Currency Restrictions
 Not
Necessary

Notes Against
Bankers Bills

Counter Money

Notes Against
Gold

0

COMMITTEE REPORT
that is supplied. It has previously been argued that in encouraging
the desirable type of member bank operations dependence should be
placed largely on the condition of the member banks. So far as concerns
 the general encouragement given to business to expand or contract,
 what counts at any particular time is the amount of deposit
credit reserve banks extend to member banks. It is these deposit
accounts which constitute the legal reserves of member banks. The
problem of the reserve banks is thus to insure that the total supply
Of credit is properly adjusted to the country’s requirements. So far
1s note issues and currency are concerned, the problem is merely to
relate these properly to the supply of credit. If the outstanding
supply of credit is correct, any excessive supply of currency would
be promptly returned to reserve banks. On the other hand, under
liffering conditions, a deficient supply of circulating currency would
de met by member banks requesting currency in place of their credit.
(f the credits thus checked against are not provided contraction is
liscouraged.

By the use of their discount and open-market weapons the reserve
 banks must endeavor to provide the country with the proper
supply of credit. It is not necessary, or in fact desirable, to impose
special restrictions upon currency issuance. Advocates of such special
 restrictions appear to lose sight of the fact that credit control is
the principal problem of the reserve banks and that in the regulation
of their credit activities the reserve banks are provided with certain
powers. These powers should not be confused by establishing any
-estrictions which might interfere with the free exchange of currency
‘or credit.

To prohibit the issuance of reserve notes against bankers bills
would produce difficulties. Reserve banks in the interior districts
subjected to currency demands may not be provided with an adejuate
 quantity of discounted paper to collateral note issues. To obain
 the necessary collateral they may now purchase bills in the cenral
 money markets. To prevent the use of this type of collateral
15 the security for reserve notes might interfere unduly with reserve
banks whose territory does not include any large money market.
At the present time, furthermore, the outstanding currency of
:he country is very largely utilized for counter-money purposes. In
‘he future some of the present elements in the currency, such as
rational bank notes, may be reduced in supply. To prevent the reserve
 banks from using bills as collateral for reserve issues might
‘hen interfere unduly with the ability of the reserve banks to provide
‘he country with the desirable quantity of currency.
Permitting the issuance of reserve notes against the collateral
of gold is now desirable for the purpose of simplifying the enforce-(Continued
 on page 32)