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........ FEDERAL RESERVE BOARD WASHINGTON March 9, 1922. SUBJECT: Pt.yn:ents of Gold Certific~tes. Dear Sir: In connection with the letter of the Secretery of the Treasury to the ~re~surer of the United States, dated March 6, 1922, a copy of which has been sent you today, it seems to be proper to advise you th~t the suggestion has been made that Federal Reserve :Banks adopt the general policy outlined therein with respect to all payments, making such modifications as may be necessary as to payments for their own account. The ~uestion of resuming payments of gold certificates was, as you will doubtless recall, considered at the Joint Conference of Governors and Chairmen of Federal Reserve Banks, held in Washington in October, 1921. The conference did not at the time favor the resurrption of payments of gold certificates. The point has been m,sde th'3t the objections to gold payments which were then raised have been met by developments which hgve occurred since. The total gold holdings of the Federal Reserve Banks have increased nearly $SOO,OOO,OOO since March 4, 1921, and the eOI!'ibined reserve ratio has risen from 50.8 to 76.7 per cent. The l~wer discount rates which now prevail at all Federal Reserve Banks give an answer, it is argued, to any criticism which might be raised against the payment of gold certificates on the theory that these payments were intended to reduce the reserves of the Federal Reserve System and furnish ~n excuse for high discount rates. ftt the same time, it is feared by same that the great accumulation of gold in the Federal Reserve System, though it may not yet have caused any inflation, offers a constant tempte.tion to the adoption of unsouni credit ~olicies and unless some corrective action is taken may lead the country into another period of inflation and speculation. There seems to be little prospect that there will,in the near future, be any effective demand from the rest of the world. for large amounts of the gold accumulated in this country, for it seerrs that for the present at least the proceeds of any loans which European governments may be able to place in this country will have to be used for reconstruction and for the ... .• ..., X-3354 - 2- purchase of conm:oJities, r1'lthEr gold resetves. ths-11 for the acc'..:.ffiula~ion of The Federal Reserve Board is not unmindful of the fact that it is important to take into consideration not only the present reserve position of the several Federal Reserve Banks, but their prospective position in view of demands which may be made upon them for credit accommodation as the season advances. While some of the Federal Reserve Banks might feel justified in paying ou:t gold certificates freely, at least until their reserves were reduced to a certain point, others may feel that in view of re'-i,Uirements ahead of them they would not be justified in changing the existing policy. The -i,uestion then arises - what effect would the adoption of a new policy with respect to gold payments by one Federal Reserve Bank or by a group of Federal Reserve Banks have ·u.pon others which feel that their rese.:ve pos::.tion at the present time is none too high? The Board would be pleased to have, as early as convenient, an official expression of the views of your own Federal Reserve Benk as to the policy which it should adopt, all the circumstances being taken into consideration. Very truly yours, Governor. CH~IRME~ ALL F. R. BftNKS COPIES 'T'O GOVERNORS.
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