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Form F. IL 131


Office Correspondence

Chairman Eccles


Lauchlin Currle


March 11. 1939.

Movements of Time and Demand

In accordance with your request, I am attaching two charts.
One will enable you to compare the absolute movements in the two tyr>es
of deposits* The other indicates more clearly the relative percentage movements*
1. You will observe that time deposits in member banks grew
more rapidly than in mutual savings banks. I think the explanation is
partly that mutual savings banks are fairly heavily concentrated in
New England* and partly that there are conveniences in carrying both
your savings and your checking accounts in the same bank.
2. A point of more significance than the relative rate of
growth is the nature of the movement. Time deposits in both savings
banks and member banks outside New York City exhibit far greater evenness in their movements than is true of demand deposits** This suggests
that they are influenced mainly by the savings habitB of depositors
than by such factors as gold flows and Federal Reserve policy. Time
deposits in New York City exhibited more erratic movements and were
evidently influenced more by shifts in corporate balances. They were,
however, relatively small.
3. If the growth in time deposits in the Twenties represented
funds that would otherwise not have been invested and would have remained
idle, this should show up in an increase in the income velocity of the
remaining deposits subject to cash plus currency. Actually the income
velocity showed no trend from 1923 to 1928« It increased in 1929 but
this was a year in which time deposits increased least I
Another way of putting this is to point out that if money
is taken to include time deposits, then from 1923 to 1929 there was a
steady decline in the income velocity of money, so defined. The relatively greater expansion of "money* (so defined) in the Twenties was
completely offset by a decline in the income velocity of such "money*.

* The apparent somewhat greater irregularity in the movement of time
deposits in member banks than in savings banks is mainly owing to the
fact that the former are plotted for call dates while the latter are
for June 30 only.