The Timaru Herald MONDAY, MAY 25, 1908. AMERICAN CURRENCY.

Timaru Herald, Volume XIIC, Issue 13603, 25 May 1908, Page 4

The Timaru Herald MONDAY, MAY 25, 1908. AMERICAN CURRENCY.

Sir Joseph.Ward to the contrary notwithstanding, the vagaries of the wool market have taught New Zealand by b.tter experience that the financial catastrophe which overtook ~> American Republic last vear has had a very direct effect * upon'the fortunes of this country.; The/H " slump " in the States was due primarily to over-trading and over-speculation, :Wt it was aggravated by the 1 unwieldy and eomplicated nature of the. banking; system in operation, 'the reform of which therefore becomes a matter of considerable interest to other " countries, including, as we have said,, even such a remote and comparatively insignificant paH of the-, globe as. our -own colony. We have* practical, as well as a purely academic interest, in the which, as.a cable message in ' our / last issue' reported, are being "taken by the Senate v to place the American currency' on a more stable and satisfactory basis:- The s banking system of the United States differs widely from that in operation in most other parts of . the ; wdriaf ' ;i Tn s Eurdp>, v type of 'riioderh; 1 banking' : business /consists bV" large JnetitutVoris'"with:' .numerous bran- • ches 'throughout the 1 tfcntntry, 3 the-not* issue being .either. in the hands, of "these institutions or in the hands of one central to- statutory regulation. But in Amerfov the so-called : " National Banks " have no branches, and each' c% o'f ,: town has one'or more: banks of its

own. The. notes, issued by them' are secured principally by Government "bonds deposited Avith the United' Stated- Government— a" plan which dates back to th» Civil War, when it was adopted to assist the Federal'Governmeht' , ih^ t 'di v sprfsihg of its bonds. Notes not based on bonds are secured on lawful money, but this only, to a. small exhent in comparison; with the amount secured, on Government bonds. The total face-value of "National Bank" notes issued in the United States at the end of last December was about £138,000,000 sterling, of which £128,700,000 wan based on United States bonds. At the end of 1900 (he total -issued was £68,000,000,' and at the end of 1892 ib was £35,000,000. But while these figures show a great extension, the system has proved inelastic in meeting the fluctuate ing requirements of business at different seasons of the year, and in coping' with

special emergencies in times of pressure, one difficulty arising out of the necessity of lodging Government bonds ■when a bank desires to increase its circulation, bonds not being always readily obtainable. To get. over these difficulties, tha New York Chamber of Commerce pub forward a proposal for the establishment of a. central bank of issue, with a capital of £IO,COO,OCO or more, to LoTd a" large gold reserve, and to ;i- as banker for the Government. The capital, ib -was proposed, should be held by the banks and, the Government, while the management was to be in Government hands. This proposal, however, did not. receive much support, the Senate, as we beard oQ Saturday, preferring the suggestions em* bodied in t.he Bill introduced by M$

Nelson Aldrich. chairman of the Finance Committer. This provide* Eor an emergency currency secured by bonds of any State of the Union, city or county bomb, .or first mortgage- railway bonds of any railroad company which ha* paid dividends of at kast 4 per e<?nt. annually on ite entire capital stock for not less- than B*e years. Whether an emergency i«nie is to" be allowed witt depend in the first place- upon tho Comptroller o£ Cnrreney who, if satisfied that -business conditions demand such additional circulation and the condition ot the "National Ba'nk" applying for >t warrants the is-<ne. may approve the application of the bank. The ailditional notes are to be svtbjnt. to taxation at the rate of 6 per cent, p-.-r annum. and the total allowed t»> be i-.rmed us to be limited to about £100.000.000 Merting. The Bill is open to the objection* that it extends the system 'of 'securing notes upon bonds, that it. plates ureal discretionary power in the hand?' of a t.overnrnent official, that 'under certain circumstances it might be used to enable raitway companies to disp»ii:- of their bonds, and finally ' that in any ca->e it can -beonly a palliative and not. a cure for th* weaknesses of t>he' present system.' ' Tt remains to be seen whether these imj>erlections can be eliminate*! by the special parliamentary committee to which the Bill has been referred.