13. Imperial Bank of Imperial Bank of Germany, or Reichsbank, was organized upon the foundations of the Bank of Prussia in 1875. Its organization was one of the measures adopted by Bismarck to bring order out of the monetary chaos that had existed in the German states prior to the uni fication of the Empire. Before the establishment of the Imperial Bank there had been five different cur rency systems in the Germanic Confederation, with a heterogeneous coinage, a variety of state bank notes circulating at varying rates of discount, and a sprink ling of legal tender paper put out by the various state governments. Part of the stock in the Bank of Prussia was owned by the Prussian gOvernment. This was bought by the German Empire and resold to private subscribers. The Imperial Bank is pri vately owned.
In 1873, Germany adopted the gold standard. The successful passing to the gold standard and the remarkable success of the Imperial Bank at the very beginning can be largely attributed to the $1,000, 000,000 indemnity which Germany received after the Franco-Prussian War. About one-quarter of this was paid in gold, and a great part of the remainder consisted of exchange on London which was payable in gold.
14. Government bank is controlled by the government thru an official board of curators composed of the Chancellor of the Empire, who is president, and four other members, one named by the Emperor and three by the Federal Council. The ad ministrative authority is vested in a board of directors who are selected for life by the Emperor from a list submitted by the Federal Council. The officers of the bank, tho paid from the funds of the bank, are considered government employes and are forbidden to hold stock. The influence of private owners is ex erted thru a central commission of fifteen members, elected by the shareholders from among themselves. This commission directs many of the details of the bank so long as their course does not conflict with the general policy of those above them. Three of the commission are charged with the daily supervision of the bank's affairs and they may sit at all meetings of the directorate with consulting powers.
The profits of the Reichsbank are divided as fol lows: three and one-half per cent on the capital stock to the shareholders, ten per cent of the excess to sur plus, three-fourths of the remainder to the govern ment and the other fourth to the shareholders.
15. Note note issue of the Imperial Bank is modelled somewhat on the English Bank Act of 1844. When the Act of 1875 was passed, there
were thirty-two independent banks of issue in the Empire. They were allowed to issue in the aggre gate, 135,000,000 marks and the Reichsbank 250, 000,000 marks of notes uncovered by gold. It was provided that if any of the independent banks should retire its circulation, its right of issue should pass to the Reichsbank. By 1908, all but four of the banks had given up the right of issue, and they had an au thorized circulation of only 68,771,000 marks. The uncovered issue of Reichsbank had at that time risen to nearly 473,000,000 marks, which is called the "con tingent circulation." Imperial Bank notes are legal tender and they are issued in denominations as low as 20 marks ($5) .
The German law, like that of England, requires that for all issues above the contingent circulation the bank shall hold an equal amount of cash in its reserve. The fund is not sequestered and held against notes alone as in the case of the Bank of England, nor is the rule inflexible like the English law. The bank may exceed the limit of cash reserve by paying a tax of five per cent on the surplus issue, provided it main tains a reserve equal to one-third of its circulation. The other two-thirds must be covered by three-name paper having not over ninety days to run.
The management of the bank has at times lent notes under this provision at a rate of interest lower than the tax rate, thus imposing a loss on the bank for the good of the community. While a tax on circulation is not generally considered as good as the tax on deficiency in reserves, this provision gives to the note issue a certain degree of elasticity which makes it superior to that of the Bank of England.
16. Giro of the most important services rendered by the Imperial Bank is the transfer of deposits on current account. The Reichsbank has hundreds of branches scattered thruout the Empire. By the Giro system a person in any town where there is a branch of the bank, wishing to make a payment to some one in another town, may pay the amount into the local branch of the bank and it will be credited the following day to the person in whose favor it is de posited. No charge is made for the transfer and the person who makes the payment need not have an ac count with the bank. The system results in an enor mous economy in the use of specie. It may be com pared in some respects to the American clearing house and it operates somewhat as a substitute for our check system.