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S34 Ex -o f f ic io m em b e r * W. P. 0. HARDINO. OovaiNOR PAUL H. WARBURG. VICE GOVERNOR FREDERIC A. DELANO ADOLPH C. HILLER CHARLES S. HAHLIN WILLIAM « . HcADOO SECRETARY O F THE TREASURY C U IH U JOHN SKELTON WILLIANS FEDERAL RESERVE B O A R D COMPTROLLER O F THE C l I M I N C T WASHINGTON H. PARKER WILLIS. SECRETARY SHERMAN P. ALLEN. ASST. SECRETARY AND FISCAL AOEST adds... replyto . .FEDERAL RESERVE HOARD January 17, 1916* Mr* Chairman, Board of Directors, Federal Reserve Bank of SIR: Under the provisions of the Federal Reserve Act Federal Reserve notes say he issued against 100$ of com mercial paper., ~ith the reserve in the bank of ^0$ in gold. Subsequently the bank may reduce its liability on the issued notes by depositing 100$ of gold; or lawful money, -;;ith the Federal Reserve Agent, at the same time releasing the UG$ gold reserve-which the bank has held against the notes as well as getting back the paper it has put up as collateral* The operation of this fea ture of the lav/ might conceivably result in the anoma lous situation of Federal Reserve notes being secured by 100$ of, let us say, silver certificates, vhich the Federal Reserve Board does not believe v;as ever contem plated under the Act. Therefore, the Federal Reserve Board has determined that a reasonable construction of the Act demands that at least U0$ of gold must be held either by the bank, or, in the alternative, by the Federal Reserve Agent, against all outstanding Federal Reserve notes* If the Bank, wishes, therefore, to reduce its liability for outstanding notes by depositing gold or lawful money with the Federal Reserve Agent, at le?.st U0$ of' such deposit must be in gold. You are accordingly instructed to re quire that hereafter a minimum of not less than U0$ of such deposits be made in gold or gold certificates. It is, of course, understood that in the first year's operations of the Federal Reserve Banks practically all deposits vith the Reserve Agents have been in gold alone. The Board is anxious to have that practice con tinued and nothing in the above letter of instructions is intended to alter that practice, but simply to fix a precise minimum in future. Yours respectfully, Governor* Secretary.
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