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WAR  BORROWING

not  have  increased;  but  a  part  of  the  deposits  heretofore ­
  to  the  credit  of  individuals  will  now  stand  to
the  credit  of  the  Government.  Only  in  the  event  of
customers  making  payment  in  cash  or  of  reserves
being  in  the  first  instance  in  excess  of  lawful  requirement ­
  is  the  reduction  of  commercial  deposits
in  consequence  of  certificate  payments  by  customers
likely  to  be  repaired  by  further  discounts,  and  the
volume  of  deposits  to  be  increased.  Nor  is  there
likely  to  be  any  inflation  incident  to  the  liberation  in
the  course  of  public  expenditure  of  government  deposits ­
  of  this  kind.  The  credits  so  dispersed  will
run  their  course  through  ordinary  banking  channels,
eventually  into  loan  reductions,  deposit  increases,
currency  withdrawals  —  but  only  to  a  compensatory
or  alternative  degree.  Upon  the  maturity  of  the  certificates ­
  the  Treasury,  presumably  put  in  funds  by
the  receipt  of  tax  revenues  or  the  proceeds  of  funded
loans  drawn  from  deposits  or  from  circulation,  will
discharge  its  debt  to  the  banks  and  to  investors,
thereby  restoring  deposits  and  circulation  to  the
prior  state.
The  assumption  that  the  banks  pay  for  certificates
entirely  in  cash  and  current  exchange  is  however  unreal ­
  to  a  very  great  extent.  Credit  will  have  been
used,  wholly  or  in  part,  and  the  results  that  may  be
expected  are  notably  different.  The  subscribing
banks  will  in  such  case  make  payment  for  certificates
in  the  form  of  a  book  credit  or  government  deposit.
The  actual  technique  will  include  qualification  by  the
subscribing  bank  as  a  government  depositary  by  the
hypothecation  of  approved  collateral,  and  the  transaction ­
  will  be  effected  throughout  by  the  Federal  Re ­