34
WAR BORROWING
days, with a shorter term for the issue of June 8. In
absorption, the response of the interior was substantial
and eventually nearly one-half of the issue
was placed outside of the New York District. Efforts
were made by the Treasury to encourage a
quasi-investment purchase of certificates by individuals
and corporations in anticipation of loan
subscriptions; but it is not apparent that a large
measure of success attended the endeavor.
Payment for these issues was made by subscribing
banks in current funds. In interesting contrast
to the different procedure subsequently adopted,
this mode of cash payment was at the time regarded
as one of the important advantages of certificate
borrowing:
“ By the adoption of this policy of gradual issue of
short-term certificates the Treasury receives a regular
flow of funds which are transferred to it from the banks
and individuals who take up the certificates, the moneys
thus coming in being steadily applied to the requirements
of the Government in various directions. As the certificates
are receivable in payment for subscriptions to the
long-term bonds when prepared, it is thus possible to
draw off from the market a portion of the available funds,
which are then expended and returned to commercial
channels practically as received, thereby avoiding considerable
withdrawals at any one time and making the loan
operation a gradual process of withdrawal of funds which
are subsequently funded into the new bonds. Subscriptions
for the certificates naturally come primarily from the
banks, which are thus given a short-term investment for
their spare funds while they are sure of reimbursements
out of the proceeds of the long-term securities, within
60 days or less.” 13
13 Federal Reserve Bulletin, June, 1917, p. 424.
