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FEDERAL RESERVE DIRECT PURCHASES—OLD SERIES CURRENCY ADJUSTMENT ACT HEARING BEFORE THE COMMITTEE ON BANKING AND CURRENCY UNITED STATES SENATE EIGHTY-SIXTH CONGRESS SECOND SESSION ON S. 3702 and S. 3714 BILLS TO E X T E N D AUTHORITY OF FEDERAL RESERVE BANKS TO PURCHASE TREASURY OBLIGATIONS AND TO AUTHORIZE ADJUSTMENTS IN ACCOUNTS OUTSTANDING OLD SERIES CURRENCY OF JUNE 24, 1960 Printed for the use of the Committee on Banking and Currency UNITED STATES GOVERNMENT PRINTING OFFICE 57731 WASHINGTON : 1960 COMMITTEE ON BANKING AND CURRENCY A. WILLIS ROBERTSON, Virginia, Chairman H O M E R E. CAPEHART, Indiana J. W. FULBRIGHT, Arkansas WALLACE F. B E N N E T T , Utah J O H N SPARKMAN, Alabama PRESCOTT BUSH, Connecticut J. A L L E N FREAR, JR., Delaware J. GLENN BEALL, Maryland PAUL H. DOUGLAS, Illinois JACOB K. JAVITS, New York JOSEPH S. CLARK, Pennsylvania WILLIAM P R O X M I R E , Wisconsin R O B E R T C. BYRD, West Virginia HARRISON A. WILLIAMS, JR., New Jersey E D M U N D S. MUSKIE, Maine J. H. TINGLING, Chief of Staff MATTHEW HALE, Chief Counsel n FEDERAL RESERVE DIRECT PURCHASES—OLD SERIES CURRENCY ADJUSTMENT ACT FRIDAY, JUNE 24, 1960 U.S. SENATE, COMMITTEE ON BANKING AND CURRENCY, Washington, B.C. The committee met, pursuant to call, in room 5302, New Senate Office Building, at 10 a.m., Senator A. Willis Robertson (chairman) presiding. Present: Senators Robertson and Bush. The CHAIRMAN. The committee will please come to order. Gentlemen of the committee, you have received a notice that we have planned to take up several bills at the session this morning. We will have some testimony from representatives of the TreasuryDepartment in open session on S. 3702 and S. 3714, and then we will have an executive session to see which bills can be acted upon, which can be reported. The first bill we will consider now is S. 3702 relating to the authority of the Treasury to borrow up to $5 billion from the Federal Reserve banks. This will extend for 2 years the authority of the Treasury for the sale of U.S. Government obligations directly to the Federal Reserve banks. We will insert the bill, S. 3702, letters from the Treasury Department on the legislation, and the views of the Federal Reserve on S. 3702. (The bill and letters referred to follow:) [S. 3702, 86th Cong., 2d sess.] A BILL To amend section 14(b) of the Federal Reserve Act, as amended, to extend for two years the authority of Federal Reserve banks to purchase United States obligations directly from the Treasury Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, T h a t section 14(b) of t h e Federal Reserve Act, as amended (12 U.S.C. 355) is amended b y striking o u t " J u l y 1, I960' 7 a n d inserting in lieu thereof " J u l y 1, 1962" a n d b y striking o u t " J u n e 30, I 9 6 0 " a n d inserting in lieu thereof " J u n e 30, 1962". U N D E R SECRETARY OF T H E TREASURY,. Washington, May 16, I960. H o n . A. W I L L I S R O B E R T S O N , Chairman, Banking and Currency U.S. Senate, Washington, D.C. Committee, D E A R SENATOR R O B E R T S O N : Reference is m a d e t o m y recent conversation with you concerning t h e draft of a proposed bill t o extend for 2 years t h e a u t h o r i t y of Federal Reserve banks t o purchase U.S. obligations directly from t h e Treasury, a n d t h e bills which are pending before your committee a n d t h e Banking a n d Currency Committee of t h e House t o authorize adjustments in accounts of o u t standing old series currency. 1 2 FEDERAL RESERVE DIRECT PURCHASES I a m enclosing a copy of t h e D e p a r t m e n t ' s letter of this date t o t h e President of t h e Senate t r a n s m i t t i n g t h e proposed bill t o extend t h e direct purchase a u t h o r i t y of t h e Federal Reserve banks. I have also discussed t h e proposed bill with Chairm a n Spence of t h e House committee a n d he informed me t h a t he will endeavor to bring t h e bills u p for hearing in his committee a t t h e earliest practical date a n d t h a t he will probably schedule both bills for hearing a t t h e same time. Chairm a n Spence also said t h a t I could inform you t h a t he saw no objection, if you desire, t o having your committee hold hearings on t h e bills prior t o t h e House committee hearing. T h e bill t o authorize adjustments in accounts of outstanding old series currency was introduced b y you in t h e Senate as S. 1177. T h e Office of t h e Legislative Counsel of t h e House suggested certain changes in t h e wording of t h e bill as proposed b y t h e Treasury and, in consultation with t h e Treasury, redrafted t h e bill which Chairman Spence introduced in t h e House on April 27, 1959, as H . R . 6678. T h e Treasury has no objection t o t h e form of this bill which accomplishes t h e same results as t h e original Treasury draft a n d I a m enclosing a copy in t h e e v e n t you desire t o introduce a companion bill in t h e Senate for consideration by your committee. Through this action it might be possible t o avoid conference on t h e bill in t h e event t h e Senate a n d t h e House should enact bills containing different language. As I pointed out in m y conversation with you, e n a c t m e n t of t h e bill t o extend t h e direct purchase a u t h o r i t y of t h e Federal Reserve banks prior t o J u n e 30 is essential a n d e n a c t m e n t of t h e bill t o authorize adjustments in t h e old currency accounts will make about $100 million of our resources available for current use. This in t u r n will enable t h e Treasury t o reduce its borrowing b y a corresponding a m o u n t with a resultant saving of from $4 t o $5 million in our a n n u a l interest costs. Sincerely yours, J U L I A N B . B A I B D , Under Secretary. O F F I C E OF T H E S E C R E T A R Y O F T H E T R E A S U R Y , Washington, May 16, 1960. The PRESIDENT OF THE SENATE. S I R : There is t r a n s m i t t e d herewith a draft of a proposed bill t o a m e n d section 14(b) of t h e Federal Reserve Act, as amended, t o extend for 2 years t h e a u t h o r i t y of Federal Reserve b a n k s t o purchase U.S. obligations directly from t h e Treasury. T h e purpose of t h e proposed legislation is t o extend for another 2 years t h e a u t h o r i t y of t h e Federal Reserve b a n k s t o purchase public d e b t obligations directly from t h e Treasury, rather t h a n in t h e open market, in a n a m o u n t n o t t o exceed $5 billion outstanding a t a n y one time. T h e present a u t h o r i t y , which h a s been in existence for a n u m b e r of years, will expire on J u n e 30, 1960, unless it is further continued b y t h e Congress. I n hearings before t h e House Banking a n d Currency C o m m i t t e e on t h e extension ofjjthe direct purchase a u t h o r i t y in 1958, there was considerable discussion of t h e possibility t h a t t h e a u t h o r i t y should be revised t o provide specific criteria for its exercise. I n its report on t h e bill, t h e committee requested t h e Treasury t o s t u d y t h e desirability of p u t t i n g such criteria in t h e law a n d t o submit its recommendations t o t h e Congress before .requesting a n y further extension of t h e a u t h o r i t y beyond t h e 1960 expiration d a t e . T h e Treasury h a s studied carefully t h e desirability of recommending t h a t specific criteria be included in t h e s t a t u t e . There are basically four considerations which constitute, in our opinion, t h e only proper purposes of t h e direct purchase authority. (1) T h e existence of t h e direct purchase a u t h o r i t y permits t h e Treasury t o operate with significantly lower cash balances t h a n would otherwise be p r u d e n t , a n d still be in a position t o meet unanticipated large cash outlays. This a t t r i b u t e of t h e direct purchase a u t h o r i t y does not, as a m a t t e r of practice, require its actual use except in rare instances. (2) Similarly, t h e existence of t h e direct purchase a u t h o r i t y adds significantly t o t h e Treasury's flexibility in t h e m a n a g e m e n t of t h e public d e b t b y permitting more leeway in t h e timing of new Treasury issues t o t h e public a d v a n t a g e t h a n would otherwise be possible. Again, as in t h e first use of t h e a u t h o r i t y , t h e availability of this "line of credit'' is sufficient t o give t h e Treasury this required flexibility even though actual use of t h e purchase a u t h o r i t y is rare. (3) Availability of this a u t h o r i t y h a s on occasion provided a useful device for smoothing out t h e impact of short-run fluctuations in t h e T r e a s u r y ' s cash balance, 3 FEDERAL RESERVE DIRECT PURCHASES especially during periods immediately preceding t h e peak of t a x collections. This particular use of t h e purchase authority, while still of some importance, is less significant t h a n formerly because of t h e development of other techniques of handling money m a r k e t m o v e m e n t s around tax collection dates. (4) The direct purchase a u t h o r i t y provides an immediate source of funds for t e m p o r a r y financing in t h e event of a national emergency. T h e immediate financial impact of such an emergency presumably would be most i m p o r t a n t with reference t o t h e ability of t h e T r e a s u r y to handle t h e refunding of m a t u r i n g debt if the emergency resulted in serious dislocation of financial m a r k e t s . T h e need for utilizing the direct purchase a u t h o r i t y in this way would appear to be m u c h more urgent t h a n t o cover any immediate upsurge in Federal Government spending, although some use of t h e authority might be necessary in event of a sudden falloff in revenue. T h e Treasury D e p a r t m e n t does not believe, however, t h a t t h e law containing the direct purchase a u t h o r i t y would be strengthened in a n y way by incorporating t h e above considerations as p a r t of the s t a t u t e . We believe t h a t t h e biennial review afforded the Congress b y 2-year extensions of the authority, plus t h e regular reporting of actual transactions in the weekly s t a t e m e n t of condition of Federal Reserve banks as well as in t h e Daily Treasury Statement, is an effective and a d e q u a t e guarantee t h a t it will be used properly and t h a t specific criteria in the s t a t u t e are neither necessary nor desirable. I n summary, therefore, t h e Treasury considers t h a t t h e direct purchase authority constitutes a "line of credit" which the Treasury can fall back on both in its day-to-day planning of cash flows and as a stopgap measure to facilitate t e m p o r a r y financing in event of a national emergency. We feel strongly t h a t this a u t h o r i t y should n o t be abused by considering it as a device to permit increased Federal Reserve purchases of U.S. Government securities for purposes of influencing either interest rates or t h e availability of credit. These functions are properly exercised by t h e Federal Reserve System in its use of open m a r k e t operations, the discount rate, and member bank reserve requirements. Direct borrowing by the central government of any country from its central bank, except for t e m p o r a r y or emergency financing, has proved to be a dangerous step down the road toward currenc}^ debasement. There is attached a table which reflects t h e use of t h e direct purchase a u t h o r i t y from 1942 to the present time. There is also enclosed a comparative p r i n t showing the changes t h e proposed bill would make in existing law. I t is respectfully requested t h a t you lay the proposed bill before t h e Senate. A similar bill has been t r a n s m i t t e d t o t h e Speaker of t h e House of Representatives. T h e D e p a r t m e n t has been advised by t h e Bureau of t h e Budget t h a t there is no objection to the submission of this proposed legislation to the Congress. Very t r u l y yours, J U L I A N B. B A I R D , Acting Secretary of the Treasury. A BILL To amend section 14(b) of the Federal Reserve Act, as amended, to extend for two years the authority of Federal Reserve banks to purchase United States obligations directly from the Treasury Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, T h a t section 14(b) of t h e Federal Reserve Act, as amended (12 U.S.C. 355), is amended by striking out " J u l y 1, I 9 6 0 " a n d inserting in lieu thereof " J u l y 1, 1962" a n d "by striking out " J u n e 30, 1960" a n d inserting in lieu thereof " J u n e 30, 1962". COMPARATIVE T Y P E S H O W I N G C H A N G E S IN E X I S T I N G L A W M A D E BY P R O P O S E D BILL Changes in existing law m a d e by t h e proposed bill are shown as follows (existing law proposed to be omitted is enclosed in brackets; new m a t t e r is italicized): SECTION 14(b) OF T H E F E D E R A L R E S E R V E A C T , AS A M E N D E D U.S.C. T I T L E 12, S E C . 355) 38 STAT. 264; (b) To b u y and sell, a t home or abroad, bonds and notes of t h e United States, bonds of t h e Federal F a r m Mortgage Corporation having maturities from d a t e of purchase of not exceeding six months, bonds issued under t h e provisions of subsection (c) of section 4 of t h e H o m e Owners' Loan Act of 1933, as amended, and having maturities from d a t e of purchase of not exceeding six months, a n d bills, notes, revenue bonds, a n d w a r r a n t s with a m a t u r i t y from d a t e of purchase 4 FEDERAL RESERVE DIRECT PURCHASES of n o t exceeding six m o n t h s , issued in anticipation of t h e collection of taxes or in anticipation of t h e receipt of assured revenues b y any State, county, district, political subdivision, or municipality in t h e continental United States, including irrigation, drainage and reclamation districts, such purchases to be m a d e in accordance with rules a n d regulations prescribed b y t h e Board of Governors of t h e F e d e r a l Reserve System: Provided, T h a t notwithstanding any other provision of this Act, (1) until [ J u l y 1, 1 9 6 0 ] July 1, 1962, a n y bonds, notes, or other obligations which are direct obligations of t h e United States or which are fully guaranteed b y t h e United States as to principal and interest m a y be b o u g h t a n d sold without regard to maturities either in t h e open m a r k e t or directly from or to t h e United States; b u t all such purchases a n d sales shall be m a d e in accordance with t h e provisions of section 12A of this Act and t h e aggregate a m o u n t of such obligations acquired directly from t h e United States which is held a t a n y one t i m e b y t h e twelve Federal Reserve b a n k s shall not exceed $5,000,000,000; a n d (2) after [ J u n e 30, 1960] June SO, 1962, a n y bonds, notes, or other obligations which a r e direct obligations of t h e United States or which are fully guaranteed b y t h e United States as to principal and interest m a y be bought a n d sold w i t h o u t regard t o maturities b u t only in t h e open m a r k e t . T h e Board of Governors of t h e Federal Reserve System shall include in their annual report to Congress detailed information with respect to direct purchases and sales from or to t h e United States under t h e provisions of t h e preceding proviso. B O A R D OF G O V E R N O R S OF T H E F E D E R A L R E S E R V E Washington, Hon. SYSTEM, June 22, 1960. A. W I L L I S R O B E R T S O N , Chairman, Committee on Banking and Currency, U.S. Senate, Washington, D.C. D E A R M R . CHAIRMAN: This is in response to your request for t h e Board's views on S. 3702, to a m e n d section 14(b) of the Federal Reserve Act, as amended, t o extend for 2 years t h e a u t h o r i t y of t h e Federal Reserve b a n k s to purchase U.S. obligations directly from t h e Treasury. Under existing law, t h e a u t h o r i t y will t e r m i n a t e on J u n e 30, 1960. T h e use of this a u t h o r i t y b y t h e Federal Reserve enables t h e T r e a s u r y to avoid creating unnecessary financial strains t h a t would otherwise occur if it h a d to draw heavily on its accounts especially during periods immediately preceding t a x p a y m e n t dates. T e m p o r a r y Treasury borrowing a t such times, followed by p r o m p t r e p a y m e n t from t h e proceeds of tax p a y m e n t s , provides a s m o o t h operating mechanism, without t h e a b r u p t money m a r k e t fluctuations t h a t would otherwise occur. T h e a u t h o r i t y could also be useful in dealing with situations resulting from a national emergency. Since 1942 when t h e a u t h o r i t y was granted i t has been sparingly used, a n d its use is reported, as required b y law, each year in detail in t h e Board's a n n u a l report. T h e results of its use also appear currently in weekly statements issued by t h e Federal Reserve and in daily s t a t e m e n t s issued b y t h e Treasury. T h e Board, therefore, recommends approval of t h e bill. Sincerelv yours, WM. MCC. MARTIN, Jr. The CHAIRMAN. Section 14(b) of the Federal Reserve Act as amended now authorizes such purchases in an amount not to exceed $5 billion outstanding at a time, but this authority expires on June 30, 1960. That is, the only change that S. 3702 will make in the Federal Reserve Act would be to substitute in section 14(b), when appropriate, the date "July 1, 1962" and "June 30, 1962" for the dates as they now appear in the act. S. 3702 is identical with H.R. 12346, which the House Banking and Currency Committee, by unanimous vote, reported favorably on June 14. H.R. 12346 is supported by both the Treasury Department and the Board of Governors of the Federal Reserve System. Action by the House on H.R. 12346 is expected shortly, perhaps today. Although the direct purchase authority has been used sparingly, it is my understanding that the Treasury Department views the authority as a highly useful and important device to facilitate its operations. FEDERAL RESERVE DIRECT PURCHASES 5 We are pleased to have with us today the Honorable Julian B. Baird, Under Secretary of the Treasury for Monetary Affairs, who will present the Treasury Department's views on this legislation. Gentlemen of the committee, we are pleased at this time to hear Mr. Baird. STATEMENT OF JULIAN B. BAIRD, UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS Mr. BAIRD. Mr. Chairman, members of the committee, I am grateful for the opportunity to appear before you today in support of S. 3702. With your permission, I will read a statement. This bill would extend until June 30, 1962, the existing authority of the Federal Reserve banks to purchase public debt obligations directly from the Treasury in an amount not to exceed $5 billion outstanding at any one time. The House Banking and Currency Committee has voted unanimously to report favorably an identical bill, H.R. 12346, which is supported by both the Treasury and the Board of Governors of the Federal Reserve System. We hope they are going to act on that in the House today. From the time the Federal Reserve System was established in 1913 until 1935, the Federal Reserve banks had unlimited authority to purchase Government securities directly from the Treasury or from market holders. In the Banking Act of 1935, however, the authority to make such purchases was limited to open market transactions. The authority of the Federal Reserve banks to purchase Government obligations directly from the Treasury was restored in the Second War Powers Act of 1942, but the amount was restricted to $5 billion outstanding at any one time. Although the initial authority granted by the Act expired at the end of 1944, the Congress has extended it successively before each expiration date. The need for early passage of S. 3702 is indicated by the fact that the current authority expires on June 30, 1960. The authority provided under section 14(b) of the Federal Reserve Act is a highly useful device for facilitating Government financial operations. We firmly believe, however, that such authority should be limited and, even within such limitations, should be used sparingly. In many other countries, direct access of the Government to the central bank has ultimately led to severe inflation, resulting from excessive reliance on newly created central bank funds to finance Government expenditures and facilitate debt management. The inflationary potential of such borrowing is magnified many times by the fact that such funds are "high powered/' in that each dollar borrowed by the Government in this manner wxill support several dollars in new bank deposits. The sparing use of the direct purchase authority in recent years is indicated in the attached table. The authority has been used only once since your committee last held hearings on the matter in 1954. This instance was in March 1958, a few days in advance of the period of heavy tax receipts. The $207 million of securities sold at that time directly to the Federal Reserve Bank of New York were outstanding for only 2 days. At hearings on extension of the direct purchase authority before the House Banking and Currency Committee 2 years ago, it was suggested by certain members of the committee that the authority 6 FEDERAL RESERVE DIRECT PURCHASES be revised to include specific criteria for its use. The report of the House Banking and Currency Committee requested the Treasury to study the desirability of including such criteria in the statute and to submit recommendations to the Congress before requesting extension of the authority beyond June 30, 1960. Our study of the matter indicates that the authority as it exists today would not be strengthened by incorporating specific considerations as part of the law, and H.R. 12346, as reported by the House Banking and Currency Committee, makes no provision for such considerations. When transactions under the authority take place, they are promptly reported in the weekly Federal Reserve statement and the daily Treasury statement. Moreover, proper use of the authority is assured by the biennial congressional review with respect to renewal of the authority, at which time the Treasury testifies as to its use and purpose. The Treasury's analysis in this respect was transmitted by the Secretary of the Treasury to the Speaker of the House of Representatives and the President of the Senate on May 16, 1960. As discussed in our May 16 letter, the Treasury feels that there are basically four considerations which constitute the only proper purposes of the direct purchase authority. (1) The existence of the direct purchase authority permits the Treasury to operate with significantly lower cash balances than would otherwise be prudent, and still be in a position to meet cash needs in case of large unanticipated outlays or delays in receipts. This attribute of the direct purchase authority does not, as a matter of practice, require its actual use except in rare instances. (2) Similarly, the existence of the direct purchase authority adds significantly to the Treasury's flexibility in the management of the public debt by permitting more leeway in the timing of new Treasury issues to the public advantage than would otherwise be possible. Again, as in the first use of the authority, its availability is sufficient to give the Treasury this required flexibility even though actual use of the purchase authority is rare. (3) Availability of this authority has on occasion provided a useful device for smoothing out the impact on the money market and the banking system of large short-run fluctuations in the Treasury's cash balance, especially during periods immediately preceding the peak of tax collections. While this particular use of the purchase authority is less significant than during the war and early postwar periods, it continues to be desirable to have the authority available for use in situations where the technique would be especially appropriate. (4) Perhaps most importantly, the direct purchase authority provides an immediate source of funds for temporary financing in the event of a national emergency. The immediate financial impact of such an emergency presumably would be most important with reference to the ability of the Treasury to handle the refunding of maturing debt if the emergency resulted in serious dislocation of financial markets. The need for utilizing the direct purchase authority in this way would appear to be much more urgent than to cover increased Federal Government spending (even though appropriations are increased immediately), although some use of the authority might be necessary in event of a sudden decline in revenue. FEDERAL RESERVE DIRECT PURCHASES 7 The Treasury therefore considers that the direct purchase authority is properly interpreted only as a line of credit which the Treasury can rely upon both in its day-to-day planning of rapidly fluctuating case flows and as a useful source of temporary financing in event of a national emergency. The Treasury is strongly of the opinion that the direct purchase authority should not be abused by considering it as a device to permit increased Federal Reserve purchases of U.S. Government securities for purposes of influencing the level of interest rates or affecting the overall availability of credit. These functions are properly exercised by the Federal Reserve System in its use of open market operations, discount rate policy, and changes in member bank reserve requirements. As noted earlier, direct borrowing by the Government of any country from its central bank, except for temporary or emergency financing, has proved to be a dangerous step down the road toward currency debasement. We sincerely recommend your approval of S. 3702 in recognition of the appropriateness of the direct purchase authority as a limited but very useful tool of a sound Government financial policy. The CHAIRMAN. Without objection, the table attached to your statement will be inserted in the record at this point. (The table referred to follows:) Direct borrowing from Federal Reserve Calendar year 1942 1943 1944 1945 1946—. 1947 _ . 1948— _ 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958— 1959 1960: J a n u a r y - M a y D a y s used _ _ _ _ __ Total __ 19 48 None 9 None None None 2 2 4 30 29 15 None None None 2 None None banks Maximum amount at any time (millions) N u m b e r of separate t i m e s used Maximum n u m b e r of d a y s used at a n y one time $422 1,320 4 4 6 28 484 2 7 220 108 320 811 1,172 424 1 2 2 4 2 2 2 1 3 9 20 13 207 1 2 24 The CHAIRMAN. Mr. Secretary, the law reads, I believe, that the Federal Reserve Board may buy directly. Am I correct in saying that technically you cannot force the Federal Reserve banks to buy a specific amount of these bonds at any specific interest rate that you see fit to fix? Mr. BAIRD. That is correct, sir. The CHAIRMAN. YOU have to negotiate the sale? Mr. BAIRD. It is permissive but not mandatory. The CHAIRMAN. But this is an indication, if continued as it has been in the past—and I assume, of course, it will be continued for another 2 years—that the Congress favors cooperation between these two 57731—eo—2 8 FEDERAL RESERVE DIRECT PURCHASES agencies, one of which is responsible for collecting revenue for the Government and the other is an independent agency to which Congress has delegated certain powers to maintain the stability of our currency. As the Constitution says, we can coin money and fix its value, and we delegate to this independent agency some of our authority to fix the value of the money that we coin or issue. This power is intended to be used sparingly, not for the purpose of flooding the country with new currency, but to give you more mobility in timing your refinancing. Mr. BAIRD. That is correct, sir. We would have to persuade the Federal Reserve authorities that they should agree that it was a worthy, proper purpose in each case. The CHAIRMAN. YOU deal with the Federal Reserve banks themselves. And they will act under advice of the Board, I assume. Any questions? Senator B U S H . I presume that the only paper you give them under this authority is short-term paper? Is that right? Mr. BAIRD. Yes. Senator B U S H . Are you limited to that legally? Mr. BAIRD. There is no limit under the law, but heretofore we have given them very short notes, for example 1-day notes. Senator B U S H . This provision has never been availed of for offering them long-term bonds? Mr. BAIRD. I t has never been availed of except for this limited, short-term purpose, so there was no purpose in giving them long-term bonds; no, sir. The CHAIRMAN. The table that has been put in the record shows the maximum number of days that this authority has been used at any one time. This table shows the very limited use of this authority. I t is just a temporary device. Mr. BAIRD. Actually, we have used it recently more sparingly than it was used in earlier years because of this device of having the C banks, the larger banks with our tax and loan balances, in which we have the right to serve notice by 10 o'clock any morning and they make funds available to us by 2 o'clock that day, or we can deposit with them on short notice. The CHAIRMAN. For instance, our banking friend from Connecticut may be interested that the maximum number of days shown in the table for which money was borrowed under this authority was 28 days. If there are no questions, we will take up the next bill, S. 3714, which I understand is in substance the same as S. 1177. The bill, S. 3714, and reports from the Federal Reserve and General Accounting Office will go in the record here. (The bill and reports follow:) [S. 3714, 86th Cong., 2d sess.] A BILL To authorize adjustments in accounts of outstanding old series currency, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, T h a t this Act m a y be cited as t h e "Old Series Currency Adjustment A c t " . FEDERAL RESERVE DIRECT PURCHASES 9 S E C . 2. T h e Secretary of t h e Treasury is hereby authorized a n d directed to* transfer t o t h e general fund of t h e Treasury, t o be credited as a public debt receipt,, t h e following: (1) Gold held under t h e provisions of— (A) section 4 of t h e Act of M a r c h 14, 1900, entitled "An Act t o define a n d fix t h e s t a n d a r d of value, t o maintain t h e parity of all forms of money issued or coined by t h e United States, to refund t h e public debt, a n d for other purposes" (31 U.S.C., sec. 146), and (B) section 254 of t h e Revised S t a t u t e s of t h e United States (31 U.S.C., sees. 428 and 429), as security for gold certificates issued prior t o J a n u a r y 30, 1934. (2) Standard silver dollars held under t h e provisions of— (A) section 4 of such Act of M a r c h 14, 1900 (31 U.S.C., sec. 146), (B) section 3 of t h e Act of F e b r u a r y 28, 1878, entitled "An Act to authorize t h e coinage of t h e s t a n d a r d silver dollar, a n d t o restore its legal-tender q u a l i t y " (31 U.S.C., sec. 405), a n d (C) section 5 of t h e Silver Purchase Act of 1934 (31 U.S.C., sec. 405a), as security for, or for t h e redemption of, silver certificates issued prior t o J u l y 1, 1929. (3) S t a n d a r d silver dollars held under t h e provisions of— (A) section 4 of such Act of M a r c h 14, 1900 (31 U.S.C., sec. 146), (B) section 5 of such Act of March 14, 1900 (31 U.S.C., sec. 411), and (C) section 5 of t h e Silver Purchase Act of 1934 (31 U.S.C., sec. 405a), as security for, or for t h e redemption of, Treasury notes of 1890 (issued under t h e provisions of t h e Act of July 14, 1890, entitled " A n Act directing t h e purchase of silver bullion a n d t h e issue of Treasury notes thereon, a n d for other purposes" (26 Stat. 289)). SEC. 3. The Board of Governors of t h e Federal Reserve System, with t h e approval of t h e Secretary of t h e Treasury, m a y require any Federal reserve b a n k t o p a y to t h e Secretary of t h e Treasury, t o be credited as a public d e b t receipt, an a m o u n t equal to t h e a m o u n t of Federal reserve notes of a n y series prior to t h e series of 1928 issued to such b a n k and outstanding at t h e time of such p a y m e n t . SEC. 4. Any currency t h e funds for t h e redemption or security of which have been transferred p u r s u a n t to t h e provisions of section 2 of this Act, a n d any Federal reserve notes as to which p a y m e n t has been made under section 3 of this Act, shall thereafter, upon presentation at t h e Treasury for redemption, be redeemed by t h e Secretary of t h e Treasury from t h e general fund of t h e Treasury and thereupon retired. S E C . 5. (a) Except as provided in subsection (c) of this section, upon completion of t h e transfers and credits authorized a n d directed by section 2 of this Act there shall be carried on t h e books of t h e Treasury as public debt bearing no interest t h e following: (1) Gold certificates issued prior to J a n u a r y 30, 1934. (2) Treasury notes of 1890 (issued under t h e provisions of t h e Act of J u l y 14, 1890, entitled "An Act directing t h e purchase of silver bullion a n d t h e issuance of Treasury notes thereon, a n d for other purposes" (26 Stat. 289)). (3) United States legal-tender notes issued prior to J u l y 1, 1929. (4) Silver certificates issued prior to July 1, 1929. (b) Except as provided in subsection (c) of this section, there shall be carried on t h e books of t h e Treasury as public debt bearing no interest Federal reserve notes as to which p a y m e n t has been m a d e to t h e Secretary of t h e Treasury under section 3 of this Act and t h e a m o u n t of t h e p a y m e n t credited as a public debt receipt in accordance with such section. (c) T h e Secretary of t h e Treasury is authorized to determine, from time to time, t h e a m o u n t of— (1) outstanding currency of a n y t y p e designated in subsections (a) and (b) of this section, (2) circulating notes of Federal reserve banks, issued prior to July 1, 1929, for wiiich t h e United States has assumed liability, a n d (3) circulating notes of national banking associations, issued prior to J u l y 1, 1929, for which the United States has assumed liability, which, in his judgment, have been destroyed or irretrievably lost and so will never be presented for redemption, and to reduce accordingly the a m o u n t or a m o u n t s thereof outstanding on t h e books of the Treasury and to credit such a m o u n t s to t h e appropriate receipt account. 10 FEDERAL RESERVE DIRECT PURCHASES S E C . 6. T h e first p a r a g r a p h of t h e Act of M a y 31, 1878, untitled " A n Act t o forbid t h e further retirement of United States legal-tender n o t e s " (31 U.S.C., sec. 404), is amended b y inserting immediately before t h e period a t t h e end thereof the following: " : And provided further, T h a t in t h e event of a n y determination b y t h e Secretary of t h e Treasury under section 5 of t h e Old Series Currency Adj u s t m e n t Act t h a t a n a m o u n t of said notes has been destroyed or irretrievably lost a n d so will never be presented for redemption, t h e a m o u n t of said notes required t o be kept in circulation shall be reduced b y t h e a m o u n t so determined". S E C . 7. (a) T h e fifth p a r a g r a p h of section 16 of t h e Federal Reserve Act (12 U.S.C., sec. 415) is amended b y adding a t t h e end thereof t h e following new sent e n c e : " T h e liability of a Federal reserve bank with respect t o its o u t s t a n d i n g Federal reserve notes shall be reduced b y a n y a m o u n t paid b y such b a n k t o t h e Secretary of t h e Treasury under section 3 of t h e Old Series Currency A d j u s t m e n t Act." (b) T h e seventh p a r a g r a p h of section 16 of t h e Federal Reserve Act (12 U.S.C., sec. 416) is amended b y striking o u t the third sentence a n d inserting in lieu thereof t h e following: " A n y Federal reserve bank shall further be entitled t o receive back t h e collateral deposited with t h e Federal reserve agent for t h e security of a n y notes with respect t o which such b a n k h a s made p a y m e n t t o t h e Secretary of t h e Treasu r y under section 3 of t h e Old Series Currency Adjustment Act. Federal reserve b a n k s shall n o t be required t o maintain t h e reserve or t h e redemption fund heretofore provided for against Federal reserve notes which have been retired, or as t o which p a y m e n t has been made to t h e Secretary of t h e Treasury under section 3 of t h e Old Series Currency Adjustment A c t . " S E C . 8. Nothing contained in this Act shall impair t h e redeemability of a n y currency of t h e United States as now provided by law. S E C . 9. I n order t o provide a historical collection of t h e paper currency issues of t h e United States, t h e Secretary of the Treasury is authorized, after redemption, to withhold from cancellation a n d destruction a n d to transfer t o a special account one piece of each design, issue, or series of each denomination of each kind of paper currency of t h e United States, including bank notes, heretofore or hereafter issued, a n d t o make appropriate entries in t h e redemption accounts a n d other books of t h e Treasury t o cover a n y such transfers. BOARD OF G O V E R N O R S OF T H E F E D E R A L R E S E R V E Washington, Hon. A. WILLIS SYSTEM, March 25, 1959. ROBERTSON, Chairman, Committee on Banking and Currency, U.S. Senate, Washington, D.C. D E A R M R . C H A I R M A N : This is in response t o your committee's recent request for t h e Board's views regarding S. 1177, introduced b y you on F e b r u a r y 26, 1959, a t t h e request of t h e Secretary of t h e Treasury, to authorize adjustments in accounts of outstanding old series currency, a n d for other purposes. T h e Board sees no objection t o e n a c t m e n t of t h e proposed legislation. I t would affect t h e operations of t h e Federal Reserve System in relatively minor respects. Under t h e bill, t h e Federal Reserve banks would be required t o deposit in t h e Treasury gold certificates or other lawful money in a n a m o u n t equal, a t t h e time of such deposit, t o t h e total a m o u n t of their outstanding "old series" Federal Reserve notes (as defined in the bill), which presently is a b o u t $37 million, a n d t h e liability of a Reserve b a n k for its outstanding notes would be reduced b y t h e a m o u n t so deposited. Thereafter, when old series Federal Reserve notes were presented they would be redeemed from t h e general cash in t h e Treasury a n d retired. T h e Board appreciates t h e o p p o r t u n i t y t o express its views on t h e proposed legislation. Sincerely yours, C C A N B Y BALDERSTON, Vice Chairman. 11 FEDERAL RESERVE DIRECT PURCHASES C O M P T R O L L E R G E N E R A L OF T H E U N I T E D Washington, Hon. A. WILLIS STATES, March 9, 1959. ROBERTSON, Chairman, Committee on Banking and Currency, U.S. Senate. D E A R M R . C H A I R M A N : Your letter of F e b r u a r y 27, 1959, acknowledged M a r c h 2, requests our comments on S. 1177. T h e bill would authorize adjustments in the accounts of paper currency issues of the United States issued prior to July 1, 1929, and gold certificates issued prior to J a n u a r y 30, 1934, and the writing off t h e Treasury s t a t e m e n t s and accounts of t h e a m o u n t of each denomination of each kind of old large-size currency now outstanding t h a t has been destroyed or irretrievably lost and which in the j u d g m e n t of the Secretary of the Treasury will never be presented for redemption. T h e effect of t h e proposal would be to improve the cash position of the T r e a s u r y by more t h a n $100 million. We believe t h a t t h e purpose of S. 1177 is meritorious and would have no objections to its e n a c t m e n t . Sincerely yours, JOSEPH CAMPBELL, Comptroller General of the United States. The CHAIRMAN. S. 3714 would authorize the Treasury to adjust its accounts with respect to the large size currency issued by the Government prior to 1929 and with respect to about $12 million of gold certificates issued between 1929 and 1934. The Treasury and the Federal Reserve System are holding approximately $100 million in gold, silver, and other assets as security for this old currency. This includes about $61 million in gold and silver reserves held by the Treasury and about $37 million in reserves held by the Federal Reserve banks to secure Federal Reserve notes. The bill would authorize the Treasury to transfer the amounts of this old currency from its currency accounts to the outstanding public debt, to be reported as part of the outstanding public debt, in the same manner as Federal Reserve bank notes, national bank notes, and U.S. notes are now reported. The Federal Reserve banks would pay to the Treasury an amount sufficient to discharge their liabilities for outstanding Federal Reserve notes. This action would make available to the Treasury for current use approximately $3 to $4 million a year. Any of the old notes presented for redemption would be redeemed in regular course from the general fund of the Treasury. The bill would also permit the Secretary of the Treasury to determine the amount of the old currency which has been destroyed or irretrievably lost and to reduce amounts of this old currency outstanding on the records of the Treasury. This action would not impair the redeemability of any currency subsequently presented to the Treasury. The Treasury would be authorized to withhold from destruction one piece of each currency issue to provide a historical collection of the paper currency of the United States. The chairman would state that that appears to be a rather technical provision, but he understands it just boils down to this, that a very substantial amount of paper money has been lost or destroyed and the backing for it in gold and gold certificates is still kept for its ultimate redemption. This proposal is that instead of keeping all of those assets locked up for a contingency that may never happen, the Treasury wants the privilege of saving about $3 to $4 million a year in interest on outstanding debt by using those assets to retire the debt to that extent, with a clear provision that if any of these old notes should later show up, they will be fully redeemed. 12 FEDERAL RESERVE DIRECT PURCHASES Gentlemen of the committee, we will be glad to hear Secretary Baird on t h a t bill. Mr. BAIRD. Mr. Chairman, you stated very succinctly the main purposes of this bill. I can amplify on that a little if you wish, in the statement. The CHAIRMAN. YOU may, if you wish, put your entire statement in the record and then give us a summary of it. Is there objection? If not, your entire statement will be printed in the record, and then, because of our press of time, you may summarize it. Mr. BAIRD. Then to save time I will suggest the entire statement be put in the record, and I might just comment on some of the schedules that are attached to it very briefly. (The statement referred to follows:) STATEMENT OF JULIAN B. BAIRD, UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS, ON S. 3714 Mr. Chairman and members of the committee, I appreciate the opportunity to appear before the committee to discuss with you S. 3714, a bill to authorize adjustments in accounts of outstanding old series currency, and for other purposes. The proposed legislation would provide (1) that certain outstanding currency issues be liquidated as such, and constituted a part of the outstanding public debt bearing no interest, and (2) authorize the Secretary of the Treasury to determine, from time to time, the amount of each denomination of each kind of old large-size currency now outstanding that in his judgment has been destroyed or irretrievably lost and so will never be presented for redemption, and to reduce accordingly the amounts thereof outstanding on the books of the Treasury. The bill, if enacted, will be cited as the Old Series Currency Adjustment Act. I t applies to all outstanding gold certificates issued prior to January 30, 1934 (no gold certificates have been issued since that date for general circulation) and to all other classes of the outstanding old large-size currency issued prior to July 1, 1929. The Treasury and the Federal Reserve System are carrying gold, silver, and other reserves against this old currency, a large portion of which, in all probability, has been destroyed while in circulation and consequently will never be presented for redemption. The adjustments authorized by the bill would free these reserves and permit the Treasury to obtain the benefit of their use for current purposes. The bill provides for the amount of this old currency which is outstanding to be carried as a part of the public debt bearing no interest, and any such old currency presented to the Treasury would be redeemed from the general fund in the Treasury and the amount of public debt outstanding would be correspondingly reduced. The amounts carried as public debt would not constitute public debt subject to the debt limitation. These transfers to the public debt accounts will not have any immediate effect on current budgets until such times as the Treasury decides that the currency has been destroyed or will never be presented for redemption. When this determination is made, the amounts involved will be covered into the Treasury as miscellaneous receipts. This approach to an adjustment of the old large-size currency accounts is along the line of the precedent established by law and regulations for the adjustment of discontinued national bank circulation and Federal Reserve banknotes. The proposal would have the effect of improving the Treasury's cash position by $98.3 million. This would consist of $31.2 million in gold now held as security for outstanding gold certificates, $30 million in silver held as security for the old silver certificates, and $37.1 million to be received from the Federal Reserve banks to discharge their liability on account of the old large-size Federal Reserve notes. The increase in the Treasury's cash position from these sources will enable us to decrease by a corresponding amount our outstanding interest-bearing marketable public debt obligations, with an annual saving in our interest costs ranging from $3 to $4}^ million on the basis of present interest rates, while this old currency remains outstanding. The Treasury will, from time to time, make estimates of the amounts of this old currency which have been destroyed and will reduce the outstanding amounts at such times. We have a basis for making an early determination in the case of the Treasury notes of 1890, because only minor amounts of such notes have been presented in recent years. We will make determinations for the other classes of currency from time to time, when it appears that only nominal amounts are received for redemption. 13 FEDERAL RESERVE DIRECT PURCHASES T h e provisions of t h e bill t h a t authorize t h e Secretary of t h e Treasury t o determine t h e a m o u n t of t h e old currericy which, in his judgment, has been destroyed or irretrievably lost and so will not be presented for redemption, a n d to reduce accordingly t h e amount, or amounts, thereof outstanding on t h e records of t h e Treasury, would not in any way impair t h e redeemability of such currency if it is subsequently presented t o t h e Treasury. Except for a reduction of $1 million in t h e a m o u n t of outstanding U.S. notes determined t o have been destroyed with t h e Subtreasury during t h e Chicago fire in 1871, a n d for writeoffs of $8,375,934 in 1880 a n d $4,842,066.45 in 1920 of the fractional currency issued in t h e 1870's, t h e Treasury has never reduced its outstanding currency accounts for currency held in private ownership and destroyed by fires, floods, or in other ways. For example, about $1,100,000 of old Treasury notes of 1890, which have not been issued since 1893, are outstanding, and only a b o u t $25,000 of such notes have been presented for redemption in t h e last 20 years. T h e proposed bill also contains a provision to permit t h e Treasury t o withhold from destruction pieces of each currency issue t o provide a historical collection of t h e p a p e r currency of t h e United States. E n a c t m e n t of this bill would be a businesslike step t h a t would result in savings to the' taxpayers, without a n y adverse effect upon t h e Government's credit and without impairing in t h e least t h e redeemability of t h e old currency. Favorable consideration is recommended. T A B L E I.—Statement showing by kinds the total amounts of large-size and paper currency outstanding June 30, 1959 Large-size U . S . notes Gold certificates: Series of 1934 Other ._ _ Silver certificates __ T r e a s u r y notes of 1890 F e d e r a l Reserve notes _ __ F e d e r a l Reserve b a n k notes N a t i o n a l b a n k notes $24,299, 409 - ___ _. -_ _ _ _ _ _ Total 1 l ___ _ . Small-size small-size Total $322,381,607 $346,681,016 2, 815, 555, 600 12, 928,845 2,405, 635,215 18,310,454 29,992, 755 1,142,984 37,082,395 2, 099,444 29, 361, 678 28,239,346,205 109, 523,175 28,370, 772 2,815, 555, 600 31,239,299 2, 435,627,970 1,142, 984 28,276,428,600 111, 622, 619 57,732,450 142,289,119 33, 933, 741, 419 34,076,030, 538 Issued prior to July 1,1929. T A B L E II.—Old series currency T o t a l issued prior to J u n e 30, 1929 U . S . notes _ __ __ Gold certificates. _ _ Silver certificates T r e a s u r y n o t e s of 1890_ F e d e r a l Reserve notes __ __ F e d e r a l Reserve b a n k notes _ __ N a t i o n a l b a n k notes Total... ___ . _ _ __ __ _._ __. __ _ _ _ _ _ Outstanding, J u n e 30, 1959 $8, 903, 427, 808 13, 447,187, 300 12, 374, 855, 800 447, 435, 000 23, 738,946, 680 761,944, 000 14,081,189,225 $24,299,409 18,310, 454 29,992,755 1,142,984 37,082,395 2,099,444 29,361,678 73, 754, 985, 813 142,289,119 ^ TABLE III.—Old series U.S. paper currency retired, by fiscal years, June SO, 1929, to June 30, 1959 U.S. notes O u t s t a n d i n g , J u n e 30, 1929 $333,129,016 R e t i r e d , fiscal year— 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1 T o t a l , 10 y e a r s . . . Retired: 1940-44 1945-49 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 _. ._- T o t a l , 20 y e a r s __._ __ 1 Total retired O u t s t a n d i n g , J u n e 30, 1959 Gold certificates Silver certificates T r e a s u r y notes N a t i o n a l b a n k F e d e r a l Reserve F e d e r a l Reserve notes b a n k notes notes of 1890 Total N u m b e r of pieces $3,711,131 $2,123,610,415 $5,001,943,681 823,619, 587 550,236,079 57,935,122 20,383,626 18, 207, 750 8, 559,137 4, 584, 795 5,182,458 2,663,382 1,874,910 1, 580, 798 451,089 286,080 201,922 190,106 149,171 52,640 72,663 28,278 20,301 40,262 1,655,411,660 192,716,855 73,931,095 56, 502,190 29, 203,645 17,210,250 11, 517,420 7,974,020 5,988, 610 5,127,130 3,948,217,972 387,345,794 153, 511,461 154, 734,194 66, 724,300 32,151,608 23, 561,383 15,087,951 12,290, 643 8, 783,474 697,836,973 35, 525,202 14,906,433 13,131,490 7,328,932 3,435,069 2, 715, 257 1, 724,046 1,262,756 841,296 118,102 671,208,057 1,492, 512 2,055,582,875 4,802,408, 780 778, 707,454 690,693 619,492 95,719 75,036 44,240 47,343 44,731 37,830 30,898 44,289 25, 583 22,283 12,600 8,402 355 5 58,680 33,425 6,338 4 2,929 454 1 12 5 197 4,026,379 2,129,947 355,609 247,840 150, 524 172,334 215,045 116,815 130,456 107,451 109,910 65,902 302 4,703 1,679 14, 817,370 8,846,960 1,231,450 1,257,285 515,950 960,110 799,200 620,715 557,485 480, 805 498,095 359,720 26,982,244 16,330,476 2, 587,417 2,204,404 1,197,684 1,581,054 1,440,346 1,127,285 1,123,459 1,042,730 920,068 708,615 14,225,035 1,778,137 24,964 7,828,212 119,175 30,945,145 57,245, 782 5,108,128 308, 829,607 1,378, 577,705 404,928,208 143,066 679,036,269 1,611,687 2,086, 528,020 4,859,654, 562 783,815, 582 24,299,409 18,310,454 29,992,755 1,142, 984 29,361,678 2,099,444 37,082,395 142,289,119 39,804,005 $1,396,888,159 $434,920,963 $1,286,050 273,089,625 13,030, 807 6, 567, 281 5,469,904 3, 505,468 1, 641, 249 1,272,953 851,526 632, 558 443,122 1,096,923,700 110,951,070 46,447,600 69,333,230 22,047,830 7,136,850 4,324,475 2, 730,515 3,222,080 1,235,320 372,081,319 12,404,060 5,962,837 5,012, 514 3,245,899 1, 518,174 1,185,912 835,630 549,584 354,142 24,500 21,800 17,100 18, 500 13,150 7,650 5,502 4,600 2,600 2,700 306, 504,493 1,364,352,670 403,150,071 1,036, 527 740,860 121,286 89,018 49,450 52,809 51,281 46,017 30,359 53,951 26, 592 26,964 6,339,995 3,951,390 776,660 535,220 437, 520 338,200 327,160 301, 660 374,260 355,920 255,180 231,870 2,325,114 $708,397,947 10,254 3,794 H CD M < W a o d GO H T A B L E IV.—Old U.S. notes June 3 0 — 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1944 1945 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 . Gold certificates $333,129, 016 $1,396.888,159 60,039, 391 299, 964, 459 47, 008, 584 189,013,389 40, 441. 303 142, 565, 789 34, 971,399 73,232, 559 31, 465, 931 51,184, 729 29, 824, 682 44, 047, 879 28, 551, 729 39, 723, 404 27, 700,203 36,992,889 27, 067, 645 33, 770, 809 26, 624, 523 32, 535, 489 26, 333. 906 30,320, 064 25, 587, 996 26,195, 494 25, 486, 585 25, 458, 544 24, 847,136 22, 244,104 24, 725,850 21,467, 444 24, 636,832 20, 932, 224 24, 587,382 20, 494, 704 24, 534, 573 20,156, 504 24, 483,292 19,829, 344 24,437, 275 19, 527,684 24, 406, 916 19,153, 424 24. 352, 965 18, 797, 504 24, 326, 373 18, 542,324 24, 299, 409 18,310, 454 Silver certificates $434, 920, 963 62,839, 644 50, 435, 584 44, 472, 747 39, 460, 233 36,214. 334 34, 696,160 33, 510, 248 32,674, 618 32,125, 034 31, 770, 892 31, 558, 628 31, 080,199 31,017, 732 30, 460, 707 30,364, 988 30, 289, 952 30, 245, 712 30,198, 369 30,153, 638 30,115, 808 30, 084, 910 30,040, 621 30, 015, 038 29, 992, 755 paper currency outstanding Treasury National b a n k notes of 1890 notes $1,286,050 1,261, 550 1, 239, 750 1,222, 650 1,204,150 1,191, 000 1,183, 350 1,177,848 1,173,248 1,170, 648 1,167, 948 1,163, 948 1.155, 348 1,151,138 1,146, 946 1,146, 591 1,146, 586 1,146, 586 1,146, 582 1,143, 653 1,143,199 1,143,198 1,143,186 1,143,181 1,142, 984 $708, 397, 947 158,161, 868 100,226, 746 79,843,120 61, 635, 370 53, 076,233 48, 491, 438 43,308, 980 40, 645, 598 38, 770, 688 37,189,890 36, 011, 705 33,163, 511 32, 727,358 31,033, 564 30,677,955 30, 430,115 30, 279, 591 30,107, 257 29, 892,212 29, 775, 397 29, 644, 941 29, 537, 490 29, 427, 580 29, 361, 678 Federal Reserve bank notes Federal Reserve notes Total $3, 711,131 $2,123, 610, 415 $5,001, 943, 681 3,260, 042 468,198, 755 1, 053, 725, 709 2, 973, 962 275, 481, 900 666, 379, 915 2, 772,040 201, 550,805 512,868, 454 2, 581, 934 145, 048, 615 358,134, 260 2, 432, 763 115, 844, 970 291, 409, 960 2,380,123 98,634, 720 259,258, 352 2, 307, 460 87,117, 300 235, 696, 969 2,279,182 79,143,280 220,609,018 2, 258, 881 73,154, 670 208, 318,375 2, 218, 619 68, 027,540 199, 534, 901 2, 203, 796 63, 652, 070 191, 244,117 172, 552, 657 53, 210,170 2,159, 939 2,151, 463 51,168, 600 169,161, 420 2,126, 514 44, 363,210 156, 222,181 153,634, 764 2,120,176 43,131, 760 41,874, 475 2,120,176 151, 430, 360 2,120,176 150, 232, 676 41, 358, 525 2,109, 922 40, 398, 415 148, 651, 622 2,109, 922 39, 599, 215 147, 211,276 2,106,128 38,978, 500 146.083,991 2,106,128 38,421, 015 144, 960, 532 2,105, 826 37,940,210 143, 917,802 2,101,123 37, 442,115 142, 997, 734 2, 099, 444 37, 082, 395 142, 289,119 N u m b e r of pieces 823, 619, 587 125, 782, 614 90, 257, 412 75, 350,979 62,219, 489 54, 890, 557 51, 455,488 48, 740,231 47,016,185 45, 753,429 44, 912,133 40, 914, 485 40, 798, 788 40, 702, 735 40, 620, 522 40, 514,394 39, 804, 008 Oi 16 FEDERAL RESERVE DIRECT PURCHASES T A B L E V.— U.S. notes Outstanding J u n e 30, 1959: Old series New series $24, 299, 409 322, 381, 607 Percent 7. 01 92. 99 T o t a l as currency Gold reserve (deduct) 346, 681, 016 156, 039, 431 100 45 T o t a l as debt Old series: Total issued Outstanding J u n e 30, 1959 190, 641, 585 55 1 8,903,427,808 24, 299, 409 1 0. 273 Say \i of 1 percent. T h e present a m o u n t of o u t s t a n d i n g U.S. notes ($346,681,016) was fixed b y t h e act of M a y 31, 1878, which requires t h e notes t o be reissued when received for redemption or otherwise. Previously, after t h e Chicago fire in 1871, it was determined t h a t $1 million of U.S. notes were destroyed with t h e subtreasury. T h e a m o u n t was never replaced. I t was deducted from t h e t o t a l outstanding. T h e United States already has realized any profit t h a t can accrue t h r o u g h destroyed outstanding notes. T h e money in circulation has become adjusted t o such losses, a n d there is no occasion for replacing t h e destroyed notes. T h e only action necessary is to write off t h e debt when t h e a m o u n t shall have been determined. Such action would be in accordance with t h e Chicago fire precedent. I t will be specifically authorized in section 5(c) of t h e proposed bill. U n d e r section 6 t h e a m o u n t of notes required t o be k e p t in circulation would be reduced b y t h e a m o u n t written off. T A B L E V.—Gold certificates Old series: Total issued Outstanding J u n e 30, 1959 $13,447, 187,300 i 18, 310, 454 i (0.14 percent; say one-seventh of 1 percent.) A like a m o u n t of gold is held in t h e Treasury as security. Section 2 of t h e proposed bill contemplates t h e transfer of this gold t o t h e general fund as a public d e b t receipt, and at t h e same time under section 5(a) the conversion of a currency liability into a public debt liability, payable on demand. T h e liquidation of this d e b t will be a slow process, b u t in t h e end, in all probability, t h e greater p a r t will be presented. Meanwhile, t h e United States will receive t h e benefit; t h e gold will be available for t h e issuance of gold certificates transferable to Federal Reserve banks for t h e credit of t h e Treasurer of t h e United States, and, t o t h e extent old series certificates are outstanding, t h e United States will gain t h r o u g h reduced interest charges, for this a m o u n t of debt will not bear interest. New series: Outstanding J u n e 30, 1959 $12,928,845 This represents t h e balance of small-size gold certificates outstanding a t t i m e of e n a c t m e n t on J a n u a r y 30, 1934, of t h e Gold Reserve Act of 1934, a n d which h a d not been surrendered under t h e order of t h e Secretary of t h e Treasury of December 28, 1933. Under t h a t act no currency of t h e United States shall be redeemed in gold. Since t h e holders of these gold certificates m a y not redeem t h e m for gold, there is no need t o maintain a full gold reserve against t h e m . These new series certificates will be t r e a t e d in t h e same m a n n e r as t h e old series under t h e proposed bill. FEDERAL RESERVE DIRECT PURCHASES 17 T A B L E VI.—Silver certificates—Treasury notes of 1890 Old series: Silver certificates: Total issued $12,374, 855, 800 1 Outstanding J u n e 30, 1959__ 29, 992, 755 Treasury notes of 1890: Total issued 447,435,000 2 Outstanding J u n e 30, 1959__ 1, 142, 984 Standard silver dollars held in t h e Treasury as security for outstanding old series silver certificates and Treasurjr notes of 1890 31, 135, 739 1 2 0.242 percent; say \i of 1 percent. 0.255 percent; say \i of 1 percent. Section 2 of t h e proposed bill contemplates t h e transfer of t h e silver dollars now held as security (for t h e redemption of t h e old series silver certificates and Treasury notes of 1890) to t h e general fund as a public debt receipt, and at t h e same time under section 5(a) t h e conversion of a currency liability into a public debt liability. When t h e silver dollars shall have been released t o t h e generalfund, t h e y will become "free" dollars, and available for deposit for t h e issue of additional amounts of silver certificates. I n effect, t h e United States will borrow an amount equal to t h e silver dollars impounded against t h e outstanding old series currency, which will not bear interest b u t which will be repayable on demand. And for t h a t p a r t which will not be presented ultimately for p a y m e u t t h e profit will inure to t h e United States. T A B L E VII.—Federal Reserve notes Old series: Total issued Outstanding J u n e 30, 1959 1 $23, 738,946, 680 * 37, 082, 395 0.156 percent; say H of 1 percent. Section 3 of t h e accompanying bill relates to retirement of Federal Reserve notes of t h e old series. T h e provisions authorize t h e Federal Reserve Board, with t h e approval of t h e Secretary of t h e Treasury to require the Federal Reserve banks t o p a y to t h e Secretary of t h e Treasury a m o u n t s equal to outstanding old size notes a t t h e time of such p a y m e n t . Section 7 provides t h a t t h e liability of t h e Federal Reserve banks for Federal Reserve notes shall be reduced b y t h e amount of such payment, and t h a t t h e collateral held b y Federal Reserve agents shall thereupon be released. Section 5(b) provides t h a t t h e notes shall thereupon be carried as public debt bearing no interest. T A B L E VIII.—National bank notes Old series: Total issued Outstanding J u n e 30, 1959 1 $14,081, 189,225 1 29, 361, 678' 0.209 percent; say li of 1 percent. T A B L E IX.—Federal Reserve bank notes Old series: Total issued Outstanding J u n e 30, 1959 1 $761, 944,000' 12,099,444 0.276 percent; say K of 1 percent. Under existing law, when a national b a n k deposits lawful money to retire its* outstanding circulation, t h e money so deposited is covered into t h e Treasury as a miscellaneous receipt, t h e a m o u n t is set up as an item of public debt bearing no interest, and thereafter any notes so covered for retirement, on presentation,, are redeemed from t h e general cash in t h e Treasury and t h e outstanding debt, reduced accordingly. (U.S.C., title 12, sec. 122, act J u l y 14, 1890.) 18 FEDERAL RESERVE DIRECT PURCHASES T h e same provisions of law relate t o Federal Reserve b a n k notes. All o u t standing national b a n k notes and Federal Reserve bank notes of t h e old series h a v e been covered by deposits of lawful money in t h e Treasury, t o provide for their retirement on presentation, a n d t h e a m o u n t s o u t s t a n d i n g are carried as items of t h e public debt bearing no interest. Under section 5(c) of t h e proposed bill, a n y gain resulting from t h e destruction or t h e irretrievable loss of notes covered b y such deposits, accrues to t h e United States. At such time as t h e Secretary m a y have determined w h a t a m o u n t of such covered notes will never be presented for redemption, t h e o u t s t a n d i n g d e b t bearing no interest m a y be reduced in t h a t a m o u n t . E X C E R P T F R O M D A I L Y STATEMENT OF T H E U.S. T R E A S U R Y , M A Y 31, 1960 T h e deposits and withdrawals shown in this s t a t e m e n t are those t h a t affect t h e account of t h e Treasurer of t h e United States. Receipts a n d expenditures of t h e U.S. Government on a b u d g e t a r y basis, showing surplus or deficit, reported daily prior t o F e b r u a r y 17, 1954, are now published in a separate m o n t h l y s t a t e m e n t available shortly after t h e middle of t h e following m o n t h . Account of Treasurer of the United States ASSETS « $19,352,157,236. 68 Gold (oz. 552,918,778.2) Total 19,352,157,236.68 Silver (oz. 1,741,339,335.5) Silver dollars (oz. 135,525,055.5) Total 2,251,428,634.12 175,224,314.00 2,426,652,948.12 Gold balance (as above) Silver balance (as above) Subsidiary coin (oz. 9,553,669.2) Other silver bullion (oz. 156,324,761.0) Other coin and currency Unclassified-collections, etc Deposits in: Federal Reserve banks: Available funds In process of collection Special depositaries, Treasury Tax and Loan Accounts Other depositaries 106,968, 986.37 40,149,481.12 13,207,076.80 114, 709, 546. 41 103, 530,201. 57 50,021,126.27 461,869,763. 54 150,082,543.32 6,180,477,045.47 376,876,812.92 Total . 7,597,892,583.79 LIABILITIES Gold certificates, etc Balance of gold Total Silver certificates, etc Balance of silver Total _._ Board of trustees, Postal Savings System: 5-percent reserve, lawful money Other deposits Uncollected items, exchanges, etc Balance! __ ___ Total.— 19,245,188,250.31 106,968,986.37 19,352,157,236.68 _*_ -— _ ___ __ _ — —- i Balance corresponding day last year was $5,888,203,603.04. « Amount on May 29, 1959, was $20,187,714,127.74. _ 2,386, 503,467.00 40,149,481.12 2, 426, 652,948.12 42, 500,000. 00 18,360,225.61 26,217,850.12 7,510,814,508.06 7,597,892,583.79< FEDERAL RESERVE DIRECT PURCHASES Cash deposits and This month to d a t e Classification 19 withdrawals Corresponding Fiscal year 1960 Corresponding to d a t e (begin- period fiscal year period last year n i n g J u l y 1, 1959) 1959 (beginning J u l y 1, 1958) DEPOSITS Internal revenue: I n d i v i d u a l income taxes w i t h held 2 I n d i v i d u a l income taxes o t h e r 2 . Corporation i n c o m e taxes Excise t a x e s . , E m p l o y m e n t taxes: Federal Insurance Contributions Act a n d Self-Employm e n t C o n t r i b u t i o n s A c t 2.__ Railroad Retirement Tax Act 3 Federal Unemployment Tax Act _ E s t a t e a n d gift taxes Taxes n o t otherwise c l a s s i f i e d Customs._ D e p o s i t s b y States a n d R a i l r o a d R e t i r e m e n t B o a r d in u n e m p l o y m e n t t r u s t fund V e t e r a n s ' life i n s u r a n c e funds All o t h e r Total D e d u c t : Refunds of receipts ___ $4,434,416,159. 25 $4,027,073, 756. 96 <% 335,676, 727. 54 786,177, 654.89 419,977,109. 84 476, 997,985. 29 965,713,395.39 1,016, 597,054. 68 $29,025, 674, 744.35 $26,237,158, 245.13 dll, 455,403,619.05 10,074,830, 511. 85 16, 682,086,839.20 13,294,439,165. 89 10, 535,309,902.15 9, 848,492, 595.43 <*1,834,364, 610.99 1,416, 771,353.16 <*9,106,911, 494.11 7,355,183,357. 79 87,343,101.24 75,840,391. 22 556, 748, 616.29 477,094,384.92 2, 637,970.12 198,319, 782. 62 5, 537,449.48 98,213,263.86 1,412,129. 58 150,635,432. 55 2,229,104.15 116,216, 258.14 340,684, 647.95 1,487, 201,837. 75 7, 347,984. 65 1,035,821, 576.41 324, 241,390.95 1, 249,950, 255. 73 1, 788,828.15 876,141, 260.44 761, 885,331. 65 40, 763,426.64 463, 707,302. 59 571, 553,380. 57 37,126, 867.90 413,082, 557.21 2, 236,972,127.38 440,032,226. 36 4, 250,964, 649.97 1, 757,215,469. 22 437,022, 715. 81 3,393, 212, 967.44 10, 756,460,165. 95 8,983,809,391. 56 87,161,160, 265. 62 75,326, 771,148. 75 1,075,405,728.45 1,148,142,636.32 4,890,991,080.28 4, 851,625,271. 70 9,681,054,437. 50 7, 835,666, 755.24 82, 270,169,185. 34 70,475,145, 877.05 N e t deposits WITHDRAWALS Defense D e p a r t m e n t : M i l i t a r y (including m i l i t a r y assistance) _ __ 3, 236,475, 623. 93 '3,435,379,377. 82 "39, 502,279,360.10 «39, 673,865,231. 96 Civil 805, 583,981. 62 697, 492, 542. 58 66, 868,848. 54 62,841,268.90 137,893,001.05 «112, 645,434.23 « 1,425,214, 650.42 o 1,345,129, 946. 52 M u t u a l security-economic _ 450, 256,015. 65 409,362, 709.31 4,721,902,050.32 4, 705,467,860. 29 Veterans' Administration. 5,043,654,343. 71 <J83,826,157.45 I n t e r e s t on t ^ e p u b l i c d e b t 686, 571,415.42 6,631,030,051.06 F e d e r a l employees' r e t i r e m e n t 722,091,489.10 funds ___ _ __ __ ._ 77,397,383.05 816,959, 850. 27 70, 276, 517.02 F e d e r a l old-age a n d s u r v i v o r s in902,956,382. 75 829,943,077. 22 9, 549, 355, 856. 28 8,372,936, 529. 69 surance t r u s t fund _ 849,231,965.62 81, 255, 751. 73 68,367,153.46 713, 913, 561.01 Railroad retirement account 234,279,969.43 167,484,307.08 2,461, 542, 770.99 2,885,503,571.68 U n e m p l o y m e n t t r u s t fund 55, 756, 506. 97 604,191, 540. 67 579, 402, 345. 33 53, 410, 097. 89 V e t e r a n s ' life insurance funds All other __ __ _ _ __ 1, 242, 619, 297. 31 1, 461, 972, 298. 80 14, 574,153, 785. 24 14, 876, 205, 652. 50 Total _ _ ___ •Government corporations, etc Clearing a c c o u n t _ _ Total withdrawals „ 7,469, 584,937.86 7, 358, 253, 657.15 81,941,445, 862. 59 79,615, 663,074.37 322,821,080. 67 354, 694, 514. 88 3, 575, 708, 253.47 5, 936, 456, 729. 43 t> 202, 872, 872. 59 221,006, 519. 84 220, 075, 207. 27 & 408,496,838.17 __ 8,013,412, 538.37 7,933,023, 379. 30 85,108,657, 277.89 85, 349, 246,931.21 2 Distribution made in accordance with provisions of sec. 201 of the Social Security Act, as amended, for appropriation to the Federal old-age and survivors insurance trust fund and Federal disability insurance trust fund. 3 Amounts equal to taxes on carriers and their employees (minus refunds) are appropriated to the railroad retirement account. b Contra entry (deduct). c Revised on account of reclassification. d "Individual income taxes other" exclude $157,000,000 estimated taxes on self-employed individuals classified as "Employment taxes: Federal Insurance Contributions Act and Self-Employment Contributions Act." 20 FEDERAL RESERVE DIRECT PURCHASES Cash deposits and withdrawals MATURED D E B T ON WHICH I N T E R E S T HAS CEASED Old debt matured—issued prior to April 1, 1917 (excluding Postal Savings bonds) 2XA% Postal Savings bonds First Liberty bonds, at various interest rates Other Liberty bonds'and Victory notes, at various interest rates Treasury bonds, at various interest rates Adjusted Service bonds of 1945 Treasury notes, at various interest rates Certificates of indebtedness, at various interest rates Treasury bills Treasury savings certificates Treasury tax and savings notes United States savings bonds " Armed forces leave bonds Total matured debt on which interest has ceased AmOUJlt outstanding 8 $1,370,600. 26 «5 619,080.00 712,100.00 4, 976,050.00 25,454,050.00 2,131,050.00 38,480, 550.00 7,146,050.00 21,631,000.00 » 74,650.00 1, 948,375.00 296,168,474.00 11,396,400.00 412,108,429.26 D E B T BEARING NO I N T E R E S T Special notes of the United States: 12 International Monetary Fund series Other: United States savings stamps Excess profits tax refund bonds 13 United States notes Less: Gold reserve 2,238,000,000.00 $346,681,016.00 156,039,430. 93 National and Federal Reserve bank notes assumed by the United States on deposit of lawful money for their retirement Old demand notes and fractional currency Thrift and Treasury savings stamps Total debt bearing no interest 54,026,908.06 796,882.71 8 190,641, 585.07 « 5157, 591,969. 50 2,018,455.50 6 3,705,239. 50 2,646,781,040.34 Total gross public debt (including $25,571,900,974.10 debt incurred to finance expenditures of Government corporations and other agencies for which obligations of such corporations and agencies are held by the Treasury 289,366, 525, 591. 97 Guaranteed obligations not owned by Treasury 133,449,375.00 Total debt and guaranteed obligations 289,499,974,966.93 Deduct debt not subject to statutory limitation (see footnote 5) 406, 533,679. 87 Total debt subject to limitation " 289,093,441,287.14 6 The items not subject to the statutory debt limitation are keyed to this footnote and consist of (a) Panama Canal bonds; (b) certain matured debt; and (c) certain debt bearing no interest. " The face value of United States savings bonds of Series F or G of any yearly series maturing from month to month which are not currently presented for retirement will continue to be reflected as interestbearing debt until all thfc bonds of the series have matured. Thereafter, the total amount outstanding is 12 reflected as matured debt on which interest has ceased. Issued pursuant to the provisions of the Bretton Woods Agreements Act, approved July 31, 1945, and under the authority of and subject to the provisions of the Second Liberty Bond Act, as amended. The notes are non negotiable, bear no interest, and are payable on demand. 13 Issued under the authority of and subject to the provisions of the Second Liberty Bond Act, as amended, and sections 780 to 783, inclusive, of the Internal Revenue Code, as amended. Issued in series depending upon the tax years for which credits are available and in amounts certified to the Secretary of the Treasury by the Commissioner of Internal Revenue. Bear no interest and mature at yearly intervals after the cessation of hostilities, as provided by Section 780(e) of the Internal Revenue Code, as amended, and are redeemable at the option of the owner on or after January 1, 1946. 14 Statutory debt limit was changed by the Act approved June 30, 1959 from $283 billion to $285 billion. The limit, including temporary increases, was $280 billion from February 26 to September 2, 1958; $288 billion from September 2, 1958 to June 29, 1959; and $290 billion on June 30, 1959. From July 1, 1959 to J u n e 30, 1960, the limit is $295 billion. Thereafter it will revert to $285 billion. Mr. BAIRD. If you would turn to schedule III—-I believe you have it before you—which is headed, "Old Series U.S. Paper Currency Retired, by Fiscal Years/' these are the issues we are discussing. If you will look near the middle you will see, "Treasury notes of 1890." You will notice $1,142,984 of that currency is outstanding, but in the last 20 years there has been only about $25,000 of that currency presented. For instance, last year there was only $197. The year before, $5. The year before, $12, and the year before, $1. Now, it just stands to reason that in the long history of this country, with the hundreds of thousands of homes that have been burned and the ships that go down, a lot of this currency is gone. There was originally a very large amount of it outstanding, and this is the residue, .and probably most of that would not appear, and yet we are holding .reserves, metallic reserves against this currency that could be freed to 21 FEDERAL RESERVE DIRECT PURCHASES support other currency, new currency, and therefore obviate our borrowing an equivalent amount from the public. Senator BUSH. And these other columns are simply other issues of currency that are similar to these Treasury notes of 1890. Mr. BAIRD. This is all old currency issued before July 1, 1929, except the gold certificates that were put out in small currency between 1929 and 1934 when the Gold Reserve Act of 1934 was passed. We do not redeem those now in gold, but only in other forms of currency. There is a small amount of those included. Otherwise, it is all old, large size currency. The CHAIRMAN. Mr. Secretary, does that conclude your testimony? Mr. BAIRD. Yes. I just say in conclusion that this looks like a businesslike transaction. I t in no way impairs the credit of the United States, it in no way impairs the redeemability of these notes. Senator B U S H . What is the status of this in the House? Mr. BAIRD. The status of this in the House is that they say they will act promptly on this now if it is passed by the Senate. The CHAIRMAN. We will, without objection, insert the Treasury Department memorandum, "Coins and Currency of the United States," at the end of this record. Mr. Secretary, I am sorry more members of the committee are not present to see this exhibit of old bills. I believe it is against the law to reproduce them in the record. So if there are no further questions, we thank you gentlemen of the Treasury Department. We will take this matter up this morning in executive session. (Whereupon, at 10:25 a.m., the committee went into executive session.) (The following was ordered inserted in the record:) C O I N S AND C U R R E N C Y OF T H E U N I T E D S T A T E S 1 FOREWORD This s t a t e m e n t contains a s u m m a r y account of t h e more i m p o r t a n t changes in t h e m o n e t a r y system of t h e United States since its inception, together with a brief historical account of t h e various coins and paper currencies which have constituted t h e money circulation of t h e United States. T h e s u m m a r y has been prepared for t h e information of t h e general public, a n d is not t o be regarded as a comprehensive or legally definitive treatise. The material is arranged in four p a r t s : I. History of t h e M o n e t a r y S t a n d a r d ; I I . History of t h e Coins; III. History of the Paper Currency; I V . Description of t h e Money of t h e United States, J u n e 30, 1947. PART I. HISTORY OF THE MONETARY STANDARD Under t h e Articles of Confederation, t h e Congress in 1785 adopted t h e dollar as t h e m o n e t a r y unit of t h e United States, and in 1786 fixed its value a t 375.64 grains of pure silver. This unit was derived from t h e Spanish piaster, or milled dollar, which h a d constituted a large p a r t of t h e metallic circulation of t h e English colonies in America. Congress, b y t h e act of April 2, 1792, established t h e first m o n e t a r y system of t h e United States under t h e Constitution. T h a t act provided " t h a t t h e money of account of t h e United States shall be expressed in dollars or units, dismes or t e n t h s , cents or h u n d r e d t h s , a n d milles or t h o u s a n d t h s , " a n d established two units of value: t h e gold dollar containing 24.75 grains of pure gold (27 grains of s t a n d a r d gold 0.916% fine), a n d t h e silver dollar containing 371.25 grains of p u r e silver (416 grains of s t a n d a r d silver 0.8924 fine), t h e proportionate mint ratio of t h e t w o metals being 1 t o 15. A mint was established a t Philadelphia, i Source: Office of Secretary of Treasury. Office of the Technical Staff. 22 FEDERAL RESERVE DIRECT PURCHASES a n d provision was m a d e for t h e coinage of b o t h gold and silver coins. T h e coinage was unlimited and there was no mint charge. B o t h gold and silver coins were legal tender. T h e act of 1792 undervalued gold in relation to silver, and gold was therefore exported. To remedy this t h e act of J u n e 28, 1834, reduced t h e content of t h e gold dollar from 24.75 to 23.2 grains of pure gold, and reduced t h e s t a n d a r d weight from 27 to 25.8 grains, t h u s reducing t h e fineness to 0.899225, and, since t h e fine content of t h e silver dollar was unchanged, making t h e mint ratio between gold a n d silver 1 to 16.002. By t h e act of J a n u a r y 18, 1837, t h e fineness of b o t h gold a n d silver coins was fixed at 0.900, and t h e weight of t h e gold dollar was fixed at 25.8 grains of s t a n d a r d or 23.22 grains of pure gold; and, since t h e fine content of t h e silver dollar was unchanged, a new mint ratio of 1 to 15.988+ for gold a n d silver was thereby established. However, both t h e acts of 1834 and 1837 undervalued silver in t e r m s of gold, a n d silver was a t t r a c t e d to Europe by t h e more favorable ratio there obtaining. B y t h e act of F e b r u a r y 21, 1853, in order to eliminate t h e disadvantages resulting from t h e disappearance of fractional silver coins from circulation, t h e fine silver content of silver coins for fractional p a r t s of a dollar was reduced approximately 7 percent (previously their silver content h a d been exactly proportional t o t h a t of t h e silver dollar), and t h e y were made legal tender to t h e a m o u n t of $5 only (previously t h e y h a d been full legal tender). This act also discontinued free coinage of fractional silver coins, and provided t h a t thereafter t h e y should be coined only for t h e account of t h e Treasury, any profit accruing to t h e United States t h r o u g h their coinage to be covered into t h e Treasury as seigniorage. T h e act of F e b r u a r y 12, 1873, codified t h e coinage laws then in effect a n d m a d e a n u m b e r of changes in t h e m o n e t a r y structure. This act declared t h a t a gold "one-dollar piece" (of unchanged fineness and content, 25.8 grains of s t a n d a r d gold 0.900 fine, or 23.22 grains of pure gold) should be '"the unit of v a l u e " ; coinage of gold was to be unlimited, and gold coins were full legal tender. Silver coins for fractional p a r t s of a dollar, except for t h e half-dime which was abolished, were continued, as provided in the act of 1853, with only a slight change in their silver content (and without change in their limited legal tender qualities). Former provision for silver dollars (of 371.25 grains of pure silver) was omitted (a t r a d e dollar containing 378 grains of pure silver, intended for export to t h e Orient in exchange for goods, was authorized; its free coinage was discontinued in 1878). T h e act of F e b r u a r y 28, 1878 (Bland-Allison Act), again provided for t h e coinage of t h e silver dollar of t h e weight (412.5 grains) and s t a n d a r d (0.900 fine), i.e., 371.25 grains of pure silver, as provided by t h e act of J a n u a r y 18, 1837, a n d provided t h a t all such silver dollars together with those previously coined should be legal tender at their nominal value for all debts and dues, public and private, except where otherwise expressly stipulated in t h e contract. (For silver purchase a n d coinage provisions see p p . 7-12.) T h e act of July 14, 1890 (Sherman Act), which provided for t h e purchase of silver (see p . 8) and t h e issuance of Treasury notes of t h e United States (see p . 18) in p a y m e n t therefor stated " t h a t upon d e m a n d of t h e holder of any of t h e Treasury notes herein provided for t h e Secretary of t h e Treasury shall, under such regulations as he m a y prescribe, redeem such notes in gold or silver coin, a t his discretion, it being t h e established policy of t h e United States to maintain t h e two metals on a p a r i t y with each other upon t h e present legal ratio, or such ratio as m a y be provided by law." T h e act of November 1, 1893, repealed t h e purchasing clause of t h e act of J u l y 14, 1890, and declared it to be " t h e policy of t h e United States to continue t h e use of b o t h gold and silver as s t a n d a r d money, and to coin b o t h gold and silver into money of equal intrinsic and exchangeable value, such equality to be secured t h r o u g h international agreement, or by such safeguards of legislation as will insure t h e maintenance of t h e p a r i t y in value of t h e coins of t h e two metals, and t h e equal power of every dollar a t all times in t h e m a r k e t s and in t h e p a y m e n t of debts." T h e act of March 14, 1900, reaffirmed t h e act of 1873 by providing t h a t , " t h e dollar consisting of 25.8 grains of gold nine-tenths fine, * * * shall be t h e s t a n d a r d unit of value, and all forms of money issued or coined by t h e United States shall be maintained a t a p a r i t y of value with this standard, a n d it shall be t h e d u t y of t h e Secretary of t h e Treasury to maintain such p a r i t y . " This act also provided t h a t nothing contained in t h e act "shall be construed to affect t h e legal-tender q u a l i t y as now provided by law of the silver dollar, or of a n y other money coined or issued by t h e United S t a t e s . " I n 1913, Congress provided in t h e Federal Reserve Act t h a t " n o t h i n g in this act contained shall be construed t o repeal t h e p a r i t y provision or provisions contained FEDERAL RESERVE DIRECT PURCHASES 23 in an act approved March fourteenth, nineteen hundred, * * * and the Secretary of the Treasury may for the purpose of maintaining such parity and to strengthen t h e gold reserve, borrow gold on the security of U n i t e d States bonds * * * ." Under powers granted by the act of October 6, 1917 (Trading With t h e E n e m y Act), confirmed and broadened by the act of March 9, 1933 (Emergency Banking Act), the President issued a series of Executive orders in March and April 1933, the effect of which was temporarily to take the United States off the gold s t a n d a r d . Gold coin, gold bullion, and gold certificates were required to be surrendered t o the Federal Reserve banks and strict control over t h e export of gold was maintained by the Treasury. Title I I I of the act of M a y 12, 1933, known as t h e T h o m a s amendment, e m powered the President to reduce the gold content of t h e dollar by as much as 50 percent. The President did not exercise this power until J a n u a r y 31, 1934, b u t during the latter p a r t of 1933, and J a n u a r y 1934, the Government bought gold a t prices ranging from $20.67 an ounce (the previously existing s t a n d a r d price) t o $34.45 an ounce. Title I I I of t h e act of M a y 12, 1933, as amended b y t h e joint resolution of J u n e 5, 1933, provided t h a t all coins and currencies of the United States (including Federal Reserve notes and circulating notes of Federal Reserve banks and national banking associations) should be legal tender for all debts, public and private, public charges, taxes, duties, and dues. (This policy was further implemented b y t h e joint resolution of August 27, 1935, which provided t h a t t h e lawful holders of t h e coins or currencies of the United States should be entitled to exchange t h e m , dollar-for-dollar, for other coins or currencies which are lawfully acquired and are legal tender for public and private debts.) The joint resolution of June 5, 1933, declared all contractual provisions requiring p a y m e n t in gold or any particular kind of coin or currency against public policy, a n d provided t h a t all obligations previously incurred, or to be incurred in t h e future, would be legally discharged by p a y m e n t dollar-for-dollar in any coin or currency which at t h e time of p a y m e n t was legal tender for public and private debts. On December 21, 1933, the President, p u r s u a n t to power vested in him by title I I I of the act of M a y 12, 1933, issued the first of a series of proclamations directing t h e purchase by the mints of newly mined domestic silver. The purchase of newly mined domestic silver is discussed further in p a r t I I on t h e History of the Coins, under the head " S t a n d a r d Silver Dollars." The Gold Reserve Act, approved J a n u a r y 30, 1934, crystallized the policy developed during 1933; and, in effect, established as the m o n e t a r y s t a n d a r d a form of the gold bullion s t a n d a r d . The act vested in the United States title to all gold coin and gold bullion held b y the Federal Reserve banks and in exchange for this coin and bullion provided for the issuance of credits payable in gold certificates. I t provided t h a t all gold coin of the United States should be withdrawn from circulation a n d together with all other gold owned by the United States should be formed into bars. Authority was granted to the Secretary of the Treasury, with the approval of the President, to issue regulations under which gold might be acquired and used (a) for industrial, professional, a n d artistic use; (b) by the Federal Reserve banks for the purpose of settling international balances; and (c) for other purposes not inconsistent with the purposes of the act. 2 The Secretary of the Treasury was authorized to issue gold certificates against a n y gold held by the Treasurer of the United States, except the gold fund held as a reserve for any U.S. notes a n d Treasury notes of 1890. The Secretary of the Treasury in his discretion issues such gold certificates to the Federal Reserve banks and the a m o u n t s are credited to the Treasury balances with the Reserve b a n k s in order to reimburse these balances for the Treasury's expenditures made in connection with acquisitions of gold. Under the act, gold certificates owned by the Federal Reserve banks m a y be redeemed at such times and in such a m o u n t s as, in the j u d g m e n t of the Secretary of the Treasury, are necessary to maintain t h e equal purchasing power of every kind of currency of the United States. Title I I I of the act of M a y 12, 1933, was amended by t h e Gold Reserve Act t o authorize the President to set the gold content of the dollar a t not more t h a n 60 percent, and not less t h a n 50 percent, of its previous a m o u n t . On J a n u a r y 3 1 , 1934, the President set the gold content of the dollar a t 15%i grains of gold 0.900 fine. This constituted a reduction to 59.06 percent of the former gold content of the dollar, and was equivalent to a monetary value for gold of $35 per fine ounce. 2 The current regulations issued pursuant to this authority are set forth in the U.S. Treasury Department pamphlet "Provisional Regulations Issued Under the Gold Reserve Act of 1934 as Amended to April 15, 1942." 24 FEDERAL RESERVE DIRECT PURCHASES The President's power to alter further the gold content of the dollar t e r m i n a t e d on June 30, 1943. The act of J u n e 19, 1934 (Silver Purchase Act), declared it to be the policy of t h e United States t h a t the proportion of silver to gold in the m o n e t a r y stocks of the United States be increased, with the ultimate objective of having and maintaining one-fourth of the m o n e t a r y value of such stocks in silver. Under powers given to the President by this act, an Executive order was issued on August 9, 1934, which required, with certain stipulated exemptions, of which newly mined silver was one, t h a t all silver situated in the continental United States a t the time be delivered to t h e U.S. mints within 90 days. T h e depositor received 50 cents per ounce of silver. This order, together with other Executive a n d Treasury orders regulating the holding, importing, and exporting of silver, was revoked on April 28, 1938. Through t h e nationalization of domestic silver, t h e purchase of newly mined domestic silver at various prices fixed from time to time and applicable to all domestic producers, and by foreign purchases, t h e monetary value of silver m o n e t a r y stocks was increased from $1,280 million on J u n e 30, 1934, to $3,526 million on J u n e 30, 1947. T h e ratio of silver to gold contemplated b y t h e Silver Purchase Act has not been achieved, however, primarily because of t h e very rapid increase of t h e Government's gold stock prior to November 1941. T h e act of July 12, 1943 (Green Act), authorized t h e President, t h r o u g h t h e Secretary of the Treasury, upon recommendation of t h e Chairman of t h e W a r Production Board, to sell or lease domestically any silver held or owned b y t h e United States, provided t h a t a t all times the Treasury maintained t h e ownership a n d t h e possessions or control within t h e United States of an a m o u n t of silver of a m o n e t a r y value equal to t h e face a m o u n t of all outstanding silver certificates. T h e price to be paid for such silver was to be not less t h a n 71.11 cents per fine ounce. This a u t h o r i t y expired on December 31, 1945. T h e act of July 31, 1946, authorized t h e Secretary of t h e Treasury, under such t e r m s as he considers advisable, to sell or lease for manufacturing uses any silver held or owned by t h e United States—with t h e same provisions as to ownership a n d possession or control as noted above under t h e act of July 12, 1943—at a price of not less t h a n 90.5 cents per fine ounce; on t h e d a y t h a t this act became law t h e Secretary of t h e Treasury announced t h a t sales would be m a d e a t a price of 91 cents per fine ounce. PART II. HISTORY OF THE COINS T h e act of April 2, 1792, established a mint, a n d authorized t h e following coins. Gold: eagles (each of t h e value of 10 units or dollars), half eagles, a n d quarter eagles; silver: dollars, half dollars, quarter dollars, dimes a n d half dimes; copper: cents a n d half cents. T h e weight a n d fineness of t h e coins were specified, a n d t h e weight of t h e smaller coins of each kind m a d e exactly proportional t o t h a t of t h e larger. T h e m i n t was t o strike into coins of t h e same metal, free of expense, all t h e gold or silver which any person brought to it. T h e fine content of gold a n d silver coins was t o be alloyed with s t a t e d proportions of base metals. M a n y changes in t h e laws governing coinage, a n d in the coins themselves, have been m a d e since t h e original act, t h e principal ones being referred t o in t h e following account of t h e various kinds of coins. (Since 1892, numerous issues of " c o m m e m o r a t i v e " gold a n d silver coins have been made in small a m o u n t s , b u t t h e y will not be discussed here.) 3 Foreign coins D u r i n g t h e early years of t h e Republic, a considerable q u a n t i t y of foreign coins circulated in t h e United States. These were made legal tender b y t h e act of F e b r u a r y 9, 1793, a t rates proportional t o their gold or silver content. Although this act was suspended for several years a n d was amended from t i m e t o time, final provision for t h e retirement of foreign coins from circulaion and repeal of their legal tender qualities was not m a d e until the passage of t h e act of F e b r u a r y 21, 1857. Gold coins As provided in t h e act of April 23 1792, t h e eagle, of t h e value of $10, became t h e s t a n d a r d denomination of gold coin. Eagles a n d half eagles ($5) were first coined, followed by q u a r t e r eagles ($2.50). T h e eagle h a d a weight of 270 grains, 0.916% fine, a n d so contained 247.5 grains of pure gold. T h e act of J u n e 28, 1834, reduced t h e weight t o 258 grains, 0.899225 fine, a n d so made t h e pure gold content 3 See reports of the Director of the Mint, for additional information concerning "commemorative" issues. FEDERAL RESERVE DIRECT PURCHASES 25 232 grains. T h e act of J a n u a r y 18, 1837, changed t h e fineness to 0.900, w i t h o u t change in weight, which raised t h e pure gold content to 232.2 grains. Double eagles ($20), a n d $1 pieces were authorized by t h e act of M a r c h 3, 1849, a n d $3 pieces by t h e act of F e b r u a r y 21, 1853. One-dollar a n d three-dollar pieces were discontinued by t h e act of September 26, 1890; quarter eagles were discontinued by t h e act of April 11, 1930. Gold coins of t h e different denominations were of proportionate weight a n d t h e same fineness. All were legal tender in all p a y m e n t s when not below the s t a n d a r d weight and "limit of tolerance" prescribed by law, a n d when below such weight a n d tolerance were legal tender in proportion to their actual weight. Gold bars, bearing t h e mint s t a m p as to weight and fineness, were available under certain conditions to t h e depositors of gold bullion or gold coin, and t h e gold m o n e t a r y stock was largely held in the form of bars, which were a more convenient means t h a n coin for reserve purposes and for settlement of international balances. The U.S. mints discontinued gold coinage after M a y 19, 1933; and after the passage of the Gold Reserve Act, J a n u a r y 30, 1934, existing stocks of gold coins wer3 acquired by the Treasury and formed into bars. The t o t a l gold coinage of t h e mints of the United States since 1792 has been $4,526,218,477.50. Standard silver dollars The silver dollar was adopted in 1792 as one of t h e two m o n e t a r y units of t h e United States, and its metal content was then fixed at 371.25 grains of pure, or 416 grains of s t a n d a r d silver (0.8924 fine). In 1837 the s t a n d a r d for both gold and silver coins was made 0.900 fine, and the weight of the silver dollar was fixed a t 412.5 grains, its pure silver content remaining as originally provided at 371.25 grains. The weight a n d fineness have not since been changed. A s u m m a r y of t h e principal acts affecting the silver dollar, a n d t h e action t a k e n under each, follows in chronological order: Act of April 2, 1792, (1) authorized coinage of t h e silver dollar (of t h e value of Spanish milled dollar) against t h e deposit of silver and fixed its weight at 371 Jls grains of pure silver or 416 grains of s t a n d a r d silver; (2) fixed the s t a n d a r d for silver coins as 1485/1664 (0.8924) fine; (3) fixed t h e coinage ratio of gold and silver as 1 to 15; (4) provided for free coinage; and (5) declared silver dollars (and all other coins authorized) lawful tender. Under this act, 1,440,517 silver dollars were coined, all for private account. Act of June 28, 1834, changed t h e weight and fineness of t h e gold dollar, e s t a b lishing t h e coinage ratio of gold and silver as 1 to 16.002. Act of J a n u a r y 18, 1837, fixed t h e s t a n d a r d as 0.900 fine for b o t h gold and silver coins, and changed t h e weight of t h e silver dollar to 4 1 2 ^ grains of standard silver (the fine content remaining fixed a t 371.25 grains). The coinage ratio of gold a n d silver under the law was established as 1 to 1 5 . 9 8 8 + . Under this act, 6,590,721 silver dollars were coined. Act of F e b r u a r y 12, 1873, revising t h e coinage laws, omitted provision for the coinage of the silver dollar and authorized coinage of t h e trade dollar. Act of F e b r u a r y 28, 1878 (Bland-Allison Act), restored coinage of t h e s t a n d a r d silver dollar (but only on Government account) of t h e weight of 412.5 grains of s t a n d a r d silver 0.900 fine (371.25 grains of pure silver) as provided in the act of J a n u a r y 18, 1837, a n d declared all such dollars (and all those previously coinded) t o be legal tender except where otherwise expressly stipulated in t h e contract. T h e act also directed t h e Secretary of t h e Treasury to purchase each month, at t h e m a r k e t price thereof, not less t h a n $2 million nor more t h a n $4 million w o r t h of silver bullion and to coin t h e bullion so purchased into s t a n d a r d silver dollars. Under this act, 291,272,018.56 fine ounces of silver were purchased, at a cost of $308,279,260.71, and 378,166,793 s t a n d a r d silver sollars were coined. Act of July 14, 1890 (Sherman Act), repealed t h e provisions of t h e act of February 28, 1878, which required t h e monthly purchase and coinage of silver bullion; and directed purchase of silver, to total 4,500,000 ounces of bullion per m o n t h at t h e m a r k e t price thereof, not exceeding one dollar for 371.25 grains of pure silver, provided for its coinage into s t a n d a r d silver dollars, and authorized t h e issue of Treasury notes (called Treasury notes of 1890, see p. 18) in p a y m e n t for t h e silver bullion purchased. Under this act, 168,674,682.53 fine ounces of silver were purchased, at a cost of $155,931,002.25 for which Treasury notes were issued. Of t h e silver purchased, 144,653,722.68 fine ounces, costing $134,192,285.02, were coined into 187,027,345 s t a n d a r d silver dollars. The balance was used for subsidiary silver coinage. (Of t h e silver dollars coined, 36,087,285 were coined before t h e repeal of the silver purchase a u t h o r i t y by the act of November 1, 1893; 42,139,872 were coined between N o v e m b e r 1, 1893 and J u n e 12, 1898; a n d 108,800,188 were coined as directed b y t h e act of J u n e 13, 1898.) 26 FEDERAL RESERVE DIRECT PURCHASES Act of March 3, 1891 (also act of M a r c h 3, 1887), authorized coinage from t r a d e dollar bullion and t r a d e dollars t h e n in t h e Treasury. Under these acts, 5,078,472 s t a n d a r d silver dollars were coined. Act of November 1, 1893, repealed t h e purchasing clause of t h e act of J u l y 14, 1890. Act of J u n e 13, 1898, directed coinage into s t a n d a r d silver dollars of all t h e remaining bullion in t h e Treasury purchased under t h e act of July 14, 1890. Act of April 23, 1918 ( P i t t m a n Act), authorized t h e conversion of not exceeding 350 million s t a n d a r d silver dollars into bullion and its sale, or use for subsidiary silver coinage, and directed purchase of domestic silver for recoinage of a like n u m b e r of dollars. Under this act, 270,232,722 s t a n d a r d silver dollars were converted into bullion (259,121,554 for sale to Great Britain at $1 per fine ounce, plus m i n t charges and 11,111,168 for subsidiary silver coinage), t h e equivalent of about 209 million fine ounces of silver. Between M a y 1920 and J u n e 1923, under t h e act, t h e same q u a n t i t y of silver was purchased from t h e o u t p u t of American mines, a t a fixed price of $1 per ounce, from which 270,232,722 s t a n d a r d silver dollars were recoined. Deliveries of a small a m o u n t of these purchases were not completed until July 1927; recoinage operations were not finished until April 1928. Silver certificates equal in a m o u n t to t h e s t a n d a r d silver dollars converted into bullion were withdrawn from circulation and replaced b y Federal Reserve b a n k notes. (See p. 22.) Thereafter as silver was purchased under t h e act and coined into s t a n d a r d silver dollars, t h e Federal Reserve b a n k notes were replaced b y silver certificates. Act of M a y 12, 1933 (title I I I ) , included the first specific legislative provisions dealing with acquisitions of foreign silver by the Treasury. I t authorized the acceptance, during t h e ensuing 6 months, of silver tendered by foreign governm e n t s in p a y m e n t of indebtedness due to t h e U.S. Government within t h e 6-month period, the silver t o be valued at not in excess of 50 cents per ounce. Silver certificates could be issued up to t h e t o t a l n u m b e r of dollars for which silver was accepted in p a y m e n t of debts; t h e silver so accepted could a t t h e discretion of t h e Secretary of t h e Treasury be coined into s t a n d a r d silver dollars (and subsidiary coins) to meet redemption demands for silver certificates issued under this authority. This action was taken, in part, t o bolster the price of silver which h a d fallen drastically in 1932. From June 1923, when purchases of domestic silver to coin s t a n d a r d silver dollars under t h e P i t t m a n Act were completed, until December 1933, no silver was purchased for this purpose (purchases of silver were made only for t h e purposes of subsidiary coinage). Title I I I of the act of M a y 12, 1933, provided t h e a u t h o r i t y p u r s u a n t to which the President, in a series of proclamations beginning with t h a t of December 21, 1933, a n d continuing until t h e passage of t h e act of July 6, 1939, directed the mints to accept all newly mined domestic silver tendered to t h e m for coinage into silver dollars. Under the original proclamation 50 percent of t h e m o n e t a r y value of t h e silver was to be deducted as seigniorage, etc., and since t h e m o n e t a r y value was $ 1 . 2 9 + per fine ounce, depositors of newly mined silver received a r e t u r n of 6 4 . 6 4 + cents per fine ounce. Under subsequent proclamations t h e deductions for seigniorage, etc., ranged from 40 percent of t h e silver received, to 50 percent, resulting in a r e t u r n to depositors ranging from 77.57 + cents to 6 4 . 6 4 + cents per fine ounce. Act of June 19, 1934 (Silver Purchase Act), authorized and directed t h e Secret a r y of the Treasury to purchase silver, with the objective of maintaining onefourth of t h e m o n e t a r y value of the m o n e t a r y stocks of t h e United States in silver. Silver certificates were required t o be issued up to at least the cost value, and might be issued up to t h e full m o n e t a r y value of silver so purchased. T h e Secret a r y of the Treasury was given a u t h o r i t y to coin s t a n d a r d silver dollars for t h e redemption of all silver certificates. Under this act foreign silver and domestic silver could be purchased a t a price n o t to exceed its m o n e t a r y value ($1.29+ per fine ounce), except t h a t t h e price paid for silver situated in the continental United States on M a y 1, 1934, could not exceed 50 cents per fine ounce. Act of July 6, 1939, directed mints to receive for coinage into s t a n d a r d silver dollars any newly mined domestic silver mined subsequent to July 1, 1939, deducting 45 percent for seigniorage; t h u s t h e r e t u r n t o depositors of silver under this act was 7 1 . 1 1 + cents per fine ounce. Act of J u l y 3 1 , 1946, amended t h e act of J u l y 6, 1939, a n d provided for t h e acquisition of domestic silver mined after J u l y 1, 1946, and tendered t o any U.S. m i n t within 1 year after t h e m o n t h in which t h e ore from which it is derived was mined, deducting 30 percent for seigniorage instead of 45 percent. Hence, FEDERAL RESERVE DIRECT PURCHASES 27 t h e return to t h e depositor provided in this act for newly mined domestic silver is 9 0 . 5 + cents per fine ounce. F r o m 1792 until 1873, when silver dollar coinage was temporarily discontinued, coinage of silver dollars was free for t h e account of t h e depositor of silver, and t h e mint price of silver was $ 1 . 2 9 + per fine ounce. Since t h e restoration of coinage in 1878, coinage of silver dollars has been for t h e account of t h e United States, and t h e difference between t h e cost of t h e silver and t h e face value of t h e dollars coined, termed seigniorage, has been covered into t h e Treasury as a miscellaneous receipt. Silver dollars were m a d e legal tender by t h e act of April 2, 1792, and their status in this respect remained unchanged until t h e act of F e b r u a r y 28, 1878, which declared such dollars legal tender except where otherwise expressly stipulated in t h e contract. T h e exception was removed by t h e act of M a y 12, 1933, as amended by t h e joint resolution of J u n e 5, 1933, referred to on page 3. Trade dollars T h e t r a d e dollar was authorized by t h e act of F e b r u a r y 12, 1873. I t s weight was fixed a t 420 grains of s t a n d a r d silver (378 grains of pure silver), and free coinage was provided. T r a d e dollars were intended for export to the Orient in exchange for goods. To m a k e t h e m acceptable as a substitute for t h e Mexican and Spanish silver dollars, t h e y were made slightly heavier t h a n s t a n d a r d U.S. silver dollars. T h e trade dollar was originally made legal tender in t h e United States in sums not exceeding $5 (the same as subsidiary silver coin), b u t t h e legal tender quality was withdrawn b y t h e joint resolution of July 22, 1876, and coinage was restricted to such a m o u n t as t h e Secretary of t h e Treasury should " d e e m sufficient to meet t h e export d e m a n d . " T h e act of March 3, 1887, discontinued t h e coinage of t r a d e dollars, provided for their retirement and ordered their recoinage into s t a n d a r d silver dollars or subsidiary silver coin. For 6 m o n t h s after t h e passage of t h a t act t h e y were exchangeable dollar for dollar for s t a n d a r d silver dollars or subsidiary coin. T h e act of March 3, 1891, directed t h e Secretary of t h e Treasury to coin into s t a n d a r d silver dollars t h e t r a d e dollar bullion and t r a d e dollars then in t h e Treasury. Trade dollars in the a m o u n t of 35,965,924 had been coined. Under the act of 1887, 7,689,036 were redeemed a t face value, and from t h e resulting bullion $2,668,674.30 in subsidiary silver a n d 5,078,472 s t a n d a r d silver dollars were coined. Fractional or subsidiary silver coins The act of April 2, 1792, authorized silver coins for fractional p a r t s of a dollar: half dollar, quarter dollar, dimes, and half dimes, each of t h e weight and with a silver content proportional to those of t h e silver dollar weighing 416 grains and containing 371.25 grains of pure silver. Coinage was free, and t h e coins were full legal tender when of s t a n d a r d weight, and if below, in proportion to their actual weight. The act of J a n u a r y 18, 1837, fixed t h e s t a n d a r d for all coins as nine-tenths fine, and fixed t h e gross weight of t h e silver dollar at 412.5 grains and t h a t of other silver coins in proportion thereto. The pure silver content was not changed. The fractional silver coins were made legal tender a t their nominal value. A 3-cent silver coin of a lesser proportionate fine silver content was authorized by t h e act of March 3, 1851, which provided t h a t t h e coin should be legal tender for t h e p a y m e n t of all sums of 30 cents and under. By t h e act of F e b r u a r y 21, 1853, t h e gross weight and fine content of the fractional silver coins was reduced about 7 percent, t h e weight of t h e half dollar being fixed a t 192 grains (the pure silver content a t 172.8 grains, a reduction of 12.825 grains from t h e former s t a n d a r d ) , and the other silver coins were reduced in like proportion. Their legal tender quality was reduced t o $5, and free coinage was discontinued. Accordingly, fractional silver coins became "subsidiary" silver coins, and t h e y have since been coined only for Government account. T h e act of F e b r u a r y 12, 1873, raised slightly t h e gross weight and fine content of t h e subsidiary silver coins (the gross weight of t h e half dollar being fixed a t 192.9 grains and t h a t of t h e other coins in proportion), and fixed t h e denominations as 50-, 25-, and 10-cent pieces; t h e silver half dime and t h e 3-cent piece were discontinued. A silver 20-cent piece was introduced by t h e act of March 3, 1875, b u t was discontinued b y t h e act of M a y 2, 1878. The act of J a n u a r y 14, 1875, in providing for the resumption of specie payments, authorized the coinage of silver coins of t h e denominations of 10, 25, and 50 cents, to be issued for the redemption of fractional paper currency. 28 FEDERAL RESERVE DIRECT PURCHASES T h e act of J u n e 9, 1879, increased t h e legal tender quality of subsidiary silver t o $10, and authorized t h e exchange of subsidiary silver coins for lawful m o n e y in sums of $20 or a n y multiple thereof. Whether t h e act of M a y 12, 1933, as a m e n d e d b y t h e joint resolution of J u n e 5, 1933 (see p . 3), removed t h e $10 limitation on t h e legal tender quality of subsidiary silver has never been ruled u p o n by t h e courts. Minor coins Various minor coins have been authorized or changed from time t o t i m e since t h e act of April 2, 1792, which authorized a cent of 264, a n d a half-cent of 132, grains of copper. T h e copper content of these two coins was reduced p u r s u a n t t o succeeding acts (in 1793 a n d 1795) and was fixed b y t h e act of J a n u a r y 18, 1837, a t 168 grains of copper for t h e cent a n d 84 grains for t h e half-cent. TThe act of F e b r u a r y 21, 1857, discontinued these two coins, b u t provided for a cent, weighing 72 grains, a n d containing 88 percent copper a n d 12 percent nickel. A bronze cent (95 percent copper a n d 5 percent tin a n d zinc) was authorized b y t h e act of April 22, 1864, which discontinued t h e cent containing nickel. T h e weight of t h e bronze cent was fixed a t 48 grains; this composition a n d weight were incorporated in t h e Coinage Act of 1873. T h e act of April 22, 1864, also authorized a bronze 2-cent piece, of 96 grains, b u t this coin was discontinued by t h e Coinage Act of 1873. A 5-cent piece, t h e well-known "nickel," was authorized b y t h e act of M a y 16, 1866, a n d continued in t h e Coinage Act of 1873. I t s weight was fixed a t 77.16 grains (75 percent copper a n d 25 percent nickel). A 3-cent piece of nickel, weighing 30 grains, authorized in t h e act of March 3, 1865, was coined until discontinued by t h e act of September 26, 1890. T h e act of F e b r u a r y 12, 1873, made minor coins legal tender for a m o u n t s not exceeding 25 cents, a n d authorized their redemption in lawful money in sums of $20. T h e effect of t h e act of M a y 12, 1933, as amended by t h e joint resolution of J u n e 5, 1933, on t h e 25-cent limit has not yet been t h e subject of court interpretation. Production of a new wartime 1-cent coin was provided for in t h e act of December 18, 1942 (effective until December 3 1 , 1946) in order to save strategic copper and tin for war uses. Production of a zinc-coated steel 1-cent piece was begun under this act in F e b r u a r y 1943 a n d discontinued on December 31, 1943, after t h e passing of t h e acute phase of t h e copper stringency. On J a n u a r y 1, 1944, coinage of a modified copper alloy cent was begun. This coin is similar t o t h e s t a n d a r d bronze cent except t h a t it contains no tin. T h e act of M a r c h 27, 1942 (effective until December 3 1 , 1945) similarly authorized a change in t h e composition of t h e 5-cent piece. P r o d u c t i o n of t h e new coin, which was composed of 35 percent silver, 56 percent copper, a n d 9 percent manganese, was begun on October 1, 1942, a n d it was coined t h r o u g h December 31, 1945. PART III. HISTORY OF THE PAPER CURRENCY Bank notes before 1861 Before t h e Civil War, in addition t o t h e gold a n d silver a n d minor coins issued b y t h e United States (and, in t h e early years, foreign coins), notes issued b y b a n k s operating under Federal or S t a t e charters made u p a large p a r t of t h e currency supply of t h e country. There was no Federal paper currency > with t h e possible exception of certain T r e a s u r y notes (see below), and t h e States were prohibited b y t h e Constitution from coining money or emitting bills of credit. This period is roughly divided into two p a r t s : (1) Before 1836, when t h e notes issued by t h e two b a n k s established by Congress (first Bank of t h e United States 1791-1811, a n d second B a n k of t h e United States 1816-36) m a d e u p a large p a r t of t h e paper currency in circulation, a n d (2) after 1836, when t h e notes issued b y b a n k s operating under S t a t e charter constituted t h e chief form of p a p e r currency. At t h e time of t h e closing of t h e first Bank of t h e United States in 1811, $5 million of its notes were outstanding. When t h e second B a n k of t h e United States closed in 1836, its note liabilities totaled $23,100,000. B o t h b a n k s h a d sufficient assets t o redeem their note liabilities upon liquidation. T h e b a n k note issues before t h e Civil War were generally redeemable by t h e b a n k of issue in legal tender coin upon demand, b u t provision in this respect was not always m a d e by b a n k s operating under S t a t e charter. T h e notes of m a n y b a n k s frequently circulated at a discount from their face value (a discount which was not uniform t h r o u g h o u t t h e country or as between banks), a n d in some instances notes became worthless. FEDERAL RESERVE DIRECT PURCHASES 29 There were several occasions during this period when practically all t h e State chartered banks in t h e country suspended t h e redemption of notes in specie. On December 30, 1861, State chartered b a n k s t h r o u g h o u t t h e country suspended specie p a y m e n t , and t h e U.S. T r e a s u r y likewise suspended specie p a y m e n t on J a n u a r y 3, 1862. Treasury notes On several occasions between t h e W a r of 1812 and t h e Civil War, t h e Governm e n t made small issues of T r e a s u r y notes (in t h e years, 1812-15, 1837-43, 1846-47, 1857, 1860-61). Usually these issues were made in varying denominations r a n g ing down to $50. I n at least one instance (1815), t h e notes in denominations less t h a n $100 did not bear interest, and usually t h e notes carried t h e right t o be presented to t h e Government in p a y m e n t of a n y debts owed t h e United S t a t e s ; t h e issues were transferable by delivery, or b y delivery a n d assignment. Some of these Treasury notes appear t o have been used as a circulating currency, b u t at no time was there a n y large volume of t h e m in circulation. Old demand notes T h e first paper money issued b y t h e Government of the United States consisted of noninterest-bearing Treasury notes issued under t h e acts of July 17 a n d August 5, 1861, which provided t h a t the notes were to be payable on d e m a n d a t certain designated subtreasuries; t h e y became known as d e m a n d notes, a n d subsequently as old d e m a n d notes. T h e y were receivable for all public dues, and their reissue was authorized, b u t not beyond December 31, 1862. T h e a m o u n t first authorized was $50 million, b u t an additional issue of $10 million was authorized b y t h e act of F e b r u a r y 12, 1862. All notes authorized were issued, together with reissues of $30,000. These notes were not legal tender when first issued, b u t were afterwards made so by act of March 17, 1862. T h e act of February 25, 1862, provided for t h e substitution of U.S. notes for d e m a n d notes, and t h e latter were therefore canceled when received b y t h e Treasury after t h a t date. By July 1, 1863, all except $3,350,000 of t h e d e m a n d notes had been retired, a n d nearly $3 million of t h e remainder were retired during t h e next fiscal year. U.S. notes T h e act of F e b r u a r y 25, 1862, authorized t h e issue of $150 million of U.S. notes, n o t bearing interest a n d payable to bearer ($50 million of this issue being for t h e retirement of t h e old d e m a n d notes.) They were legal tender for all debts except duties on imports and interest on public debt and were popularly referred to as greenbacks, or legal tenders. A second issue of $150 million was authorized by t h e act of July 11, 1862, of which $50 million was a t e m p o r a r y issue to be held in reserve for t h e redemption of U.S. notes deposited with t h e Treasury as a " t e m p o r a r y l o a n " t o t h e Government. A third issue also for $150 million was authorized by the joint resolution of J a n u a r y 17, 1863, and t h e act of March 3, 1863. T h e total a m o u n t authorized was $450 million, and t h e highest a m o u n t outstanding a t a n y t i m e was $449,338,902 on J a n u a r y 30, 1864. T h e reduction from t h e original permanent issue of $400 million to t h e a m o u n t a t present outstanding, $346,681,016 was brought a b o u t as follows: T h e act of April 12, 1866, provided t h a t U.S. notes might be retired to t h e extent of $10 million during t h e ensuing 6 months, and t h a t thereafter they might be retired a t t h e r a t e of not more t h a n $4 million per m o n t h . This a u t h o r i t y remained in force until suspended by t h e act of F e b r u a r y 4, 1868. T h e authorized a m o u n t of reduction during this period was about $70 million b u t t h e actual reduction was only about $44 million. No further change was m a d e in t h e volume of U.S. notes outstanding until after t h e panic of 1873, when, in response to popular demand, t h e Government reissued $26 million of t h e canceled notes, bringing t h e a m o u n t outstanding to $382 million, where it remained until t h e act of J a n uary 14, 1875, provided for a reduction t o $300 million. T h e process was again stopped by t h e act of M a y 31, 1878, which required t h e notes to be reissued when redeemed or received in t h e Treasury on any account, a n d t h e a m o u n t outstanding a t t h a t time $346,681,016, is still outstanding. By the authorizing acts, U.S. notes were declared to be "lawful money and a legal t e n d e r " for all debts, public and private, except duties on imports and interest on the public debt. T h e act of J u n e 17, 1930, authorized t h e acceptance of U.S. notes in p a y m e n t of customs dues. The act of M a y 12, 1933, as amended by t h e joint resolution of J u n e 5, 1933, (see p . 3) removed t h e remaining limitation on t h e legal tender quality of U.S. notes. 30 FEDERAL RESERVE DIRECT PURCHASES During t h e period of suspension of specie p a y m e n t s , J a n u a r y 3, 1862, t o J a n u a r y 1, 1879, no provision was made for t h e redemption of U.S. notes in coin. T h e Credit-Strengthening Act of March 18, 1869, declared it to be t h e policy of t h e United States to provide for t h e redemption of U.S. notes in coin, a n d t h e Resumption Act of J a n u a r y 14, 1875, directed t h e Secretary of t h e T r e a s u r y t o prepare and provide for such redemption in coin on and after J a n u a r y 1, 1879, a n d for t h a t purpose authorized t h e use of surplus revenues and t h e sale of bonds authorized by t h e Refunding Act of J u l y 14, 1870. I n pursuance of this a u t h o r i t y $95,500,000 of 4}i and 4 percent bonds were sold and t h e proceeds ($96 million in gold) were placed in t h e T r e a s u r y as a fund for such redemption. I n t i m e this fund became known as t h e gold reserve, and t h e Bank Act of J u l y 12, 1882, provided for t h e suspension of t h e issuance of gold certificates whenever t h e a m o u n t of gold coin and gold bullion in t h e Treasury reserved for t h e redemption of U.S. notes fell below $100 million. T h e act of March 14, 1900, making further provision for t h e redemption of U.S. notes (and Treasury notes of 1890), required t h e Secretary of t h e Treasury to set u p a reserve fund of $150 million in gold for t h e redemption of such notes, and prescribed means for t h e maintenance of such reserve fund. T h e act of M a y 30, 1908, (Aldrich-Vreeland Act) directed t h a t taxes received on national b a n k circulation secured otherwise t h a n by U.S. bonds (i.e., issuable as t e m p o r a r y emergency currency) should be credited t o t h e reserve fund held for t h e redemption of U.S. notes; t h e Federal Reserve Act of December 23, 1913, authorized application, in t h e discretion of t h e Secretary of t h e Treasury, t o such gold reserve fund of t h e net earnings of Federal Reserve banks derived by t h e United States, and t h e act of March 4, 1923, m a d e similar provision with respect t o t h e net earnings derived by t h e United States from Federal intermediate credit b a n k s . T h r o u g h these means $6,039,430.93 gold was added to such gold reserve fund, making t h e aggregate of t h e fund $156,039,430.93. 4 Since t h e adoption of t h e gold policy of 1933-34, which culminated in t h e Gold Reserve Act (Jan. 30, 1934), gold has been withdrawn from circulation. Under t h e Gold Reserve Act, no currency m a y be redeemed in gold except as p e r m i t t e d b y regulation issued by t h e Secretary of t h e Treasury with t h e approval of t h e President. However, gold certificates owned b y Federal Reserve b a n k s m a y be redeemed a t such times a n d in such a m o u n t s as, in t h e j u d g m e n t of t h e Secretary of t h e Treasury, are necessary to maintain t h e equal purchasing power of every kind of currency of t h e United States. T h e act also provides t h a t t h e reserve for U.S. notes a n d Treasury notes of 1890 shall be maintained in gold bullion. Title III of t h e act of M a y 12, 1933, authorized t h e President, u n d e r certain circumstances, to direct t h e Secretary of t h e Treasury to cause to be issued additional U.S. notes in an aggregate a m o u n t of not exceeding $3 billion. This a u t h o r ity was never exercised by t h e President, a n d was t e r m i n a t e d by t h e act of J u n e 12, 1945. Fractional currency Following t h e suspension of specie p a y m e n t s in 1862, subsidiary silver coins largely disappeared from circulation. Their place for a time was supplied b y t h e use of tickets, due bills, and other forms of private obligations, which were issued b y merchants, manufacturers, a n d others whose business required t h e m to " m a k e c h a n g e . " Congress authorized, first, t h e use of postage s t a m p s for change; second a modified form of postage s t a m p called postal currency; and, finally, fractional paper currency in denominations corresponding t o t h e subsidiary silver coins. T h e a m o u n t of fractional paper currency authorized was $50 million a n d t h e highest a m o u n t outstanding a t a n y one t i m e was $49,102,660.27. T h e t o t a l a m o u n t issued was $368,720,079.45 (including reissues), t h e last issue being in 1876. This currency, which was popularly known as "shin-plaster" was issued in denominations of 3, 5, 10, 25, a n d 50 cents, corresponding to t h e denominations of token a n d subsidiary coins, a n d a small a m o u n t was issued in t h e denomination of 15 cents. T h e acts of J a n u a r y 14, 1875, and April 17, 1876, provided for t h e redemption of fractional currency in fractional silver coins. On J u n e 30, 1880, t h e a m o u n t of fractional currency outstanding h a d been reduced t o $15,590,888.37. I t was * The act of Dec. 23,1913, was amended by sec. 4 of the Banking Act of 1933 so that the net earnings of the Federal Reserve banks are paid into the surplus funds of the banks. The act of March 4, 1923, was amended by the act of May 19,1932, so that the net earnings of the Federal intermediate credit banks were required to be placed in a reserve fund until the amount of the reserve equals 100 percent of the subscribed capital of the banks. The act of August 19,1937, further amended the Mar. 4,1923, act so that net earnings of Federal intermediate credit banks must be used to make up losses in excess of reserves against unforeseen losses and assets of doubtful value, to create and maintain these reserves, and to eliminate any impairment of paid-in surplus and capital, before any portion of these net earnings may be allocated to the United States. FEDERAL RESERVE DIRECT PURCHASES 31 t h e n estimated t h a t $8,375,934 of t h e fractional currency was lost t o circulation, a n d accordingly, in stating t h e a m o u n t outstanding on J u n e 30, 1880, t h e a m o u n t was reduced to $7,214,954.37. On December 31, 1920, on t h e basis of a new estim a t e , t h e a m o u n t s t a t e d as outstanding was reduced from $6,842,066.45 t o $2 million. On t h e basis of these reductions a n d t h r o u g h redemptions, t h e a m o u n t s t a t e d as o u t s t a n d i n g on J u n e 30, 1947, was $1,968,322.47, which is carried as a p a r t of t h e public debt o u t s t a n d i n g bearing no interest. Gold certificates T h e act of March 3, 1863, authorized t h e Secretary of t h e Treasury t o receive deposits of gold coin and bullion in sums of not less t h a n $20 and t o issue certificates therefor in denominations of not less t h a n $20, t h e certificates to be receivable for duties on imports, a n d t h e gold deposited to be retained in t h e Treasury for t h e p a y m e n t of t h e certificates on demand. T h e act also authorized the issuance of certificates representing coin in t h e Treasury in p a y m e n t of interest on t h e p u b lic debt, which certificates, together with those issued for coin a n d bullion deposited, were not at any time to exceed 20 percent beyond t h e a m o u n t of coin a n d bullion in t h e Treasury. T h e first issue was made on November 13, 1865, a n d issuance was continued until December 1, 1878, when it was discontinued b y order of t h e Secretary of t h e Treasury, prior to t h e resumption of specie p a y m e n t s . T h e issue of gold certificates was resumed p u r s u a n t t o t h e act of July 12, 1882, which authorized and directed t h e Secretary of t h e Treasury to receive deposits of gold coin a n d issue certificates therefor, t h e certificates being made receivable for customs, taxes, and all public dues. This act also provided t h a t " t h e Secretary of t h e Treasury shall suspend t h e issue of such gold certificates whenever t h e a m o u n t of gold coin and gold bullion in t h e Treasury reserved for t h e r e d e m p tion of United States notes falls below $100 million." T h e act of M a r c h 14, 1900, enacted provisions similar t o those of t h e act of J u l y 12, 1882, referring t o gold certificates, and further provided t h a t t h e Secret a r y of t h e Treasury might, in his discretion, suspend such issue whenever and so long as t h e aggregate a m o u n t of U.S. notes and silver certificates in t h e General F u n d of t h e T r e a s u r y should exceed $60 million. T h e act of March 2, 1911, authorized t h e issue of gold certificates against t h e deposit of gold bullion or foreign gold coin at its bullion value, b u t limited t h e a m o u n t of gold bullion a n d foreign coin so held to one-third of t h e t o t a l a m o u n t of gold certificates o u t s t a n d ing, which was changed t o two-thirds by t h e act of J u n e 12, 1916. T h e act of December 24, 1919, m a d e gold certificates legal tender for all debts, public a n d private. Gold certificates were withdrawn from circulation along with gold coin and bullion in 1933. Since t h e act of J a n u a r y 30, 1934 (Gold Reserve Act) they have been issued only to Federal Reserve Banks, against an equal a m o u n t of gold bullion held by the Treasury. Silver certificates The act of February 28, 1878, directing the purchase of silver bullion and its coinage into s t a n d a r d silver dollars, authorized t h e issue of silver certificates in r e t u r n for t h e deposit of silver dollars with t h e Treasurer of the United States. The act of March 14, 1900, authorized t h e issue of silver certificates against t h e silver dollars coined under t h e acts of July 14, 1890, a n d J u n e 13, 1898, on t h e retirement of Treasury notes of 1890 (see below). Silver certificates were receivable for customs, taxes, and all public dues, and when so receivable were reissuable. They were redeemable in s t a n d a r d silver dollars on demand. As long as national banks were permitted t o keep legal reserves in their own vaults, these certificates could be held by t h e m as lawful reserves. The act of M a y 12, 1933, as amended by the joint resolution of June 5, 1933, referred to on page 3, made silver certificates unlimited legal tender. The act of June 19, 1934 (Silver Purchase Act) authorizing purchases of silver with the objective of maintaining one-fourth of t h e monetary value of t h e monet a r y stocks of t h e United States in silver, required t h e issuance of silver certificates equal in value to the cost of all silver purchases. Treasury notes of 1890 The act of July 14, 1890 (Sherman Act), directed t h e Secretary of the Treasury t o purchase each m o n t h 4,500,000 ounces of fine silver bullion at the m a r k e t price, and to issue in p a y m e n t therefor noninterest-bearing Treasury notes of t h e United States. These notes, termed " T r e a s u r y notes of 1890/' were redeemable on d e m a n d in either gold or silver coin at t h e discretion of the Secretary of the Treasury, and were legal tender for all debts, public and private, except 32 FEDERAL RESERVE DIRECT PURCHASES where otherwise expressly stipulated in t h e contract. I t was provided t h a t when t h e notes were redeemed or received for t h e public dues t h e y might be reissued, b u t no greater or less a m o u n t of t h e notes should be " o u t s t a n d i n g a t a n y t i m e t h a n t h e cost of t h e silver bullion a n d t h e s t a n d a r d silver dollars coined therefrom, then held in t h e Treasury purchased by such n o t e s . " Under t h e act of M a y 12, 1933, as amended J u n e 5, 1933, these notes became unlimited legal tender. T h e gold reserve fund, now a m o u n t i n g t o $156,039,430.93, provided for b y t h e act of March 14, 1900 a n d subsequent legislation (discussed above on p p . 15-16) serves as a reserve for t h e Treasury notes of 1890 as well as for t h e U.S. notes. T h e a u t h o r i t y for t h e purchase of silver under t h e Sherman Act was repealed b y t h e act of November 1, 1893; u p t o t h a t d a t e 168,674,682.53 fine ounces of silver bullion h a d been purchased a t a cost of $155,931,003, a n d Treasury notes of this a m o u n t h a d been issued. T h e act of M a r c h 14, 1900, directed t h e cancellation a n d retirement of Treasury notes, whenever received in t h e Treasury, t o an a m o u n t equal t o t h e coinage of s t a n d a r d silver dollars from t h e bullion purchased under t h e act of J u l y 14, 1890. Prior t o M a r c h 14, 1900, $69,161,002 of t h e notes h a d been canceled t h r o u g h redemption in s t a n d a r d silver dollars, and $85,623,022 h a v e since been canceled, leaving $1,146,978 outstanding on J u n e 30, 1947. National bank notes T h e act of J u n e 3, 1864, originally known as t h e N a t i o n a l Currency Act, a n d designated t h e " N a t i o n a l B a n k A c t " in 1874 (superseding t h e original act of F e b r u a r y 25, 1863), is t h e basic act for t h e national banking system. T h e act provided for t h e organization of national banking associations, commonly called national banks, and t h e issuance of circulating notes. Organizing b a n k s were required, as a condition of charter, t o transfer a n d deliver t o t h e Treasurer of t h e United States an a m o u n t , determined by their capitalization, of U.S. interestbearing registered bonds. On such transfer a n d delivery, t h e banks were entitled t o receive from t h e Comptroller of t h e Currency circulating notes (in t h e form of d e m a n d promissory notes of t h e issuing bank) equal in a m o u n t t o 90 percent of t h e current m a r k e t value of t h e bonds deposited, b u t not exceeding 90 percent of their par value if bearing interest a t a r a t e not less t h a n 5 percent. Issues for each back were limited t o an a m o u n t equal t o t h e paid-in capital of t h e bank, a n d t h e t o t a l for all banks was limited t o $300 million. T h e notes were receivable a t p a r in p a y m e n t of taxes, excises, public lands, a n d all other dues t o t h e United States except duties on imports, a n d also for all salaries a n d other debts a n d d e m a n d s owed by t h e United States t o individuals, corporations, a n d associations within t h e United States, except interest on t h e public debt and t h e redemption of n a tional currency (i.e., national b a n k notes). T h e y were receivable by n a t i o n a l b a n k s for any debt or liability to such banks, a n d were required t o be redeemed by t h e issuing bank, in lawful money, a t t h e b a n k of issue and at designated agencies in e n u m e r a t e d redemption cities (after 1874 known as reserve cities). T a x a t i o n u p o n t h e average outstanding circulation of each national b a n k was imposed a t t h e r a t e of one-half of 1 percent semiannually, a n d t h e same percentage reserve was required t o be held against t h e outstanding notes as was required against deposits. Circulation could be retired only t h r o u g h r e t u r n of t h e notes t o t h e Treasury, except in t h e case of liquidating institutions which, after t h e lapse of 1 year, could deposit lawful money t o cover t h e retirement of outstanding notes a n d recover t h e bonds held by t h e Treasurer of t h e United States. Various a n d material a m e n d m e n t s t o t h e basic act have been m a d e from t i m e to time, beginning with t h e act of M a r c h 3, 1865. T h e aggregate a m o u n t of circulating notes of all banks, which was apportioned according to population and banking requirements by t h e act of March 3, 1865, was increased from $300 million to $354 million by t h e act of July 12, 1870, a n d finally by t h e act of J a n u a r y 14, 1875, was freed from restrictions b o t h as t o t o t a l and as to apportionment. By t h e act of J u n e 20, 1874, reserve requirements for notes were abolished in favor of a 5-percent redemption fund deposited with t h e Treasurer of t h e United States; this fund was also counted as p a r t of t h e required reserve against deposits; and notes were m a d e redeemable only a t t h e b a n k of issue and t h e Treasury. Provision was made by t h e act of J u n e 20, 1874 (and by a m e n d m e n t s approved July 12, 1882, July 14, 1890, and March 4, 1907), for t h e retirement of circulation of active banks upon t h e deposit of lawful money with t h e Treasurer of t h e United States. T h e act of July 14, 1890, provided for covering such deposits into t h e general fund as miscellaneous receipts. By t h e act of March 14, 1900, t h e t a x on circulation secured by 2-percent bonds was fixed a t one-fourth of 1 percent semiannually. Capital requirements for organization of national banks were lowered, and t h e a m o u n t of issuable circulation was increased from 90 percent of par to t h e full par value, b u t not exceeding the m a r k e t value, of t h e bonds deposited. 33 FEDERAL RESERVE DIRECT PURCHASES T h e act of M a y 30, 1908 (Aldrich-Vreeland Act), amended t h e National B a n k Act by providing for t h e issuance, as an emergency currency, of additional circulation of national banks secured otherwise t h a n by t h e deposit of U.S. bonds. Methods and conditions of issue were set forth in t h e act a n d t h e additional circulation was authorized to be issued only at such times a n d under such conditions as in t h e j u d g m e n t of t h e Secretary of t h e Treasury an increase in t h e national b a n k circulation was warranted. T h e act of M a y 30, 1908, would h a v e expired b y limitation on J u n e 30, 1914, b u t was amended and extended 1 year by the Federal Reserve Act of December 23, 1913. T h e act was further amended on August 4, 1914, and, to meet an emergency then present, immediate steps were taken for t h e organization of all national banks into 45 national currency associations, through which additional circulation t o a total a m o u n t of $381,592,145 was issued to national b a n k s . T h e Aldrich-Vreeland Act expired b y limitation on J u n e 30, 1915; prior t o t h a t d a t e deposits of lawful money h a d been m a d e t o cover t h e additional circulation issued, and t h e retirement of t h e notes proceeded in regular course. Meanwhile, t h e Federal Reserve banks h a d been organized, and Federal Reserve notes were available to meet t h e currency requirements of t h e country. E v e n before t h e e n a c t m e n t of t h e Federal Reserve Act, t h e Congress by various acts h a d taken occasion not to increase t h e a m o u n t of outstanding U.S. bonds which might be used as security for t h e issuance of national b a n k notes. T h e P a n a m a Canal loan bonds, issued in 1906-08, carrying 2 percent interest, were t h e last bonds issued bearing t h e circulation privilege (see act of J u l y 22, 1932, below). T h e act of J u n e 25, 1910, which authorized t h e issue of postal savings bonds, provided t h a t such bonds should not be receivable by t h e Treasurer of t h e United States as security for t h e issue of circulating notes by national banking associations. I n each subsequent act authorizing bonds, similar provision has been made. T h e Federal Reserve Act, approved December 23, 1913, provided t h a t national b a n k s thereafter organized should not be required to deposit U.S. bonds as a condition precedent to being authorized to begin business, although b a n k s organized after t h a t date might be banks of issue in accordance with previously existing law. The Federal Reserve Act further provided t h a t after 2 years from its passage and for 20 years thereafter any member bank desiring to retire the whole or any p a r t of its circulation might file with the Treasurer of the United States an application to sell for its account, a t par and accrued interest, U.S. bonds securing t h e circulation to be retired. Provision also was made for the purchase by th.3 Federal Reserve banks of t h e bonds offered for sale by the national banks, the purchase money to be deposited in the Treasury for t h e redemption of t h e circulation to be retired. T h e Federal Reserve banks purchasing t h e bonds would thereby acquire bonds against which Federal Reserve bank notes might be issued. T h e y could, however, convert any 2 percent bonds against which no circulation was outstanding into securities not bearing t h e circulation privilege. At t h a t t i m e (December 31, 1913) the outstanding bonds available for deposit as security for t h e issuance of national b a n k notes were as follows: 2 2 3 4 percent percent percent percent Consols Panama Loan of Loan of of 1930 Canal loans of 1916-36 and 1918-38 1908-18 1925 Total $646, 84, 63, 118, 250, 631, 945, 489, 150 980 460 900 913, 317, 490 Of these bonds, $743,066,500 were t h e n being held to secure circulation. Under these provisions of t h e Federal Reserve Act, $56,256,500 of the 2 percent bonds were converted into securities not bearing t h e circulation privilege. The 3-percent bonds of 1908-18 were paid a t m a t u r i t y August 1, 1918, and t h e 4-percent bonds of 1925 were called for redemption F e b r u a r y 2, 1925. This left t h e 2-percent bonds, which were outstanding in t h e a m o u n t of $674,625,630, as t h e only bonds available as security for national b a n k notes. As an emergency measure, t h e act of July 22, 1932, a t t a c h e d the circulation privilege with respect t o national and Federal Reserve bank notes for a 3-year period t o all outstanding U.S. bonds bearing interest a t a r a t e not exceeding 3% percent per a n n u m . T h e act of M a y 12, 1933, as amended by the joint resolution of June 5, 1933, provided t h a t all coins and currencies of t h e United States should be legal tender for t h e p a y m e n t of all debts, public and private. T h e 2-percent Consols of 1930 were called for redemption July 1, 1935; t h e 2 percent P a n a m a Canal loan bonds of 1916-36 and 1918-38 were callsd for redemption August 1, 1935; t h e circulation privilege granted by t h e act of July 22, 34 FEDERAL RESERVE DIRECT PURCHASES 1932, expired July 22, 1935. As t h e bonds which were deposited as collateral for national bank notes were called or otherwise became unavailable, national b a n k s deposited lawful money to retire t h e circulation so secured, thereby ending their liability for national b a n k notes and transferring it to t h e United States. Some national bank notes are still outstanding, b u t when unfit for further circulation t h e y are canceled and retired on receipt a t t h e Treasury. Federal Reserve bank notes T h e Federal Reserve Act (December 23, 1913) authorized t h e issuance of circulating notes hy Federal Reserve banks against t h e deposit of U.S. bonds, t h e notes to be of t h e same tenor and effect as national bank notes t h e n provided by law, and to be issued and redeemed under t h e same terms and conditions as national bank notes, except t h a t t h e a m o u n t issuable was not limited t o t h e capital stock of t h e issuing Federal Reserve bank. T h e original purpose of these provisions was to prevent a currency stringency resulting from t h e withdrawal of a n y national b a n k notes which might be retired in accordance with t h e provisions of t h e Federal Reserve Act detailed in t h e preceding section. T h e designation "national currency'' was carried over to Federal Reserve b a n k notes together with other characteristics of national bank notes. T h e first issue was m a d e in February 1916, and additional issues were made from time to time until t h e high point of these earlv issues was reached a t t h e end of October 1917, when there were $12,970,425 outstanding. T h e act of April 23, 1918 ( P i t t m a n Act, see p. 8) provided for t h e issuance of Federal Reserve bank notes in place of silver certificates retired, and, as security, authorized t h e use of certificates of indebtedness, a special series of which was m a d e available T h e highest a m o u n t of Federal Reserve bank notes in circulation a t t h e beginning of any m o n t h during this period was $236,597,570 on J a n u a r y 1, 1921. Following t h e restoration to circulation of t h e silver certificates w i t h d r a w n from circulation under t h e P i t t m a n Act, appropriate steps were t a k e n for t h e retirement of t h e outstanding Federal Reserve b a n k notes. By t h e end of 1922, t h e Federal Reserve banks h a d ended their liability on these issues of Federal Reserve bank notes in accordance with t h e provisions of t h e law, by t h e deposit with t h e Treasurer of t h e United States of lawful money t o t h e a m o u n t of those notes t h e n outstanding, and t h e greater p a r t of t h e notes were gradually retired from circulation. Federal Reserve b a n k notes were again issued during t h e emergency period in 1933 and 1934, under conditions prescribed by additional acts of Congress. T h e act of July 22, 1932 (see p . 21) temporarily increased t h e available collateral for Federal Reserve b a n k notes. T h e act of March 9, 1933 (Emergency Banking Act), authorized t h e issuance of Federal Reserve b a n k notes upon t h e security of any direct obligation of t h e United States, or eligible commercial paper. Federal Reserve b a n k notes could be issued equal t o 100 percent of t h e face value of t h e U.S. bonds, or 90 percent of t h e estimated value of t h e commercial paper used as collateral. B y t h e end of December 1933, t h e a m o u n t of Federal Reserve b a n k notes in circulation h a d reached a peak for t h a t period of $208,191,000. Subsequently, in accordance with t h e provisions of t h e law, t h e issuing banks deposited lawful money with t h e Treasurer of t h e United States a n d their collateral was returned to t h e m . Since M a r c h 1935, all of these notes have been liabilities of t h e Treasury and in process of retirement. T h e act of M a y 12, 1933, as amended b y t h e joint resolution of J u n e 5, 1933, provided t h a t all coins and currencies of t h e United States should be legal tender for t h e p a y m e n t of all debts, public and private. I n December 1942, in order to conserve labor and materials, t h e Board of Governors of t h e Federal Reserve System, after consultation with t h e Treasury D e p a r t m e n t , authorized t h e Federal Reserve banks to issue t h e unused portion of t h e stock of Federal Reserve b a n k notes printed in 1933 and 1934, approximately $660 million. Lawful money has been deposited for t h e retirement of these notes, and t h e y will be withdrawn from circulation as soon as t h e y are returned to t h e Treasury unfit for use. Authority for t h e issuance of Federal Reserve b a n k notes against a n y direct obligations of t h e United States not bearing t h e circulation privilege or against eligible commercial paper, was repealed b y an act of J u n e 12, 1945. As previously noted, no interest-bearing securities carrying t h e circulation privilege h a v e been outstanding since August 1, 1935; so, in effect, all authority to issue Federal Reserve b a n k notes ended with t h e act of 1945. FEDERAL RESERVE DIRECT PURCHASES 35 Federal Reserve notes T h e Federal Reserve Act (December 23, 1913), authorized a new t y p e of currency, to be known as Federal Reserve notes, and to be issued a t t h e discretion of t h e Federal Reserve Board, 5 b y t h e several Federal Reserve b a n k s which were established b y t h e same act. Federal Reserve notes are obligations of t h e United States a n d are first liens on all assets of t h e issuing Federal Reserve bank. T h e original Federal Reserve Act provided t h a t t h e y should be receivable b y all member b a n k s and Federal Reserve banks and for all public dues. T h e act of M a y 12, 1933, as amended b y t h e joint resolution of J u n e 5, 1933, m a d e t h e m full legal tender for all debts, public and private. T h e Federal Reserve Act originally provided t h a t Federal Reserve notes were redeemable in gold a t t h e U.S. Treasury, or in gold or lawful money a t a Federal Reserve bank. T h e Gold Reserve Act of 1934 provided t h a t they should be redeemed only in lawful money. Federal Reserve notes are furnished t o t h e Federal Reserve banks t h r o u g h t h e B u r e a u of t h e Comptroller of t h e Currency, under t h e supervision of t h e Board of Governors of t h e Federal Reserve System. Any Federal Reserve b a n k desiring additional Federal Reserve notes makes application t o t h e Federal Reserve agent for its district (who is a representative of t h e Board of Governors) for t h e a m o u n t of such notes t h a t it m a y require, and accompanies t h e application with a tender of collateral in an a m o u n t equal t o the a m o u n t of notes applied for. T h e collateral, as authorized by t h e act of 1913, was t o consist of promissory notes a n d bills of exchange accepted for rediscount by t h e Federal Reserve banks. An a m e n d m e n t to t h e act, on September 7, 1916, provided t h a t t h e collateral might consist of "notes, drafts, bills of exchange, or acceptances rediscounted" or bills of exchange or bankers' acceptances purchased in t h e open market. An act of J u n e 21, 1917, added t o this list of acceptable collateral "gold or gold certificates" and permitted such gold or gold certificates t o be counted also as p a r t of t h e required reserve against Federal Reserve notes. By an a m e n d m e n t of F e b r u a r y 27, 1932, direct obligations of t h e United States were also made acceptable as collateral for Federal Reserve notes until M a r c h 3, 1933. This a u t h o r i t y was extended in successive acts of Congress for short periods of time, and was m a d e a p e r m a n e n t p a r t of t h e law by t h e act of J u n e 12, 1945. E a c h Federal Reserve b a n k was originally required t o maintain a reserve in gold of not less t h a n 40 percent against its Federal Reserve notes in actual circulation. A p a r t of t h e gold reserve, equal t o not less t h a n 5 percent of t h e notes outstanding less t h e a m o u n t of gold certificates held by t h e Federal Reserve agent as collateral, was required to be held a t t h e U.S. Treasury as a gold redemption fund against Federal Reserve notes. No Federal Reserve b a n k is permitted t o pay out notes issued by another b a n k (under penalty of a tax) and notes of one b a n k received by another are returned t o t h e issuing bank. T h e act of J a n u a r y 30, 1934 (Gold Reserve Act), vested title to all gold of t h e Federal Reserve banks in t h e United States and amended t h e Federal Reserve Act t o substitute gold certificates for gold in t h e prescribed reserves and in t h e r e d e m p tion fund. T h e act of J u n e 12, 1945, reduced t h e gold certificate reserve requirem e n t from 40 t o 25 percent of Federal Reserve notes in actual circulation. T h e first issue of Federal Reserve notes was made on November 16, 1914, t h e day t h e Federal Reserve banks were formally opened. PART IV. DESCRIPTION OF THE MONEY OF THE UNITED STATES, JUNE 30, 1947 T h e net a m o u n t of each kind of U.S. money, t h e a m o u n t of each kind held in t h e Treasury and by t h e Federal Reserve banks and agents, a n d t h e a m o u n t of each kind in circulation on J u n e 30, 1947, are shown in t h e circulation s t a t e m e n t of U.S. money for t h a t date, a copy of which is a t t a c h e d to this statement. Under t h e act of M a y 12, 1933, as amended by the joint resolution of J u n e 5, 1933, all coins and currencies of t h e United States are legal tender for t h e p a y m e n t of all debts, public a n d private. Gold and silver monetary stocks T h e gold m o n e t a r y stock, which is held subject to t h e order of t h e Treasurer of t h e United States in t h e form of bars stored, for t h e most part, at t h e m i n t s a n d assay offices and at t h e depository at Fort Knox, Ky., is largely held as security for gold certificates issued or issuable to Federal Reserve banks, as reserve for U.S. notes and Treasury notes of 1890, for t h e exchange stabilization fund, * Now the Board of Governors of the Federal Reserve System. 36 FEDERAL RESERVE DIRECT PURCHASES a n d as free gold in t h e general fund of t h e Treasury. 6 T h e gold assets a n d liabilities are shown in t h e circulation s t a t e m e n t of U.S. money a n d in t h e daily s t a t e m e n t of t h e U.S. Treasury (a copy of which is also a t t a c h e d ) . T h e silver m o n e t a r y stock consists of (1) s t a n d a r d silver dollars, (2) silver bullion held in t h e Treasury a t its m o n e t a r y value as security for o u t s t a n d i n g silver certificates, (3) subsidiary silver coin, a n d (4) other silver bullion held in t h e Treasury at cost value or at recoinage value. All t h e items are shown on t h e daily statement of t h e U.S. Treasury a n d all except t h e last enter into t h e m o n e t a r y circulation a n d appear in t h e circulation s t a t e m e n t of U.S. money. Coins T h e coins currently issued b y t h e United States are s t a n d a r d silver dollars, subsidiary silver coins in denominations of 50 cents (half dollar), 25 cents (quarter dollar), a n d 10 cents (dime), and minor coins in denominations of 5 cents (nickel) a n d 1 cent (penny). S t a n d a r d silver dollars are coined in such a m o u n t s as m a y be required to provide for t h e redemption of silver certificates in t h a t form of p a y m e n t . Subsidiary silver and minor coins are coined in such a m o u n t s as t h e business of t h e country m a y require. Special wartime 5-cent and 1-cent coins were authorized in order to conserve strategic metals. Gold coins are no longer coined or paid out b y t h e United States. T h e table below shows t h e metal content a n d t h e gross weight of each coin as now issued. Gross weight (grains) M e t a l c o n t e n t (grains) Kind and denomination Silver Silver: i S t a n d a r d dollar Half dollar Q u a r t e r dollar Dime M i n o r coins: 5 c e n t s 2J _ _ _ .__ 1 cent __ __ __ ___ ___ Copper 371.25 173.61 86. 805 34. 722 _ _ __ Nickel 412. 50 192. 90 96.45 38.58 41.25 19.29 9.645 3,858 57.87 45.60 19.29 4 2.40 77.16 48.00 1 2 3 Silver coins contain 900 parts of pure silver and 100 parts of copper alloy. 75 percent copper, 25 percent nickel. 95 percent copper, 5 percent tin and zinc. < Tin and zinc. All coins of t h e United States are struck (i.e., manufactured or coined) a t t h e U.S. mints. The Philadelphia Mint was established in 1793, t h e San Francisco M i n t in 1854, and t h e Denver Mint in 1906. These three mints have continued in operation up to the present time. Other mints have been established a n d discontinued as follows: New Orleans, La., 1838-61 a n d 1879-1909; Carson City, Nev., 1870-93; Charlotte, N . C . , 1838-61; Dahlonega, Ga., 1838-61. Troy weights are used (480 grains to an ounce), a n d while metric weights are b y law assigned to t h e half dollar a n d quarter dollar and dime, t r o y weights still continue to be employed, 15.432 grains being considered as t h e equivalent of a g r a m as provided by t h e act of July 28, 1866. Silver bullion containing 900 p a r t s of pure silver and 100 p a r t s of copper alloy is used for silver coins. The coinage value in s t a n d a r d silver dollars of an ounce of pure silver is $1.2929 + , a n d of an ounce of silver bullion is $ 1 . 1 6 3 6 + . The coinage value in subsidiary silver coins of an ounce of pure silver is $1.3824+ a n d of an ounce of silver bullion is $1.2442 + . The weight of $1,000 in s t a n d a r d silver dollars is 859.375 t r o y ounces, equivalent to 58.92 pounds avoirdupois, a n d t h e weight of $1,000 in subsidiary silver coin is 803.75 ounces, equivalent to 55.11 p o u n d s avoirdupois. T h e following devices and legends are placed on t h e coins of t h e United States currently issued: On the obverse, an impression emblematic of liberty with t h e inscriptions " L i b e r t y " a n d " I n God We T r u s t " , a n d t h e year of coinage; on t h e 6 Section 5 of the Gold Reserve Act provides that: "No gold shall hereafter be coined, and no gold coin shall hereafter be paid out or delivered by the United States: Provided, however, That coinage may continue to be executed by the mints of the United States for foreign countries in accordance with the act of January 29,1874 (United States Code, title 31, sec. 367). All gold coin of the United States shall be withdrawn from circulation, and, together with all other gold owned by the United States, shall be formed into bars of such weights and degrees of fineness as the Secretary of the Treasury may direct." FEDERAL RESERVE DIRECT PURCHASES 37 Teverse, t h e figure or representation of an eagle (omitted on t h e 10-, 5-, a n d 1-cent pieces), with t h e inscriptions " U n i t e d States of America" a n d " E Pluribus U n u m , " a n d a designation of t h e value of t h e coin. The designs of a n y coin m a y not be changed oftener than once in 25 years without t h e approval of Congress; b u t from time to time commemorative coins have been authorized, which m a y have special features of design. Paper currency The paper currency now issued includes gold certificates (issued only to Federal Reserve banks), silver certificates a n d U.S. notes, all issued b y t h e Treasury; a n d Federal Reserve notes issued by t h e Federal Reserve banks under Government auspices. Former issues of Treasury notes of 1890 a n d gold certificates which remain outstanding appear in the money circulation figures; b u t these kinds of currency are canceled a n d retired on receipt in t h e Treasury. Federal Reserve b a n k notes and national b a n k notes are also in process of retirement; b u t these will continue in circulation until t h e y are unfit for use. Outstanding old d e m a n d notes and fractional currency have been dropped from t h e circulation figures, b u t appear on t h e public debt s t a t e m e n t s as items of debt bearing no interest. Gold certificates, series of 1934, in denominations of $100, $1,000, $10,000, a n d $100,000, are issued only t o Federal Reserve b a n k s against certain credits established with t h e Treasurer of t h e United States. These certificates are not paid out by Federal Reserve banks, a n d do not appear in circulation. Gold certificates represent t h e deposit of gold in t h e Treasury, a n d bear on their face t h e wording: " T h i s is to certify t h a t there is on deposit in t h e Treasury of t h e United States of America * * * dollars in gold, pavable t o bearer on d e m a n d as authorized by law." Silver certificates, in denominations of $1, $5, and $10, are issued by t h e Treasurer of t h e United States against a n y s t a n d a r d silver dollars, silver, or silver bullion held in t h e Treasury against which silver certificates are not already outstanding. When received in t h e Treasury on any account (except for redemption in standard silver dollars) t h e y m a y be reissued. U.S. notes, received on any account by t h e Treasurer of t h e U n i t e d States, are required by the act of M a y 31, 1878, to be reissued. T h e notes are reissued in denominations of $2 a n d $5 and t h e a m o u n t outstanding is maintained a t $346,681,016. A reserve in gold of $156,039,430.93 is held in t h e Treasury against these notes and Treasury notes of 1890. Federal Reserve notes are issued a n d retired with t h e varying requirements of t h e country for currency. T h e y are issued in denominations of $5, $10, $20 $50, $100, $500, $1,000, $5,000, and $10,000. T h e printing of Federal Reserve notes in denominations of $500 and larger was discontinued by action of t h e Board of Governors of t h e Federal Reserve System on J u n e 26, 1946, b u t notes of these denominations will continue to be paid out by t h e Federal Reserve b a n k s as long as existing stocks last. Federal Reserve notes are obligations of the United States and are secured by t h e deposit with Federal Reserve agents of a like a m o u n t of collateral consisting of gold certificates or gold certificate credits with t h e Treasurer of t h e United States, such discounted or purchased paper as is eligible under t h e t e r m s of t h e Federal Reserve Act, as amended, and direct obligations of t h e United States. Federal Reserve b a n k s m u s t maintain a reserve in gold certificates or gold certificate credits equal to a t least 25 percent of these notes in actual circulation, including in this reserve t h e redemption fund (equal to not less t h a n 5 percent of t h e notes outstanding less t h e a m o u n t of gold certificates held by t h e Federal Reserve agent as collateral) which m u s t be deposited with t h e Treasurer of t h e United States and any gold certificates or gold certificate credits held as collateral for Federal Reserve notes. On J u n e 30, 1947, $24,780, 494,655 of Federal Reserve notes were outstanding, of which $23,999,004,455 were in circulation. T h e collateral behind these notes consisted of $33,762,000 in eligible paper, $13,571,498,000 in U.S. G o v e r n m e n t securities, and $11,998 million in gold certificates and gold certificate credits with t h e Treasurer of t h e United States, t h e total collateral being $25,603,260,000. As t h e t o t a l money in circulation on J u n e 30, 1947, was $28,297,227,423, Federal Reserve notes m a d e u p 85 percent of t h e total. Production.—All paper currency of t h e United States, including Federal R e serve notes, is produced a t t h e Bureau of Engraving a n d Printing of t h e U.S. Treasury. A special distinctive paper prescribed by the Secretary of t h e Treasury, is used, and currency is printed 12 subjects to a sheet, b u t t h e subjects are separated a n d t h e currency is delivered as separate bills. T h e currency is printed, faces and backs, from engraved plates, by t h e wet intaglio process. T o meet t h e requirements for currency during t h e fiscal year 1947, t h e Bureau of En 38 FEDERAL RESERVE DIRECT PURCHASES graving a n d Printing delivered 1,353,060,000 pieces of currency of a face a m o u n t of $5,133,660,000. Reduced size currency, new series.—New designs for all t h e paper currency issues a n d reduction in size were made effective in 1929. T h e small-size currency is termed "new series"; t h e former large-size currency "old series." T h e validity of t h e old series currency outstanding in circulation is not affected b y t h e issue of t h e new series. Old series currency, of which only a relatively small a m o u n t remains outstanding, is canceled a n d retired when received by t h e T r e a s u r y or t h e Federal Reserve banks. T h e issue of t h e new series (reduced size) currency commenced in J u l y 1929. On J u n e 30 of t h a t year there was outstanding $4,997,840,176 of t h e old series currency, a n d there remained outstanding on J u n e 30, 1947, $163,375,923, or a b o u t 3 percent of the a m o u n t o u t s t a n d i n g when its retirement commenced. For t h e new series currency t h e principle of denominational design was strictly followed. T h e back designs are uniform for each denomination irrespective of kind, and are uniformly printed in green (yellow for gold certificates, series of 1934). T h e face designs are characteristic for each denomination as regards t h e i m p o r t a n t protective features, with only sufficient variation in detail t o indicate t h e kind; they are printed uniformly in black, b u t with different colored seals for t h e different kinds. Certain special wartime variations which were introduced in t h e m a t t e r of currency design are described below. T h e portraits assigned to t h e faces a n d t h e embellishments provided for t h e backs of the several denominations, the denominations in which each of t h e six kinds have been issued, a n d t h e color of t h e Treasury seal on each kind are as follows: Denomination $1 $2 $5 $10 . $20._ $50 $100. $500. $1,000 $5,000_ $10,000 $100,000 Portrait (on face) _- —_ ._- Embellishment (on back) Washington - Great Seal of the United States.1 Monti cello. Jefferson Lincoln Lincoln Memorial. Hamilton U.S. Treasury. Jackson _ _ _ _ White House. U.S. Capitol. Grant Franklin. Independence Hall. McKinley Ornate denominational marking. Do. Cleveland Do. Madison. Do. Chase _ Wilson Do. Kind of money Denominations Seal Silver certificates U.S. notes... Gold certificates Federal Reserve notes Blue Red Yellow Green. Federal Reserve bank notes and national bank notes. Brown _ _ $1, $5, $10. $2, $5, $100, $1,000, $10,000, $100,000.2 $5, $10, $20, $50, $100, $500, $1,000. $5,000, $10,000.3 $5, $10, $20, $50, $100.4 i Present back adopted in 1935. Former back: Ornate denominational marking. 2 All series 1934. Prior series, discontinued in 1933. was issued in denominations of $10. $20. $50. $100. $500. $1,000. $5,000. $10,000. 3 Printing of denominations of $500 and over has been discontinued, but notes of these denominations will continue to be paid out as long as existing stocks last. 4 All now in process of retirement. Special wartime currencies Hawaiian series.—In July 1942, as a step toward t h e complete economic defense of HawTaii, a special Hawaiian dollar currency was introduced. This currency consisted of U.S. silver certificates and Federal Reserve notes bearing t h e distinctive overprint " H a w a i i " in bold open-faced t y p e on each end of t h e face of t h e note a n d t h e word " H a w a i i " in large open-faced t y p e across t h e reverse side of t h e note. After August 15, 1942, no currency other t h a n U.S. currency, Hawaiian series, could be held or used in Hawaii without a license from t h e Governor of t h e Territory of Hawaii. On t h e other hand, in order t o effectuate t h e purposes of its issuance, t h e U.S. currency, Hawaiian series, was kept from circulating on t h e mainland of t h e United States by virtue of a prohibition of its export from Hawaii. 39 FEDERAL RESERVE DIRECT PURCHASES On F e b r u a r y 9, 1944, it was announced t h a t t h e special Hawaiian series of currency h a d been t a k e n by t h e Armed Forces of t h e United States into Central Pacific strongholds from which t h e Japanese had been driven. This step was t a k e n t o facilitate identification of t h e currency being used in c o m b a t areas a n d t o m a k e easier t h e isolation of t h i s particular currency in t h e event t h a t it should fall into enemy h a n d s . On October 21, 1944, it was announced t h a t t h e economic controls in t h e Hawaiian Islands, of which t h e issuance of Hawaiian series currency was a p a r t , were t e r m i n a t e d a n d while further issues of t h e Hawaiian series notes are not being made, t h e outstanding notes of this series circulate in t h e same m a n n e r as other U.S. currency b o t h in Hawaii a n d on t h e mainland. Yellow seal.—In November 1942, a t t h e request of t h e War D e p a r t m e n t , t h e Treasury D e p a r t m e n t furnished t o t h e War D e p a r t m e n t a special series of U.S. currency for use of t h e American military forces in N o r t h Africa. This currency consisted of silver certificates, in the usual denominations of $1, $5, a n d $10, b u t bearing a yellow seal in place of t h e customary blue one. One purpose of t h e special series of currency was to prevent t h e use in N o r t h Africa of U.S. money which t h e Axis might have seized in occupied areas. OFFICE OF THE SECRETARY OF THE TREASURY Daily Statement of the United States Treasury COMPILED FROM LATEST PROVED REPORTS FROM TREASURY OFFICES AND DEPOSITARIES JUNE 30, 1947 (Ixcerpt) CURRENT ASSETS AND LIABILITIES GOLD ASSBTS i (OJ5. 607,610,088.3) $21, 266, 353, 091. 88 LIABILITIES Gold certificate: Outstanding (outride of Treasury) $2, 863, 266, 359. 00 Gold certificate fund—Board of GOT* ernors. Federal Reserve System 16, 513, 733, 546. 94 Redemption fund—Federal Reserve note. 709, 924, 021. 92 Gold reserve 156, 039, 430. 93 Nora.-Reaarr* astlnit tmjKlfiU of United BUM notei and $UM,J78 of Treaury noUi o" "*"" —* J ins, Tnuurrnotaof UWaroalioM doUan tn the Ttrnmrr. 10, 242, 963, 358. 79 1,023, 389, 733. 09 Gold In general fund.. Tout. .: 21, 266, 353, 091. 88 . 21,266,353,091.88 SILVER ASSBTS Bilvsr (or. 1,488,026,374.5 a) Total UABHITEBS $1,923,912,883.91 341, 961, 650. 00 2, 265, 874, 533. 91 Treasury notes of 1890 outstanding Total, . . $2, 230, 779, 033. 00 1, 135, 278. 00 33, 960, 222. 91 ., 2, 265, 874, 533. 91 GENERAL FUND ASSBTS . $1, 023, 389, 733. 09Treasurer's checks outstanding Gold (as above) Deposits of Government officers: SUrer; 33, 960, 222. 91 Post Office Department At monetary value (as above) 20, 270, 734. 82 Board of trustees, Postal Savings System: Subsidiary coin (oa. 14,663,848.8) o-peroent reserve, lawful money Bullion: 15, 709. 62 Other deposits At reooinage value (os. 11,863.0) 91, 876, 629. 03 Postmasters' disbursing accounts, etc... At cost value (os. 180,888,489.3 a) 10, 929, 480.43 Uncollected items, exchanges, etc Minor coin. 3, 041, 321. 00 United States notes 70,912,805.00 Federal Reserve notes 522, 602. 00 Federal Reserve bank notes 266, 615. 00 National bank notes 61, 998, 196. 67 Unclassified—Collections, etc Deposits in: 1, 202, 306, 369. 19 Federal Reserve banks... Special depositaries account of sales of 962, 279, 000. 00 Government securities 215,041,941.81 Rational and other bank depositaries 13,877,697.91 Foreign depositaries -19, 015, 073. 02 Balance Philippine treasury Total 3,729, 704, 131. 50 Total— $23,717,011.20 39, 818, 108. 50 170, 000, 000. 28, 207, 619. 139, 371,042. 20, 453, 420. 00 52 85 07 421, 567, 202. 14 3,308,136,929.36 3, 729, 704, 131. 50 a812,471,763.9 ounces of these items of silver are held by the Office of Defense Plants of the Reconstruction Finance Corporation, etc. CIRCULATION STATEMENT OF UNITED STATES MONEY-JUNE 3 0 , 1947 K I N D OF MONET Gold Certificates. Standard Silver Dollars Silver Bullion Silver Certificates Treasury Notes of 1890 Subsidiary Silver Minor Coin United States Notes Federal Reserve Notes Federal Reserve Bank Notes National Bank Notes. Total June 30,1947. Comparative totals: May 31,1947 June 30, 1946—. October 31, 1920 March 31,1917.. June 30,1914 January 1,1879. * Does not include gold other than that held by the Treasury. ' These amounts are not included in the total, since the gold or silver held as security against gold and silver certificates and Treasury notes of 1890 is included under gold, standard silver dollars, and silver bullion, respectively. •This total includes credits with the Treasurer of the United States payable in gold certificates in (1) the (Sold Certificate Fund-Board of Governors, Federal Reserve System, in the amount of $16,513,733,647, and (2) the redemption fund for Federal Reserve notes in the amount of $709,924,022. * Includes $170,000,000 lawful money deposited as a reserve for Postal Savings deposits, * The amount of gold and silver certificates and Treasury notes of 1890 should be deducted from this amount before combining with total money held in the Treasury to arrive at the total amount of money in the United States. ' The money in circulation includes any paper currency held outside the continental limits of the United States. F o r m JOT8—TREASURY D E r A R T M P N T - B V " * * ? n f T»? Tv»h\c »p*T, NOTE.—There is maintained in the Treasury—(i) as a reserve for United State* notes and Treasury notes of 1890—$156,039,431 in gold bullion; (ii) as security for Treasury notes of 1890—an equal dollar amount in standard silver dollars (these notes are being canceled and retired on receipt); (iii) as security for outstanding silver certificates—silver in bullion and standard silver dollars of a monetary value equal to the face amount of such silver certificates; and (iv) as security for gold certificates—gold bullion of a value at the legal standard equal to the face amount of such gold certificates. Federal Reserve notes are obligations of the United States and a first lien on all the assets of the issuing Federal Reserve Bank. Federal Reserve notes are secured by the deposit by the Federal Reserve Bank concerned, with its Federal Reserve Agent, of a like amount of collateral consisting of such discounted or purchased paper as is eligible under the terras of the Federal Reserve Act, or gold certificates, or direct obligations of the United States. Each Federal Reserve Bank must maintain reserves in gold certificates of not less than 25 percent against its Federal Reserve notes in actual circulation. Gold certificates deposited with Federal Reserve Agents as collateral, and those deposited with the Treasurer of the United States as a redemption fund, are counted as part of the required reserve. "Gold certificates" as herein used Includes credits with the Treasurer of the United States payable in gold certificates. Federal Reserve bank notes and National bank notes are in process of retirement.
@FedFRASER