The Treasury and Reserve Banks The number of depositories was greatly increased during the war, and many "special depositories" will continue to be used until the war financing definitely ends. Meanwhile the Treasury, despite political pressure, is reducing the number of regular de positories and the deposits carried with many other banks; it is attempting a "scientific apportionment" by cutting off the in active accounts and reducing balances so that each bank will be able to realize equal returns on the basis of the business done for the government. This is a logical step, for with the establishment of the federal reserve banks and their use as fiscal agents, there is less need for depositories; besides, it is now an economy to use the government money to reduce the debt, for the 2 per cent interest on deposits does not now give sufficient compensation for the rate paid by the government on its loans.
Our Independent Treasury has been a source of great financial weakness and disturbance. Want of a sensible budget system has resulted in a series of surpluses and deficits in the Treasury, causing alterations of tight and easy money in the market. The surpluses occurred at times of great importation, that is, of busi ness boom, and, by reducing bank reserves at the time of big demand for loans, accentuated the rise of money rates. The government had no good means of making such balances available for banking uses, nor had it any efficient agency under its control and in direct intimate contact with the banks of the country, through which it could float loans. The federal reserve banks have provided for both. The sub-treasuries exercised some bank ing functions, such as the transfer of money by telegraph, the clearance of checks through the clearing house, and the receipt of taxes by certified checks, but most of their transactions were in currency and were slow and limited because they had no banking connections. If the government wished to redeposit the accrued surpluses, it was practically impossible to redeposit them in the banks from which they were originally withdrawn. Too often politics, caprice, or favoritism determined their distribution. Besides they were deposited in too many banks too widely separated. The twelve federal reserve banks which now act as fiscal agents for the government can supply the same facilities as a thousand or more national banks formerly supplied, thus sim plifying the handling of the government funds. Another defect of the former system was, that the depositories had to pledge United States securities for government deposits, thus tying up such a quantity of bonds that the national bank note issue could not be increased in emergencies.
One of the leading criticisms against the maintenance of In dependent Treasury was the discretionary power lodged with the Secretary in his choice and use of banks as depositories—a power fraught with danger as well as with good; for capricious action on his part might make or break a bank and might disturb the fi nancial equilibrium of the country. Much depended upon the Secretary, his will, good sense, and skill. The same criticism applies to the existing federal reserve system, for the Secretary may or may not use the federal reserve banks as depositories for all or part of the government funds.
Duties of Former Sub-Treasuries The functions of the sub-treasuries were in part as follows: i. Issue of gold order certificates on gold deposits.
2. Acceptance of gold coins and silver dollars for exchange.
3. Acceptance of fractional silver, greenbacks, minor coins, gold certificates and silver certificates for redemption.
4. Cancellation and laundering of unfit currency.
5. Exchange of various kinds of money for other kinds requested.
6. Remittance from United States depository banks of their surplus deposits of internal revenue, customs, money order, postal, and similar funds.
7. Receipt of deposits of postal savings funds direct.
8. Receipt of deposits of money order funds direct and indirect.
9. Receipt of deposits on account of the 5 per cent redemp tion fund.
TO. Receipt of deposits of interest on public deposits.
Receipt of deposits of funds belonging to disbursing officers.
Receipt of funds deposited for transfer to some other point through a payment by a sub-treasury located there.
13. Encashment of checks, warrants, and drafts drawn against the Treasurer of the United States and pre sented at the sub-treasury for payment.
14. Payment of the United States coupons and interest checks.
15. Custody of large reserve and trust funds.
Efforts have been made'during recent years to abolish the sub treasuries and have their work done by the federal reserve banks. These efforts reached success on May 29, 1920, when Congress authorized and directed the Secretary of the Treasury to dis continue the sub-treasuries by July 1, .
The sub-treasuries were located in New York, Boston, Phila delphia, Baltimore, San Francisco, New Orleans, St. Louis, Chicago, and Cincinnati. In each of these cities there is now either a federal reserve bank or one of its branches. The argument favoring the abolition of the sub-treasuries was the apparent duplication of systems and its unnecessary expense. Against this argument it was contended that little economy would result from the merging of the two sets of institutions; that the trust funds against the gold and silver certificates and the greenbacks should not be committed to the custody of private corporations; and that the services required by the government would be less well rendered under the change of system.
The recent law provides that the Secretary of the Treasury may assign such of the duties performed by the sub-treasuries to the Treasurer of the United States, to the mint, and to the assay offices, as he may deem best; that he may utilize the federal reserve banks as depositories or fiscal agents of the United States; that all trust or special funds must be kept separate and distinct from the other assets of the federal reserve bank and be held in joint custody of the federal reserve agent and the federal reserve bank; and that the Secretary may assign any rooms, vaults, equipment, safes, or space in buildings used by the sub-treasuries to any federal reserve bank acting as fiscal agent for the government.
Between the dates October 25, 1920, and February To, 1921, the closing of the sub-treasuries and the transfer of their duties were accomplished without interruption to business and without interference with the financial operations of the government. In some cities the former sub-treasury buildings continue to be used, in others the transactions are conducted in the reserve bank buildings.