Convertible Government Notes may be merely representatives of coin, as is the case of the silver and gold certificates of the United States, in which corresponding amounts of coin are kept in the vaults of the Treasury, or they may be only partially covered by coin, as in the case of the greenbacks of the United States, in which a reserve of from $100,0000,000 to $150, 000,000 of gold coin is kept for the redemption of $346,000,000 and some thousands of dollars of notes.
Bank Currency may be in the form of notes or of what is called deposit currency. Bank notes are promises of banks to pay to bearer on demand issued in denominations suitable for use as hand-to-hand money. They are usually convertible but sometimes inconvertible, in which case in essentials they resemble incon vertible government notes. Since the circulation of bank notes depends primarily upon the credit of the bank which issues them, many devices have been employed to secure their safety. Among these the most noteworthy are the as sets, special security and safety fund devices. According to the assets system noteholders are given a first lien upon all the assets of the bank and the quantity issued is usually limited to a percentage of the assets. According to the special security system the bank of issue is required to purchase certain specified such as government bonds, real estate mort gages or commercial paper, and to mortgage them to the noteholders as security. According to the safety fund system a special fund of cash or securities or contributed pro rata by all the issuing banks in the system, is set aside, usually under government control and super vision, opt of which the notes of any failed bank may be paid. Two or more of these systems may be combined.
Deposit Currency is operated in the follow ing manner: The customers of a bank trade cash, checks and drafts on other banks and interest-bearing promissory notes or bills of exchange due in the future for credit balances on a so-called checking account. By the use of orders upon the bank called checks they may have a part or all of their balances transferred to the credit of other customers of the bank or to that of customers of another bank, or they may acquire so-called drafts on banks in other places which enable them to transfer their credit balances to those places for similar use. By similar arrangements between banks this machinery operates in such a way that ex changes between people in the same town, in different towns and even in different countries are affected by the process of debiting and crediting these checking accounts. The greater part of the exchanges of the commercial world are now-a-days effected in this way. Deposit currency and bank notes based on general assets or on commercial paper possess the especial m6rit of elasticity, that is, they automatically fluctuate in volume in accordance with the needs of commerce. This is due to the fact that they are created by the sale of notes or bills of exchange representing needs for currency and disappear by return to the banks of issue when said notes or bills of exchange mature. Consult Dodd, 'History of Money in the British Empire and in the United States' (London 1911) 'Reform of the Currency' (pub. by the Acad: emy of Political Science, New York 1911) ; Hepburn, A. B., 'History of Coinage and Cur rency in the United States' (ib. 1903) • Sumner, (A History of American Currency' (ib. 1878).