are  these  aspects  of  the  situation,  their
consideration  extends  beyond  the  scope  of  the  im-