FIG. 13A. MONTHLY REPORT OF FEDERAL RESERVE BANK OR BRANCH TO FEDERAL RESERVE BOARD ON PAPER CURRENCY

BALANCE ON HAND LAST REPORT

ISSUED DURING MONTH:

BALANCE ON HAND.

ISSUES

signed by the governor of the Board and attested by one of the secretarial officers and is then transmitted to the Comptroller of the Currency. With the Comptroller this form constitutes the authority for issue, and he is now in the position of having been requested or directed to transmit needed currency. That there may be no doubt that the call has been made by and in behalf of a specified bank, it is customary for the secretary's office of the Federal Reserve Board to transmit with the request made by the Federal reserve agent as already noted, a definite shipping order. The Comptroller thus receives two forms as a basis for the issue of the notes.

3. The Comptroller of the Currency, in making the shipment as requested, of course finds it necessary to keep a careful account of his vault stock in order that there may constantly be a balanced relationship between the amount placed in the vault, and the amount shipped combined with that remaining in vault. In connection with Federal reserve issues, the Comptroller of the Currency makes out the forms shown in Figures 10, 11, and 12. Their various uses will be clear from an examination of the forms themselves.

4. After shipment has been made and vault holdings carefully checked up in the way already described, and after the Comptroller has kept in balance the amount of new notes received through the process of manufacture, and the amount of those already manufactured and disposed of by shipments from day to day, the function of the Comptroller of the Currency is ended. In addition, however, he must also allow for the problem of accounting for the unfit notes which are received back from the several banks, or from other sources, and sent to the Treasury Department for redemption; and he must maintain a careful vault account of fit notes which have come in for redemption and which, after being redeemed, have been placed in the vault account of the reserve bank ready for reshipment when required. The Federal reserve banks and agents must also make monthly report to the Reserve Board of changes in currency received and issued, and amounts on hand. The bookkeeping forms designed for this purpose are reproduced in Figure 13 A and B.

Denominations of Note Currency

Having surveyed the general status and issue process for each of the three classes of bank currency now in existence, it will be desirable to treat certain other features from a comparative point of view, paying particular attention, however, to Federal reserve notes as the most important of the three groups. Under the original Federal Reserve Act the notes authorized were to be in denominations not below $5 and the actual notes issued were for $5, $10, $20, $50, and $100. The theory

in limiting the notes to large denominations was found in the belief that below an easily reached point paper currency, especially in the United States, tends to remain in circulation and really becomes in fact what it is sometimes termed in theory, "a substitute for money." Most authorities on the subject agree that it is not desirable to have bank notes outstanding unless they are regularly presented for redemption at a rate sufficient to bring about their fairly rapid conversion, and hence to afford a competent test of the power of the issuer thus to convert them. In all well prepared banking laws, effort is made to secure this prompt redemption, and one method looking to that end is the limitation of the notes to reasonably high denominations. This idea has been fairly well maintained throughout the history of the Act, the denominations subsequently authorized by the amendment of September 26, 1918, being those of $500, $1,000, $5,000, and $10,000. In the Federal Reserve System, as in all other banking currency systems, the greater length of life of notes is found among the lower denominations. Conversely, the shortest length of life is found (with some exceptions) in the higher denominations.

A different point of view was adopted in the Act with respect to the so-called Federal reserve bank notes. These, as already seen, are protected by Government bonds, just as is the case with national bank notes, and the issuer of the notes alone differs. In a certain sense, therefore, the argument in favor of keeping the notes in higher denominations is not so strong as in the case of those which are not thus protected.

The denominations authorized for national bank notes are $1, $2, $5, $10, $20, $50, $100, $500, and $1,000. Until October 5, 1917, $5 was the smallest denomination permitted, when the only limitation provided was that no bank might have in circulation at any one time more than $25,000 in $1 and $2 notes. However, up to the present time, no plate designs have been approved for these two lower denominations, hence no such notes have thus far been printed. More important in its practical influence was the Pittman Act, of April 23, 1918, providing for the issue of Federal reserve bank notes in place of silver dollars and hence silver certificates retired. This provided a large currency issue which reached its maximum early in 1920, with an outstanding amount of $270,500,000 largely in denominations of $1 and $2. Experience has shown that these notes are in fact practically a money substitute and that they remain out almost as long as the paper of which they are male is usable. It is, therefore, the policy at the present time not to issue them freely, but to regard them as an exceptional kind of issue now that the silver repurchase policy of the Government has restored silver certificates to circulation.