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. 131 iff* f~* 1 'trice C o r r e s p o n d e n c e ^^ From FEDERAL RESERVE FEDERAL RESERVE B0ARD - Governor Eccles r w October 22,1935 Subject: Mr» Smead In looking over the tentative draft of the program for the Governors1 Conference I note the following topic: w The replacement of old form Federal Reserve notes•" In my memorandum of July 24 I advised you that I understood informally that Mr. Coolidge had recently raised the question as to whether the Federal Reserve banks should continue to pay out Federal Reserve notes of the 1928 series which bear on their face the legend Redeemable in gold on demand at the United States Treasury, or in gold or lawful money at any Federal Reserve bank"* Mr, Broughton now advises me that the Treasury Department has no appropriation with which to pay for the printing of Federal Reserve notes of the 1934 series to take the place of the existing stock of Federal Reserve notes of the 1928 series. Aside from notes of the 1928 series in actual circulation and approximately $295*000,000 held by the Federal Reserve banks, the Federal Reserve agents hold about $2,605,000,000 of unissued notes of the 1928 series, the Bureau of Engraving and Printing has on hand $2,908,000,000 of such notes and, in addition, has approximately $253,000,000 of such notes in process of printing• This makes a total of $5,767,000,000 of notes of the 1928 series in the possession of the Bureau of Engraving and Printing, the Federal Reserve agents, and in process of printing• The aggregate number of sheets involved is 19,561,000, which, at $86 per thousand, would cost approximately $1,682,000 to replace. Recently the Federal Reserve Agent at New York has been asking Governor Eccles - #2 us to ship him notes of the 1934- series notwithstanding the fact he has on hand at the Bureau of Engraving and Printing a considerable volume of notes of the 1928 series• Unless the Treasury is willing to ask Congress for an appropriation with which to replace the existing stock of Federal Reserve notes of the 1928 series with new notes it seems to me that the System should pay out the old notes exclusively until the existing supply is exhausted in order that such notes will disappear from circulation at as early a date as practicable* Fbrn^No. 131 bnrL Office Correspondence FEDERAL RESERVE B0ARD nafft November 5,1935 r Chairman Eccles From Subject: Mr • Smead s po 16—852 At the conference of Governors of the Federal Reserve banks, held in Washington on October 24, the policy to be pursued in future with respect to paying out new Federal Reserve notes of the 1928 series, which bear on their face the "Redeemable in gold" clause, was discussed in detail, and, while there was some diversity of opinion, the consensus seemed to be that so far as practicable the Federal Reserve banks should refrain from paying out new notes bearing the clause "Redeemable in gold". The Governors expressed the opinion, however, that the initiative in this matter should come from the Board or from the Secretary of the Treasury, particularly as (a) Paragraph 9 of Section 16 of the Federal Reserve Act provides that Federal Reserve notes "shall be in form and tenor as directed ty the Secretary of the Treasury", and (b) Federal Reserve notes are issued to the Federal Reserve banks ty the Federal Reserve agents who are representatives of the Board of Governors of the Federal Reserve System* All of the Governors stated that if it is decided not to pay out notes of the 1928 series when notes of the 1934 series are available the cost of replacing the existing stock of notes of the 1928 series with notes of the 1934 series should be borne ty the Treasury Department, since r such notes would be destroyed in accordance with a policy adopted and made effective ty the Federal Government rather than ty the Board of Governors of the Federal Reserve System or the Federal Reserve banks • Some doubt was expressed at the conference with respect to a bankfs legal right to absorb Chairman Eccles - #2, the expense incident to the destruction of the stock of 1928 series notes, but there would seem to be no question as to such authority, provided the absorption of the expense was authorized ty the Board of Governors of the Federal Reserve Stystenu In any case, the question is not of paramount importance at this time, and will not become so unless, and until, Congress has refused to authorize the Treasury to substitute notes of the 1934- series for notes of the 1928 series at the Government's expense* It was the understanding at the conference that the Board would advise the Secretary of the Treasury of the views of the Governors with respect to such substitution, also that the Treasury proposes to ask Congress, at its next session, for an appropriation with which to defray the cost of replacing the stock of unissued Federal Reserve notes of the 1928 series with notes of the 1934- series« If the initiative in discontinuing the paying out of Federal Reserve notes bearing the gold clause comes from the Secretary of the Treasury he will be in a better position to obtain an appropriation from Congress with which to print new notes to replace notes with the gold clause than he would be if the initiative were taken ty the Board or ty the Federal Reserve Ijanks. Accordingly, if the Treasury wishes to have the further issuance of notes bearing the gold clause discontinued and is willing to ask Congress for an appropriation with which to replace the stock of the 1928 series Federal Reserve notes, it is suggested that the Secretary of the Treasury issue an order to the Director of the Bureau of Engraving and Printing instructing him not to print any more Federal Reserve notes of the 1928 series and not to complete the printing of any such notes that are now in process of printing* It is also suggested that the Secretary Chairman Eccles - #3* advise the Bureau of Engraving and Printing that he is requesting the Board of Governors of the Federal Reserve System not to ask for the shipment of Federal Reserve notes of the 1928 series to any Federal Reserve Agent when notes of the 1934 series are available or can be made available to meet current requirements, and that he direct the Bureau of Engraving and Printing to cooperate with the Board to the fullest extent in making available a sufficient stock of the 1934- series Federal Reserve not^s to take care of prospective normal current requirements during the remainder of the current fiscal year* In his letter to the Board of Governors of the Federal Reserve System the Secretary should request the Board hot to ask for the shipment of any 1928 series Federal Reserve notes from the Bureau of Engraving and Printing to any Federal Reserve Agent when 1934- series notes are available, and to instruct the Federal Reserve Agents not to issue any notes of the 1928 series to the Federal Reserve banks when notes of the 1934 series are available* It is also suggested that the Secretary of the Treasury include in his letter to the Board a statement to the effect that he will ask Congress at its next session for an appropriation with which to defray the cost of replacing the existing supply of unissued 1928 series Federal Reserve notes with a corresponding amount of notes of the 1934 series* Suggested drafts of the order to the Bureau of Engraving and Printing and of the letter to the Board are attached* The Director of the Bureau of Engraving and Printing has been asked informally to complete the preparation of plates for printing all denominations of 1934 series Federal Reserve notes for each Federal Reserve hank* He has also been advised that the Board will probably place an order Chairman Eccles - #4promptly for the printing of such additional Federal Reserve notes of the 1934- series as may be necessary to take care of current requirements. Such an order is now in the course of preparation, but before placing the order it is proposed to submit the proposed printing schedule to the Federal Reserve Agents for their recommendations. It is not contemplated that printings of 1934- series notes will be made at this time in sufficient quantity to meet any emergency demands that may develop as to do so would seriously interfere with the production program of the Bureau• The stock of unissued Federal Reserve notes of the 1928 series on hand at the end of Qttober at the Bureau of Engraving and Printing and in the vaults of the Federal Reserve, Agents amounted to $4,74.2,970,000 and, in addition, the Bureau has on hand $322,950,000 of notes of the 1928 series on which only the numbers and seals are needed to complete them. The printing cost of replacing this $5*066,000,000 of notes would amount to approximately $1,600,000 and the cost of shipping new notes to replace the existing stock of unissued Federal Reserve notes now held "by the Federal Reserve Agents would amount to approximately $34-0,000 additional, making the total cost of replacing the existing stock of notes at the place where they are held about $1,940,000, exclusive of the cost of returning the old series notes to Washington for destruction. A table is attached showing ty denominations the amount of Federal Reserve notes of the 1934 series on hand at the Bureau of Engraving and Printing, the amount of such notes in process of printing, and the amount already shipped to the Federal Reserve Agents, A table is also attached showing the amount of Federal Reserve notes of the 1928 series ty denominations held at the Bureau of Engraving and Printing and fcy the Federal Reserve Agents. Attachments. VJt H I 3 0> i 00 & VII CD o> O> £ m CD CD vD VJt Si s i * Q O ^ *• ?O Vlt ia TO I i H o o 4 ss •• Cft Q o O C3 H o CO CQ H CQ vn CQ 8 5 ^ *• o ^ ^ o Q \D Ut < U) Vi*J 8 (ft CD y* CO ^ li oa & S aso Bf M FEDERAL RESERVE NOTES, 1934 SERIES, PRINTED, OR IN PROCESS OF PRINTING OCTOBER 31, 1935 (In thousands of dollars) 100»s 1000»s Total 20*s 50* s 100,080 416,830 62,040 45,960 20,440 90,480 43,200 34,800 27,000 15,060 17,280 40,920 50,880 13,000 157,920 23,680 57,840 10,080 28,030 22,320 Minneapolis Kansas City Dallas San Francisco 15,840 27,600 26,330 13,200 13,480 — 5,820 4,630 44,280 Total 156,240 974,200 338,920 27,000 55,200 13,800 1,565,360 In process 45,360 212,400 190,840 25,800 54,000 2,400 530,800 Bureau Vault 89,780 423,600 102,080 11*400 626,360 Shipped to F.R.Agents 21,100 338,200 46,000 Boston New York 5»s 10»s 34,020 22,620 Cleveland Richmond Atlanta Chicago St .Louis 55,200 — — 1,200 13,800 108,720 51,940 203,280 91,920 56,640 45,360 5,820 48,960 1,200 Ho notes of the $500, $5000, and $10,000 denominations have been printed. 120,520 623,580 127,860 80,760 407,700 F o r m N o H 131 Office Correspondence Governor Eccles From , FEDERAL RESERVE BOARD Dafrp November 6. ^ Subject:. Mr* Smead */fi 1/ In accordance with your request I am handing you herewith a memorandton with respect to the discontinuance by the Federal Reserve banks of paying out new Federal Reserve notes bearing the gold clause as soon as an adequate supply of notes without that clause can be made available* There is also attached a memoranda which you may wish to hand to the Secretary of the Treasury together with a draft of an order to the Bureau of Engraving and Printing directing that further printings of notes bearing the gold clause be discontinued, and of a letter to be addressed to the Board by the Secretary requesting the Board to instruct the Federal Reserve agents not to issue to the Federal Reserve banks any Federal Reserve notes bearing the gold clause when Federal Reserve notes without such clause are available* Attachments. Memorandum to the Sooretary of the Tre*iury A few days before the Governors1 Confereno© last month, you told mo that the Treasury Depertraent would like to hare the Fedoral teseanre banks discontinue paying out any mor* now Foderal Reserve notes of the 1928 series which boar on their faoO the clause "Redeom* able in gold on demand at the United States Treasury, or in gold or lawful money at tiny Federal Reserve bank* and asked m to discuss the question with the Governors at their conference with the view of finding out whether they would bo willing to oooperate with the Department In this matter* The question of the discontinuance of paying out notes of the 1928 series was discussed in detail by the Governors at their conference and they expressed an entire willingness to cooperate with the Treasury in such program at might be adopted* They thought, however, that the initiative In this matter should bo taken by the Secretary of the Treasury for two reasons, (1) paragraph 9 of Section 16 of the Federal Reserve Aot provides that Federal Reserve notes "shall bo in form and tenor as directed by the Secretary of the Treasury*, and (2) the need for substituting notes without the gold clause for those bearing the gold clause arises out of action taken by the administration and not beoause of any action taken by the Federal Reserve System. The Governors were decidedly of the opinion that If the Treasury wishes to discontinue the paying out of notes of the • 2 - 1928 series It should replace tlio stock of such notes with notes of the If84 series at Its expense* I Honour in this view as It so«»i to me that If this Is done It should be regarded as an expense inold ent to the deoision of the Department not to pay out any further obligations which are expressly stated to be redeemable in gold. It Is understood that you intend to ask Congress for an ap* propriation with whioh to defray the oost of replacing the stook of Federal Reserre notes bearing the gold clause with Federal Reserre notes without that olause and we htve prepared, for your signature, a draft of an order to the Direetor of the Bureau of Engraving and Printing and of a letter to the Board of Governors of the Federal Reserve Systea for use in ease you should deeide to oarry out the proposed program at tills tins* X am advised that wo now have on hand about five billions of Federal Reserve notes whioh It would oost approximately $1,600,000 to replace and that about $1,900,000,000 of suoh notes are In the vaults of the Federal Reserve agents, the shipping oosts from Washington oil whioh amounted to about 5340,000. The oost of replaoing these notes at the plaoe where they are looated and of their do* struotion, as well at the oost of returning to Washington notes of the 1923 series hold by the Federal Reserve agents, should be borne by tho froasury* Form No. 131 Office Correspondence Chairman Eccles FEDERAL RESERVE B5ARD n a ^ November 6.1935 Subject:. Mr. Brobyn of Counsel^ Office of the Treasury Department called at my office this afternoon for information which would enable him to compile certain statistics with reference to the cost of substituting Federal Reserve notes of the 1934 series for Federal Reserve notes of the 1928 series which carry the redeemable in gold clause. Mr. Brobyn stated that he wished to compile figures to show the cost of replacing not only the existing stock of the unissued notes but all 1928 series notes which are now in circulation, the thought being that the Treasury would print at its expense an amount of notes which would be sufficient to replace notes now in circulation as well as the existing stock of new notes. While I gave Mr. Brobyn information which would enable him to compute such cost with reasonable accuracy I told him that it was not my understanding that the program called for withdrawing used Federal Reserve notes from circulation until they became worn out in use. Inasmuch as it will be many years before all Federal Reserve notes bearing the redeemable in gold clasue are entirely out of circulation, I do not see the necessity of going to the expense of withdrawing from circulation and destroying Federal Reserve notes of the 1928 series before they become unfit for further circulation. In this connection you will be interested in knowing that on October 2U our figures show that there were still over 195,000,000 of Federal Reserve notes of the old (large) size in circulation.
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