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FEDER!;.L I". I RE~:ERVE BOARD X-1641 STATEMENT FOR THE PBESS To be released for morning papers, August 6,1919. Goverrur.E'nt fi:-:cal;o:;erations ·and thei!' effect. on bank:u::.g conditions, also the latest <lE;V':>lopments iJ::: the foreig:n. exche.nge market are discussed in the "" forthcoming numbe!' of the 7ederal Reserve Bulletin for August. A large part of the issue is devoted to a statistical review of operations of the Federe:.l Reserve S·y~tJm since its establishment on November 16, 1914. Statistically the materiaJ. is present€d separately for the ).Jeriod preceding the entry of the United Stater> i .. nto the wo1:!.d war, t.hat is from November, i914~ to April, 1917, and for the war and post war period, A remarkable . . growth is exhibi ted by the Federal ReEerve S\ystem from 1 ts in::.11gnration when the bank~ had a cotribined paid in capital (f about 18 ~: ·: llions and aggregate resources of about 250 millions, to the end of June, 1919, a~· out four and one-half years later, when the :paid in capital was about 83 millions and the resources in excess of. 5,500 millions. The growth in the capital and resources of the Federal Reserve S:ystem has been due in part to the coming in of many new banks under the l.nf1uence of the financial necessities of the war and the patriotic impulse to strengthen the system, and, before the war, to the paying in of reserves by member banks, :prior to tte expiration en June 21, 1917, of the time limit set by the original act. The great growth in redisco"Wlts would not have occurred within the years in question l1a1 it not been for the war and its effects~ for most of the i::idvance in th;, 1-J.}!C~' l~oldings i.s an incree:.se in war p.ctper as such. Nevertheless, there has been. a C.i.~tinct increase in strictly comr.cercial paper . operations, as shown by the fact that the holdings of all discounts other than war paper have increased from $125~789,000 on July 27,1917 to $251,392,000 at •. • the end of Jul7. 1919. One of the most striking features of the evolution of Federal Reserve Banks 565 X-1641 . is the growth in the circulation of Federal Reserve notes from a small I\ 1914 to an aggregate of $2,504,497,000 at the end of July, 1919. These notes I ~ have practically displaced the gold certificates ~ is~e in circulation, the latter being drawn into the banks and used as reserves. While the Federal Reserve notes . I I a~e thus not a net addition to the cirrency of the country except in so far as th3ir amount exceeds the amount of other forms of currency that have been withdrawn or retired, nevertheless the services of these notes in supplying a medium of exchange is conspicuously important. These notes have come to circulate also in increasing volurre in Mexico, Central America, and West Indian countries, as well as to some extent in more distant regions. One of the earliest actions of the Federal Reserve Board was to formulate and issue a set of regulations in eo~~ection with the use of barikerst accept-. ances whi¢h represented an important means for investing bank fliDds in live commercial paper and for the pu:::-pose of assisting in the financing of export trade. The acceptance early became a standard form of investment for Federal Reserve Banks s.nd, together with other :paper, mainly war paper, has served as a useful means of effecting transfers of resources between Federal Reserve Banks through the interbank rediscounting p~ocess. Since the United States became a. belligerent, war paper, i..e. customerst notes or notes of the banks themselves, collateraled by Governrrent war obligations, naturally constit.af;ed a considerable element in the business of Federal Reserve BatiKs~ Such notes received a preferenti~l rate which encouraged the public to buy governrrent obligations in the assurance that if unable to make payments in full they could secure accommodation from their b&lks which in tu.rn would relieve themselves by rediscounting with Federal ResEU've Banks. The Federal Reserve Banksr holdings of war :paper increased from about 26 millions on June 29, 1917 to 1,616 millions on July 25, 1919. . One of the most' notable results o£ war banking and war :finance has been ···'' -l- ' 566 . . X-1641 the enormous accumulation of gold 'in the vaults of Federal Reserve Banks. b Fede~&l Reserve SYstem• s nacbillery for centralizing reservest the great eJCports of merchandise duritlg the war, and the s'\:ibstitution of no tee for gold both in the tills of member banks and in circulation ha.ve caused the gold holdings of the Reser:'fe Banks to reach an un:pr~ce-dente.d ~:®ount, the maximum figure of· 2,201 •• millions being reported for June 6 1 1919~. Fedet'a.l Reserve· Banks earned comparatively sn:all profits before the war, but owing to the large amounts of wa.r paper handled .during the war period as well as since the signing of the &.rmistice. the earn~gs of the banks increased greatly. The personnel of the ba.nks and the mamber of branChes all show increases comnen..:. surate with the growth o£ operations, while over 1,000 state banks and. trust coTii'anies have joined the system since its organization. -----·------------An article on Banting and Economic conditions i~ Japan,· 1914-1919 is part 1 of the Bulletin. War conditions resulted in a great increase in Japents foreitp trade and in the establishment of a balance ·favorable to Japan. Many industries :producing articles of e:xpo~t flourished during the ~ as the result of the grec:.t demand for war IIBterials by the belligerents and the sbsenee of European competition in Eastern mar.kets. Ship building experienced an ~recedented boom caused by the great need of cargo space. The Bank of Japant-a gold !loldinga showed a constant growth during the war e:md ita holdings of foreign bills also increased• .Am.ounts due to the bank from agencies and banking hou,ses, rose from 164 million yen in 1914 to 937 millions on June 14-, 1919. Rates of exchange on foreign cOWltri,es were favorable to J<lpan throughout most of the period upder review. Serio~s setbaCks to war-fostered industries followed the cessation of · · the continued increase in the price hostilities and many failures, together withf · of foodstuffs . resulted in an ·economic crisis necessitating government intervention~ Japan is . . at present going through a period of readjustment and great efforts are :mc.de establish its Digitized forto FRASER war-made industrial and commercial position on a permanent r 567 ' ' -4- X-1641 peace basis. \ The Bulletin carries also its regular monthly statistics relating to banking conditions, physical volume of trade, and wholesale prices. Aggregate increases of 96.3 millions in investments, largely the result of open market purchases i - I • of batik. acceptances, and reduction of 53.6 rrdllions in gold reserves, as a resu.l t of exports following removal of the gold embargo, are the principal ch~-nges in the status of Federal Reserve Banks between June 20 and July 18. Gold e~orts, following the removal of the gold embargo on June 7, proce3ded on a large scale, and for the monthly period ending July 10 amounted to $98,441,384. Of the total exports, $32,460,000 was consigned to Argent~na, $25,850,000 to Spain. $17,024,000 to J~an and $7,4o5.000 to Uruguay, the remainder being shipped princi:pally to Venezuela, Hongkong, Peru e.nd Bolivia. I In the Bulletin are also printed texts of several bills pending in Congress amending the Feaeral Reserve and National Bank acts with a view to facilitating the participation of ~ember banks in foreign co~1ercial banking and in th~ financing of.the export trade. ',
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