14. Expedients of the responsi bility fell largely upon the Secretary of the Treas ury. He was given specific discretionary powers in enforcing the laws, and from these powers certain ex pedients were devised and used from time to time, tho not necessarily concurrently under certain condi tions. They may be summarized as follows: 1. The Secretary induced national banks in one way or another to take out notes in advance of their actual needs.
2. He anticipated the payment of interest on United States bonds in order to put cash into circulation.
3. He made purchases of United States bonds for the same purpose.
4. He made a ruling that the banks need not keep a re serve against government deposits. The New York Clear ing House Association, however, continued to enforce its reserve requirements against members, so that the effect of the ruling was nullified so far as it concerned New York banks.
5. He allowed the government depository banks to substi tute county, city, state, and other bonds, including, it is understood, some railway bonds, in the place of United States bonds as security for public deposits. This privilege was extended only to such banks as would agree to use the United States bonds thus released for taking out additional circulation.
6. He warned the depository banks to abstain from using their funds in Wall Street as a basis for call loans to speculators.
7. He entered into the foreign exchange market to assist the gold importing movement, by giving the banks tempo rary deposits of gold equal to the amount they engaged for import from abroad. This removed the disadvantage under which our importing bankers labored—that of losing interest during the time the gold was in transit—and it stimulated gold imports to a considerable extent.
15. Maintenance of the gold standard.—The Treasury of the United States has assumed the re sponsibility of maintaining the gold standard. Na tional bank notes and Federal Reserve notes may be redeemed in lawful money by the banks if they choose. The Act of 1900 pledges the Treasury to maintain the parity of all kinds of money with gold and requires that greenbacks and Treasury notes of 1890 be redeemed in gold on demand. The only way to maintain the parity of other forms of money is to redeem in gold. The Treasury, therefore, has the burden thrust upon it of redeeming, in gold, bank notes, silver and subsidiary coins, silver certificates, and gold certificates. The maintenance of the gold standard has depended entirely upon the solvency of the Federal Treasury. When gold in large quanti
ties is needed for exportation, the natural way to get it is to present bank notes and other kinds of current money to the Treasury or one of the sub-treasuries for gold. This may result in acute embarrassment to the Treasury. Following the panic of 1893 green backs flowed into the Treasury in enormous amounts and the gold supply was drawn down to a danger ously low point.
Against gold certificates the Treasury holds an equal amount of gold so that no problem is presented in this connection. But it is likewise liable for the redemption of some $346,000,000 of greenbacks, $565,000,000 of silver, the national bank notes and Federal Reserve notes and theoretically for $170, 000,000 of subsidiary coins. Against these liabilities the Treasury holds a gold reserve of only $150,000.
000. An excessive issue of notes is likely to bring pressure on the Treasury for gold to be exported. The Treasury is not in the banking business and it can obtain gold only by selling bonds. The fact that bonds must be sold under such conditions weakens the credit of the government and they must be sold at a sacrifice.
No other government imposes such a burden upon its financial department. In the great European countries practically all the credit money in circula tion consists of bank notes, for which the banks alone are liable. This is true in Canada also. The Cana dian Government does issue Dominion notes, but the great majority of those in circulation are in either one or two dollar denominations, and are thus al ways needed in the country as change money. Most of the Dominion notes are in such large denomina tions that they are of use only as bank reserves. Moreover, they are backed by heavy gold reserves and are practically gold certificates.
16. Lack of control over the money to 1913, there was no single agency in the United States which could control the money market. The result was that interest rates rose to prohibitive fig ures in times of stringency. Call rates have gone higher than 100 per cent. Many banks had to stop loaning altogether, because their own resources were exhausted and there was no agency to which they could go and rediscount commercial paper for cash. Business men often could not secure loans at any 'rate. Heavy liquidation, bankruptcy and panic were the result.