290 



FINANCES OF THE UNITED STATES. 



ports. The farther issue of these certificates 

 was suspended by an order of the late Secre- 

 tary Sherman, in December, 1878, just before 

 the resumption of specie payments, and, though 

 considerable demand has existed for them, the 

 order for their discontinuance has not been 

 revoked. The objection to their issue seems 

 to be that the banks, in such an event, would 

 use them for a reserve, thus forcing the Gov- 

 ernment to store the coin for their redemption. 

 The Government is required by law to issue 

 silver certificates upon deposit of silver dollars, 

 and to hold the deposit or its equivalent, and 

 if the policy is objectionable in one case it cer- 

 tainly is in the other. There seems to be, 

 however, some sentiment in favor of the Gov- 

 ernment's holding coin and issuing certificates 

 thereon for circulation, and, while a paper cur- 

 rency thus issued is safe for the holders, such 

 a line of policy is contrary to the long-estab- 

 lished usages of the Government, and creates 

 a central money power with which, perhaps, 

 no European government would trust its ex- 

 ecutive officers. 



In other ways the Government is also doing 

 a business strikingly analogous to that of bank- 

 ing. To redeem the legal-tender notes of the 

 United States, after January 1, 1879, upon their 

 presentation at the office of the Assistant Treas- 

 urer, at New York, as required by the re- 

 sumption act of 1875, the Treasury accumu- 

 lated $95,500,000 in gold coin by the sale of 

 bonds, and held an additional amount, accruing 

 from surplus revenues, to meet any probable de- 

 mand for the redemption of the notes, of which 

 there were outstanding $346,000,000. The 

 law fixed no limit on the fund which should be 

 held for this purpose, but Mr. Sherman, who 

 was Secretary of the Treasury when the act 

 went into effect, decided that, after setting 

 aside of the cash in the Treasury enough to 

 meet in full the amounts due public disbursing 

 officers, and the funds held by the Treasury 

 in the nature of trusts, and an amount sufficient 

 to meet all matured bonded debt and interest, 

 there should be held about $138,000,000 to 

 meet the redemption of the outstanding notes, 

 being about 40 per cent of their amount, and 

 this policy has not been materially changed by 

 his successors. It is argued that, as there is 

 no probability that demand for payment of all 

 the trust funds, matured bonds, and interest 

 will be made at once, the reserve might be con- 

 siderably reduced without detriment or dan- 

 ger. The legal-tender notes are asserted to 

 be no more of a demand obligation than are 

 matured bonds, and the other items against 

 which a reserve of 100 per cent has been set 

 aside. Reducing the reserve on the other 

 demand obligations to 40 per cent of their 

 amount, and the cash in the Treasury could be 

 reduced nearly $64,000,000, or, excluding the 

 $26,000,000 of fractional silver held by the 

 Treasury and unavailable in making payments, 

 about $38,000,000. It is questionable, how- 

 ever, if any proposition to reduce the reserve 



will find much favor in Congress. There is a 

 strong feeling throughout the country that the 

 policy of the Government in banking on its 

 own credit is one to be restricted, not ex- 

 panded, and that its entire extinction should 

 be kept in view, that the Government may, as 

 soon as practicable, be divorced from all finan- 

 cial operations not necessary to the conduct of 

 its ordinary business. 



During the year ending November 1, 1881, 

 there was redeemed or purchased of 6 per cent 

 bonds $39, 644,400; of 5 per cents, $68,146,150; 

 of 6s and 5s, continued at 3 per cent, as here- 

 inafter explained, $16,179,100 an aggregate of 

 $123,969,650, making an annual saving here- 

 after in interest of $11,374,814.50. In addi- 

 tion to these transactions the Secretary of the 

 Treasury reduced the annual interest to 3 per 

 cent on $178,055,150 of 6 per cents and $401,- 

 504,900 of 5 per cents, without specific author- 

 ity of law, the bill for refunding the bonds in 

 question, which passed both Houses of Congress, 

 having been vetoed by the President. As the 

 vetoed bill contained provisions believed to be 

 somewhat inimical to the national banks, the 

 character of the legislation proposed becomes of 

 importance as indicating the plan and strength 

 of the attack likely soon to be made upon the 

 existence of such banks as the time approaches 

 for the renewal by Congress of their charters. 

 Under the provisions of the original banking 

 acts of February 25, 1863, and June 3, 1864, 

 national banks were authorized to reduce their 

 circulation and to withdraw their security 

 bonds only upon surrendering their notes to 

 the Comptroller of the Currency for cancella- 

 tion, the amount of security bonds, however, 

 not to be reduced to less than $30,000, nor one 

 third of the capital stock paid in. Any bank, 

 however, going into liquidation for the pur- 

 pose of winding up its business, could with- 

 draw its security bonds upon depositing with 

 the Treasurer of the United States legal-ten- 

 der notes sufficient to redeem all its circulation. 

 As the notes of the national banks circulated 

 without restriction in all parts of the country, 

 no sudden withdrawal of them from circulation, 

 in the methods provided, was possible. Subse- 

 quently, under the provisions of the fourth sec- 

 tion of the act of June 20, 1874, any national 

 bank desiring to withdraw its circulating notes, 

 in whole or in part, might, upon deposit of law- 

 ful money with the Treasurer of the United 

 States in sums of not less than $9,000, take up 

 its security bonds, the amount of such bonds 

 or deposit, however, not to be reduced below 

 $50,000. 



Under the provisions of this section a bank 

 could in a day lock up in the Treasury lawful 

 money to a large proportion of its circulating 

 notes. Thus a bank with $250,000 in circula- 

 tion could place in the Treasury $210,000 in 

 lawful money and withdraw all but $50,000 of 

 its security bonds, leaving to the Treasurer of 

 the United States the duty of redeeming its 

 notes to the extent of the deposit, whenever 



