66

WAR  BORROWING

short-term  certificates.  This  method  was  prudently
rejected  by  the  Treasury  as  tending  to  defeat  the  desired ­
  ends  of  keeping  the  banking  resources  of  the
country  in  so  far  as  possible  liquid,  and  of  securing
the  widest  popular  absorption  of  the  bonds. 43
The  actual  procedure  has  been  for  each  loan
flotation  to  take  the  form  of  an  intensive  popular
campaign  in  which  bonds  were  subscribed  by  individuals ­
  through  banks  and  by  banks  on  their  own
behalf,  such  subscriptions  being  forwarded  to  the
Treasury  through  the  Federal  Reserve  Banks  acting
as  the  fiscal  agents  of  the  Treasury.  In  due  course,
allotments  have  been  made  by  the  Treasury  through
the  Federal  Reserve  Banks  to  the  subscribing  banks
for  the  amounts  taken  in  their  own  behalf  and  for
their  clients.  Individual  subscribers  have  made
payment  for  bonds  through  their  banks  by  drawing
upon  existing  deposit  accounts,  by  creating  new
loans  and  deposit  credits  and  drawing  directly  or
indirectly  thereon,  and  by  tendering  cash  items  —
withdrawn  (unless  taken  from  hoards)  from  circulation ­
  or  from  savings  or  from  other  banks  but
coming  ultimately  from  the  liquid  resources  of  the
banks,  that  is,  from  cash  in  vault  in  the  first  instances ­
  and  from  Federal  Reserve  notes  obtained
by  rediscount  thereafter.  In  turn,  subscribing
banks  have  made  payment,  over-payment  or  payment ­
  in  full  through  the  Federal  Reserve  Banks  for
bonds  allotted  to  them  for  themselves  and  for  their
customers,  in  three  forms  —  by  tender  of  certificates, ­
  by  credit,  by  cash  items.  These  modes  of
payment  have  figured  in  the  heavily  over-paid  first
43  Federal  Reserve  Bulletin,  April,  1918,  p.  251.