Full text of Mimeograph Letters and Statements of the Board : General Open Market Operations., Number 439, Volume 2, Page 730

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439

Circular Ho.__
Series of 1915.

F E D E R A L

R E S E R V E

B O A R D .

November___ , 1915,
GENERAL OPEN MARKET OPERATIONS.

The Federal Reserve Act in Section 14, under the head "Open Mar­
ket Operations," provides that:
"Any Federal reserve bank may, under the rules and regulations
prescribed by the Federal Reserve Board, purchase and sell in the
open market, at home or abroad, either from or to domestic or for­
eign banks, firms,corporations, or individuals, cable transfers,
and bankers* acceptances and bills of exchange of the kinds and
maturities by this Act made eligible for rediscount, with or with*
out the endorsement of a member bank."
The Act also provides that every Federal reserve bank shall have
power;
"To deal in gold coin and bullion at home or abroad * * * ."
"To buy and sell, at home or abroad, bonds and notes of the
United States, and bills, notes, revenue bonds^ and warrants with
a maturity from date of purchase of not exceeding six months,
issued in anticipation of the collection of taxes, or in antici­
pation of the receipt of assured revenue by any State, county,
district, political subdivision, or municipality * * * * . "
"To purchase from member banks and to sell, with or without
its indorsement, bills of exchange arising out of commercial
transactions, as hereinbefore defined."
Further in the same section permission is given to each Federal
reserve bank:
"* * * to buy
or agencies, bills
transactions which
bear the signature




and sell * * * through (its) correspondents
of exchange arising out of actual commercial
have not more than 90 days to run, and which
of two or more responsible parties."

439
i* •'

.

Several of these classes of transactions have already been
provided for in the circulars and regulations heretofore issued
by the Federal Reserve Board as follows:
In Circular No. 7, Series of 1915, regulations have been a.;established for the general purchase of warrants;
In letters to the various Federal reserve banks the conditions
have been indicated under which bonds and notes of the Unites States
may be dealt in;
In letters to Federal reserve banks conditions under which
Federal reserve notes may be exchanged for gold, gold coin or gold
certificates, have been stated, and operations of this nature are
in progress;
In circulars revised from time to time and culminating in
Circular No. 18, Series of 1915, conditions have been established
Tor the purchase of bankers' acceptances growing out of foreign
trade operations;
In Circular No. 19, provision has been made for the purchase
of acceptances of State banks and bankers growing out of domestic
operations of specified classes.
THERE REMAIN STILL TO BE DEALT WITH THE PURCHASE AND SALE OF
"CABLE TRANSFERS AMD BILLS OF EXCHANGE OF THE KINDS AND MATURITIES
SX THIS ACT MADE ELIGIBLE FOR REDISCOUNT".
The present circular and regulation is intended to cover
these two items, and the

Board ’wishes particularly to call

attention to the purpose

of




the

open

market

section of

,,

e iii

-439

_3-

the Federal Reserve Act.

This purpose is twofold - to enable the Fed­

eral Reserve Banks to exert a greater influence upon prevailing rates
of.interest by the use of their purchasing power whenever conditions
sst.ii. to make it desirable that they should exert such influence;

and

when, owing to the lack of applications for rediscounts, they are unable
to influence rates'through the latter means.

In audition to this the open

market power may afford to Federal Reserve Banks the opportunity of pur­
chasing in the open market enough paper to enable them to provide reason­
ably for their expenses and dividends.

The Board is of the opinion

that the reserve banks should, when occasion demands, stand ready to
engage in open market transactions, as buyers or sellers to the extent
that is necessary to attain these or any other desirable object.
The Federal Reserve Board does not wish to be understood
as encouraging expansion of credits when in some Districts at least
there should be contraction, but rather that the Federal Reserve Banks
taking cognizance of the conditions in their respective districts will
avail themselves of the privilegsa granted by the Act as explained in
our letter of October 8 just as they have other open market pawbrs al­
ready defined if c.nd when it seems wise to do so.
CHARLES S. HAI'LIN,
Governor.
H. PARKER WILLIS,
Secretary.
12/1/15