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conducive to bringing about a resumption of the abandoned usage, as between the subtreasury and the New York clearing house, of making their settlements with each other in gold and not in legal tenders?

Assuming that the Secretary of the Treasury and the banks mutually agree upon such an understanding, the foremost question presented is how each party may assure itself of a stock of gold sufficient to insure the safe and successful working of the arrangement.

1. So far as respects the Treasury, the loan of $100,000,000 just concluded should, when fully paid in, make its supply of gold quite equal to the requirements of the case. The gross gold proceeds of the loan will amount to about $112,000,000, and at the time of the negotiation the stock of free gold in the Treasury was $48,000,000, which implies a total apparent stock of $160,000,000 when the several installments have been paid in. How much may be withdrawn during the interval for export or other purposes it is impossible to say. It would seem, however, that $30,000,000 might be a due allowance for such contingent reductions, which would leave the Treasury in possession of $130,000,000 of free gold four months hence. That sum is not quite so large as the reserve was at times previous to these derangements, when the metal was steadily flowing into the country in extraordinary volume, but it does not by any means thence follow that it would be insufficient for the legitimate purposes of a fund of such a nature. In practice the reserve would be no longer needed to meet large redemp. tions of legal tenders, for the occasion for such redemptions would have been remedied through the banks undertaking to satisfy export wants from their own vaults. Its use would be to provide against possible adverse variations in the customs revenue, and to strengthen the moral assurance of the ability of the Government to pay its notes on presentation. Practically, it would be a prudential cash fund to cover possible adverse contingencies in operations which are of a purely banking nature, but not subject to ordinary banking risks. Probably nine experts in finance out of ten would regard $130,000,000, or temporarily even less than that sum, as being an adequate provision for the chief purposes of this reserve. If it were necessary that the Treasury should always stand fully prepared for some very extraordinary run from its note holders, no such reserve would be sufficient; but that is a contingency not within the range of contemplation, nor is it certain that it would be practicable to fully provide against it. The reserve needs to be large enough to establish a strong moral improbability that the note holders could exhaust it, and for that $125,000,000 to $130,000,000 would seem to be an adequate provision.

2. So far as respects the clearing-house banks, it is not easy to say, with any precision, what combined stock of gold would warrant the resumption of their former exchanges with the Treasury in that metal. Data from experience should afford the best guide to an estimate; but even that needs to be handled with careful discrimination. Taking the five years next preceding the interruption of the subtreasury settle. ments in gold at the clearing house, we find the average "specie" holdings of the New York clearing-house banks to have been as follows:

1887

1888

1889

1890

1891

$77, 000, 000 84, 000, 000 87,200,000 78, 000, 000 74, 200, 000

It thus appears that the average stock of the banks for the highest of these five years was $87,200,000, and for the lowest $74,200,000, while for the whole period the average was $80,080,000. As, in those

years, the gold for export was mainly supplied direct from the vaults of the banks, it is important to take into account the contemporaneous shipments of the metal to foreign countries. For the whole five years the net exports of gold averaged $12,900,000 per annum, while the receipts from home mines, less the takings for the arts and manufactures, averaged $25,060,000. It thus appears that the home contributions to our stock of the metal exceeded the net foreign withdrawals by $12,000,000 per year, which was a condition favorable to the banks maintaining their specie reserves at a liberal amount.

During the monetary derangements of the last three fiscal years the outflow of gold to other countries has been extraordinarily large. The total net exports for that period amounted to $164,000,000, or at the average rate of $54,700,000 per year. What the effect of these movements has been upon the national stocks of gold will appear from the following statement, showing, from official estimates, the average annual stock for each calendar year since 1886:

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It will thus be seen that the late financial derangements have been attended with a material reduction of the national stock, in spite of a considerable concurrent increase in the home production. The stock of last September, from which there has been no important subsequent variation, was $613,400,000, which is $94,500,000 below the highest of the above-cited normal years and $41,200,000 less than the lowest (1890). The stock of the clearing-house banks has somewhat suffered from this depletion of the national holdings. As already shown, the "specie" reserves averaged $80,080,000 for the five years 1887-1891, in 1895 they averaged $67,800,000, and on February 8, 1896, they stood at $77,500,000. It must be conceded, however, that the banks have come out of the last three years' ordeal with much less impairment of their gold stocks than might have been expected, especially when it is considered how they have been continuously exposed to drains connected with the Treasury loans and that they have made no special effort to collect this form of money. It seems to be a fair conclusion, from their experiences under the conditions reviewed, that they could resume their former usage of making clearing-house settlements in gold with little or no risk of embarrassment or inconvenience. To make assurance doubly sure, however, it would be a proper prudence to use such means as come within their power to augment their gold by about $20,000,000; the more so as, according to the estimate of banking experts, what is designated as "specie" includes, in the case of the New York banks, about 10 per cent of other items than gold. True, that was equally the case in the earlier years with which comparison has been made, but it is desirable that in dealing with sensitive situations every element should be surrounded by the strongest possible safeguards. The banks have influence and power enough to easily procure from interior sources gold that would carry up their stock to, say, $85,000,000, which no banker, familiar with the clearing house operations, would be likely to pronounce insufficient for the purpose contemplated.

3. So much for the provision needed for the beginnings of this restoration. The future might be safely left to take care of itself. With the return of normal relations between the subtreasury and the banks, we should enter upon a set of conditions directly calculated to bring about an increase in the national stock of gold. An important obstacle

to confidence in our ability to maintain the gold standard would be removed. European distrust as to the currency in which our securities may be payable would be largely mitigated, and our investments would be in greater demand across the Atlantic. The whole financial status of the nation would be fortified and elevated, and the country would be released from the restraints that prevent its entrance upon a fresh era of industrial and commercial expansion. All this would make for the strengthening of the creditor side of our account with the world; and that, in turn, would mean the easier acquisition of such gold as our currency situation might from time to time need.

We may also count upon an important increase of supply from the domestic mines. During the years of smooth working in our gold movement, above reviewed, the average home output of the metal was about $33,000,000. According to the latest estimates, $53,000,000 may be safely calculated upon as the future supply. It is also to be considered that since the resumption of specie payments, barring the years of derangement since 1892, the normal movement of gold has been largely in favor of this country. Between 1879 and 1893 we exported $163,000,000 of gold and imported $264,500,000, showing a net import of $101,000,000, or $7,800,000 per annum. There is no obvious reason why, when abnormal conditions deranging the movement have been remedied, we should not again have a steady increase in our stock. Indeed, the fact that during recent years the European banks have become inconveniently glutted with the metal at our expense suggests a natural probability that a large amount would return here, provided our finances were restored to a sound position. On the whole, then, a fair estimate of the factors affecting our ability to maintain gold payments, as between the Treasury and the banks, suggests the conclusion that there are no reasons antagonistic to the resumption herein contemplated, except such as come from ignorance or lack of appreciation of the gold resources within our reach.

4. It is easily conceivable how, in restoring the relations between the subtreasury and the clearing house, certain readjustments between the banks might become necessary. Arrangements would be required by which banks having to provide for customs payments and for foreign shipments of gold would be assured of maintaining a stock sufficient for those purposes. Difficulties might arise, at this point, from banks that have large stocks with little necessary use for them being unwilling to divide with those that have little and would want much. There are pessimists among bankers, as elsewhere, who make disproportionate provision for the worst possibilities, instead of duly allowing for wholesome factors and judiciously making the best net result out of a mixed set of conditions. Bankers who conduct their operations upon these principles are apt to be inordinate hoarders of gold. This sort of spirit might easily give rise to some temporary friction in the clearing house, but its managers would be found equal to the occasion.

VII.

In some quarters, the prompt final retirement of the legal tenders has been urged as the only needful treatment of this Treasury question. In this connection, two things are unqualifiedly conceded: first, that, without the complete and final extinction of the United States notes and the Treasury notes, there can be no sound or safe reconstruction of our currency system; and, second, that, when those notes have been eliminated, there can be no more draining of the Treasury through demand obligations, and therefore no further need for the $100,000,000 reserve, nor for any part of it. But while, for these all-important

reasons, there should be no delay in providing for the full retirement of the legal tenders, it is not to be overlooked that such retirement would occupy a considerable period. The notes now perform an important function in our monetary economy, and constitute a large portion of the lawful money reserves of the banks. It is therefore imperative that the process of retirement should be so adjusted as to avoid stringency or other disturbance in the financial markets, else, quite possibly, popular protest might arrest the withdrawals.

It is also essential that provision be made for the substitution of the legal tenders by some conservative form of bank currency; and that substitution should be evenly adjusted, as to time and amount, with the retirement of the legal tenders. Under the most favorable circumstances, the procurement of authorization, first for these retirements and next for the new bank issues, would require an indefinite interval of public and Congressional discussion; and, assuming full and satisfactory authorization for both to be finally won, the process of substi tution would extend over a considerable time, probably three or four years. On the whole, therefore, we might have to wait until five years hence before the legal tenders were fully got out of the way. In the meantime, what would become of the Treasury? The drain upon it for export gold must inevitably be continued; the issuing of bonds to procure gold would remain necessary; the cause of the monetary distrust would be still operative; and the sources of confusion could be, at best, only partially mitigated pending the process of retiring the notes, and quite probably might complicate and endanger that operation. It thus results, first, that the possibility of the legal tenders being abrogated affords no excuse whatever for neglecting a more immediate remedy; and, next, that an early rehabilitation of the Treasury would facilitaté and shield the process of withdrawing the legal tenders.

The conclusions suggested by the foregoing considerations are:

I. That, upon the receipt of the full proceeds of the February loan, the subtreasury at New York should commence and thenceforward maintain the liquidation of its debtor balances at the New York clearing house wholly in gold coin or gold certificates, the latter preferably; II. That, simultaneously, the New York banks should make their settlements, whether with the Treasury or with each other, in gold, as previous to the beginning of the present troubles of the Treasury;

III. That, from the date of the Treasury and the banks thus resuming payment in gold, the banks should pay out that form of money to their customers for the liquidation of customs duties, and should provide from their own supplies all gold required for export; and

IV. That, preparatory to entering upon the foregoing arrangements, the clearing house banks should, by mutual arrangements, increase their joint stock of gold to about $85,000,000.

These things being done, the Treasury would have a fixed gold income sufficient to make all settlements with the banks in that form of cash; and the banks would have fixed receipts of gold sufficient in amount to pay the customs duties in that kind and to cover the export demand for the superior metal. Customs duties would then supply the gold now procured by loans; the Treasury would cease to supply the gold needed for export; there would remain no cause for drain on the Treasury reserve; the gold stock of the Treasury and that of the banks would be made jointly available for the support of each; and the whole series of current monetary dislocations would be permanently readjusted on the former basis of strength and reciprocal support.

W. DODSWORTH.

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C., Thursday, February 20, 1896.

A subcommittee of the Committee on Banking and Currency met this day, at 10.30 a. m. Members present: Mr. Brosius, chairman of the subcommittee, and Messrs. Hill and Cobb, of Missouri.

STATEMENT OF MR. THEODORE GILMAN, BANKER, OF NEW YORK CITY.

Mr. Theodore Gilman, a banker, of New York City, appeared before the subcommittee in advocacy of the bill H. R. 3338.

[H. R. 3338, Fifty-fourth Congress, first session.]

A BILL to protect and support commercial credit, to equalize rates of interest, to provide for the incorporation of clearing houses, to regulate and define their operations, to provide a clearing-house cur rency secured by pledge of commercial assets and the responsibility of the associated banks, and to provide for the circulation and redemption thereof.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That associations, to be known as clearing houses, for the settlement of money transactions by effecting clearances between banks, and for doing other business for and between banks, not inconsistent with the provisions of this act, may be formed by any number of banks, not less than five, duly incorporated, either under the national currency act or under the laws of any State or Territory of which a majority shall be organized under the national currency act, in any city of not less than six thousand inhabitants, who shall enter into articles of association for the regulation of the business of the association and the conduct of its affairs, which said articles shall be approved by the stockholders of each bank uniting to form the association at a meeting called for the purpose and shall be signed by the officers of each bank by authority conferred upon them to do so by vote of the stockholders, and a copy of them forwarded to the Comptroller of the Currency, to be filed and preserved in his office.

SEC. 2. That the banks aniting to form such an association shall, by their proper officers, make an organization certificate, which shall specify

First. The name assumed by such association, which name shall be "The Clearing House of (giving the name of the city where located and where its business of effecting clearances shall be carried on).”

Second. The names, the amounts of the capital stock, and the number of shares into which it is divided, of the banks composing the association.

Third. A declaration that said certificate is made to enable such banks to avail themselves of the advantages of this act.

The said certificate shall be acknowledged before a judge of some court of record or a notary public, and such certificate, with the acknowledgment thereof authenticated by the seal of such court, shall be transmitted to the Comptroller of the Currency, who shall record and carefully preserve the same in his office. Copies of such certificate, duly certified by the Comptroller and authenticated by his seal of office, shall be legal and sufficient evidence in all courts and places within the United States, or the jurisdiction of the Government thereof, of the existence of such association and of every other matter or thing which could be proved by the production of the original certificate.

SEC. 3. That every association formed pursuant to the provisions of this act shall, from the date of the execution of its organization certificate, be a body corporate, but shall transact no business except such as may be incidental to its organization, and necessarily preliminary, until authorized by the Comptroller of the Currency to commence the business of effecting clearances. Such associations shall have power to adopt a corporate seal, and shall have succession by the name designated in its organization certificate for the period of twenty years from its organization, unless sooner dissolved according to the provisions of its articles of association, or by act of the banks owning two-thirds of the capital stock represented in the association, or unless the franchise shall be forfeited by a violation of this act; by such name it may make contracts, sue and be sued, complain and defend in any court of law or equity, as fully as natural persons; it may elect or appoint directors, and by its board of directors appoint a president, vice-president, treasurer, and other officers, define their duties, require bonds of them, and fix the penalty thereof, dismiss said officers, or any of them, at pleasure, appoint others to fill their places, and exercise

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