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1951 1951 ANNUAL REPORT F E D E R A L R E S E R V E B A N K OF M IN N E A P O L IS Fo R EWO R I) A D U A L P U R P O S E is served by this Annual Report of the Federal Reserve Bank of M inneapolis. T h e first purpose is to present to the stockholders the statement ol condition of the bank at the close of the year and its earnings and expenses for the year. T h e second purpose is educational— to olTer to the general public, as well as to the stockholders, a description of one of the service functions of the bank and also a statement on the functioning ol the Federal Reserve System in the nation's economy. T h e message of President J. N . Peyton entitled, M o n etary P o licy Can C o n trib u te to the N a t io n ’s Stren g th , states his belief that the national welfare is best served by a central bank ing system that provides regional representation in policydetermining bodies. T h e feature article, fifth in a series and entitled, S e rv ic e Station fo r Y o u r F o ld in g M o n e y , describes the important services performed by the bank's Currency department. It is hoped that this Annual Report will serve to promote a better understanding of the Federal Reserve System — its services and functions. BOARD or DIRECTORS R O G E R B. S H E P A R D P A U L E. M IL L E R R O G E R B. S H E P A R D , S t. P au l b u s i n e s s m a n , h as b een c h a ir m a n s in c e J a n . 1, 1916. R e p r e s e n tin g th e p u b lic in ter est a s a c la ss C d ire cto r, a p p o in t e d by th e Board o f G o vern ors, h e w as r e a p p o in te d for a th r e e -y e a r te r m to serve th r o u g h D e c e m b e r 31, 1953. P A U L E. M IL L E R , d e p u t y c h a ir m a n , is d ir e c to r o f th e U n iv e r s ity o f M in n e s o ta a g r ic u ltu r a l e x te n s io n d iv isio n , S t. P a id . H e w as r e c e n tly r e a p p o in te d a c la ss G d ire cto r. C H A R L E S W. B U R G E S , a c la ss A d ir e c to r , is vice p r esid en t a n d c a s h ie r o f th e S e c u r ity N a tio n a l B a n k , E d geley , N .D . H e w as recen tly reehke ted by m e m b e r b a n k s h a v in g c o m b in e d c a p ita l a n d s u r p lu s of* less th a n $150,000. HOlM ER P. C L A R K , h o n o ra ry c h a ir m a n o f W est P u b lis h in g C o., S t. P a id , is a c la ss B d ir e c to r r ep re s e n t in g c o m m e r c e , in d u s tr y , a n d a g r ic u ltu r e . He w as e le c te d by m e m b e r b a n k s h a v in g com binc'd c a p ita l a n d s u r p lu s o f m o r e th a n $100,000. W IL L IA M A. D E N E C K E is a liv e sto c k r a n c h e r o f B o z e m a n , M o n ta n a . A c la ss B d ir e c to r , he w as e le c te d by m e m b e r b a n k s h a v in g c o m b in e d c a p ita l a n d s u r p lu s o f less th a n $150,000. E D G A R F. Z E L L E F. A. F LODI IN is presid en t o f th e Lake S h o re E n g in e e r in g C o., iro n M o u n t a in , M ic h . H e w as r e c e n tly a p p o in t e d a c la ss (1 d ire cto r to (ill an iin e x pired te r m e n d in g D ec. 31, 1952. RAY C. L \ I \ ( i E , a c la ss B dire<*tor, is p r esident o f C h ip p e w a ('a im in g C o., C h ip p e w a F alls, W is. H e w as r e c e n tly r e e le c te d hy m e m b e r h a n k s h a v in g c a p ita l a n d s u r p lu s o f $150,000 or m o r e h u t less th a n $400,000. IIA R O IJ) N. T H O M S O N , vice p r esid en t o f th e F a rm er s a n d M e r c h a n ts R an k, P r e s h o , S .D ., is a c la ss A d irecto r. H e w as e le cte d hy m e m b e r h a n k s h a v in g c o m h in c d c a p ita l a n d su r p lu s o f $150,000 or m o re hut less th a n $400,000. E D G A R F. Z E L L E is c h a ir m a n o f th e First N a tio n a l R an k o f M in n e a p o lis a n d c h a ir m a n a n d trea su rer o f Jefferson T r a n s p o r ta tio n Go. H e w as e le c te d a (‘lass A d ire cto r hy h a n k s w ith c o m h in c d ca p ita l a n d s u r p lu s o f $400,000 or m o re , to fill an u n e x p ire d te rm e n d in g D ec. .‘51, 1952. W IL L IA M A. DEN EC R E R A Y G. L A N G E In T h i s A n n u a l R e p o r t TO TI1E STOCKHOLDERS | • MONETARY POLICY President Peyton's M e s s a g e ........................................................... ^ • OPERATIONS REPORT Check Collection , Coin Progress Highlighted >e a r ........................... 10 • FEATURE SUBJECT “ Service Station for Your Folding M o n e y ........................................... 16 • FINANCIAL STATEMENTS Warnings and Expenses , Sta ternen t of Condi tion 22-23 PRESIDENT P E Y T O N ’S MESSAGE Monetary Policy Can Contribute to the Nation’s Strength 1951 SAW THE FORMULATION OF MEASURES TO INHIBIT INFLATION L i I F E in the United States today is on the whole comfortable. W e cannot afford to be sanguine, however, for as more and more of our citizens are com ing to realize, a great task lies ahead of us which may exert stresses and strains on our economy. W e are embarked on a program which seeks to provide a volume of civilian goods sufficient to maintain a high standard of living for our people and at the same time produce mountains of m ili tary materiel. W hile doing this, we certainly wish to preserve our democratic political institutions. O ur country can lose power and prestige— and endanger the life of democratic institutions throughout the world— as much by a failure to build defenses against a deterioration of our eco nomic structure as by a failure to build adequate defenses against m ilitary aggression. met. T o meet it we must formulate and follow in detail the best protective measures we can devise. Defenses against inflation require that men with specialized skills— and wisdom — shall be entrusted with the formulation and development of the program for the maintenance of a strong and stable economy. It is obvious that efficiency in production is required. Necessary also is soundness of our financial institutions. M oney is the core of the financial structure, and the Federal Reserve System has been entrusted by Congress with responsibilities regarding its man agement which need public recognition and under standing. But these matters are com plex; they are difficult to understand. Yet, all complex problems basically have a simple substance. W e must therefore be alert to detect and must courageously correct weaknesses in our economic structure as well as those that appear in our m ili tary armor. T h e substance of inflation is that the rate of money creation and money use has outrun the supply of goods and services for which money may be expended. Conversely, deflation consists of a declining rate of money expenditures on goods and services. A n apparent threatening weakness in our eco nomic structure, and that of other nations which seek to preserve political and economic democracy, is inflation. T h is threat must be recognized and T h e Federal Reserve System is concerned with forestalling inflationary and deflationary move ments insofar as that desirable objective can be achieved by monetary measures. T h e instruments 5 which may be used are explicitly defined by legis lative acts and clearly delegated by Congress under the Constitution to the Federal Reserve with the purpose of promoting growth and stability in the economy. Th in kin g on these matters, I have been led to devote my annual letter to them. T hey are uppermost in my mind, more salient at the beginning of this new year than the general business situation in the Ninth district. Accordingly, I shall give you briefly my impressions of the organizational struc ture of the Federal Reserve System, its place in the banking system, and the record of its policies in 1951. Federal Reserve is Both a Private and Public Institution Congress wisely provided that the Federal R e serve System should be a semiprivate and semigovernm ental institution. T h is was accomplished by building a structure of twelve regional Federal Reserve banks, each owned by the member com mercial banks of its district, over which the Board of Governors of the Federal Reserve System, an instrumentality of the federal government, exer cises general supervision. Clearly, it was the intent of Congress that the central bank for the United States should be a w s& om sns —M L ffr M l ib fS P k ll j F M A M J J A S O N D • The privately held money supply increased $8.7 billion in the year ended December 31, 1951. De mand deposits were up $5.9 billion, time deposits $1.7 billion, and currency outside banks $1.1 billion. 6 decentralized organization for certain purposes and centralized for other purposes. It is a decentralized structure—broken down into the twelve regional banks— in order to assure that regional consider ations would be taken into account in the form ula tion of national policy and to provide for the adaptation of national policy to local conditions. It is chiefly through the Federal Open M arket committee, on which five presidents of the Federal Reserve banks and the seven members of the Board of Governors serve, that national credit policy, under authorization of Congress, is form u lated and implemented. T h e presidents of the F ed eral Reserve banks have the benefit of the views of their boards of directors as a basis for their own views presented in the meetings of the Open M ar ket committee and in discussions with the Board of Governors. T h e Board of Governors also has the benefit of the opinions of the Federal A dvisory Council, on which serve twelve persons, one from each district, who are appointed by the boards of directors of the Reserve banks. Thus is provided a body for centralized decision m aking in which is reflected the thinking of people from all regions of the country— a body which is able to weld this thinking into a national mone tary policy. T h is regional arrangement agrees with the po litical, economic, and social institutions built up in this country and stands approved by our people in sharp contrast with their disapproval of a com pletely bureaucratic determination of national policy. Federal Reserve Fits Commercial Banking Structure T h e structural arrangement and procedures of the Federal Reserve System were designed to fit the monetary system which had been developing prior to the passage of the Federal Reserve Act in 1913. T h e chief form of money had become bank deposits, whereas previously currency was the main form of money. Slow ly it became recognized that commercial banks were the creators of the bulk of the money supply. Prior to the establishment of the Federal Reserve System, no control was exercised over the quantity of the main form of money (bank deposits), ex- mm on u s 1950 6 o «M «K T ummz 1951 • Following the Treasury-Federal Reserve accord in March, yields on government securities rose sharply. After a 3rd-quarter drop, yields on all m a turities rose to new postwar highs late in the year when commercial banks increased their loan rates. cept for a regional gold reserve; that is, no delib erate inhibiting measures were taken to discourage undue expansion or contraction of bank credit. In periods of prosperity, bank credit was freely al lowed to promote further expansion and, in periods of recession, to accelerate and accentuate con traction. W hile Congress was preoccupied in the last half of the nineteenth century and the early years of the present century with problems relating to coinage, a new monetary system, with a new dom inant form of money, was fast developing. T a k in g a careful look at this phenomenon when prodded by the Panic of 1907, Congress decided to establish a central banking system that would effect a compromise between a legislatively deter mined and a privately determined money supply. T h e result of the deliberations was the Federal Reserve System, under which the commercial bank ing system was permitted to continue to create money and yet be subject to the restraining meas ures which the new central banking system, using the instruments of control specifically prescribed by legislative acts, m ight take. U nder this compromise, the Congress neither directly through legislative prescription nor indi rectly through the agency of the Federal Reserve System interferes with the individual commercial ban k’s function as the allocator of funds. Each bank receives and disposes of applications for credit with little or no interference. T h e Federal Reserve System, however, can exert influence upon the over-all volum e of bank credit and its general availability through the use of its instruments of control. M oreover, it can on its own initiative serve as a creator of money when offer ing to convert bank assets into cash or credit, and it can decrease the money supply by retiring money from private circulation paid to it in exchange for its assets. I have a firm conviction that the nation should not without serious consideration disturb this unique part-private and part-governmental nature of our central banking system. T h e existing system has proved workable and reasonably satisfactory. Since the most realistic alternative to a central bank ing system such as we have in this country is one in wrhich private control is weaker or altogether lacking and governm ent control is stronger, the public should deplore and resist any move in the direction of such an alternative. World War II Provided Background for Inflation From the end of December 1941 to the end of 1945, the privately held money supply (deposits and currency) increased from $76.3 billion to $150.8 billion. T h e increase of $74.5 billion in the money supply is approxim ately the same as the rise of $75.8 billion in bank holdings of government securities. T w o factors made possible these larger holdings — namely, the large volume of excess reserves held by the banks at the beginning of the period and Federal Reserve purchases of governm ent secur ities in the period under survey. O f the $22 billion of governm ent securities purchased by the Reserve banks, over $ 17 billion was offset by an increase in money in circulation. A fter the w ar a period of great bank credit ex pansion developed. In the six-year period from the end of 1945, bank loans increased about $36 billion, which compares with a rise of approxim ate ly billion in deposits and currency. 7 This great expansion in bank credit, which was continuous in half-year periods, except for the first half of 1949, provoked great discussion over meas ures which might be taken by the Federal Reserve to discourage further credit expansion. T h e central issue became the support of government securities at set values by Federal Reserve open-market pur chases. Treasury9 Federal Reserve Reached Accord in March 1951 T h e chief considerations involved in the debate over the maintenance of governm ent security prices by the Federal Reserve were, on the one side, that the purchases incident thereto in a period of full em ploym ent created a highly inflationary credit base and, on the other, that a need existed to maintain confidence in the governm ent credit and that low borrowing rates are desirable. T h e fast-moving events and announcements re garding open-market policies of the Federal R e serve System are well known. T h e first step toward a change in policy was the announcement in A ugust 1950 by Federal Reserve authorities that they were prepared to use all available powers to restrain further inflationary credit expansion consistent with the policy of m aintaining orderly conditions in the m arket for government securities. F ollow in g this announcement, discount rates at the Reserve banks were raised, but substantial F e d eral Reserve purchases of governm ent securities were made to support Treasury refunding oper ations and also the long-term bond market. N o n bank investors, chiefly institutional investors, con tinued to sell bonds in large volume as a means of obtaining funds to acquire higher-yielding assets. In this process, commercial bank deposits and reserve balances rose to higher levels, intensifying the already intense inflationary pressures caused by the outbreak of m ilitary hostilities in June. bank deposits, effective in January 1951, and higher m argin requirements on trading in stocks were imposed. In Jan uary and February 1951, events and an nouncements confirmed the intention of the F e d eral Open M arket committee to change its policy in support of governm ent securities under which a great volum e of investor holdings of the federal debt had been monetized. On M arch 4, a historic announcement was made by the T reasury and the Federal Reserve that they had reached an accord with respect to debt m an agement and monetary policies which would assure successful financing of the governm ent’s require ments and at the same time m inim ize further monetization of the public debt. Thereupon, market prices on governm ent bonds declined to levels considerably below par, and yields on short-term issues also rose to levels higher than had prevailed for many years. Monetary Policies of 1951 Had Anti-inflationary Results One effect of the virtual cessation of Federal Reserve purchases of governm ent bonds was that institutional lenders were no longer able to mone tize their holdings by sale to the Federal Reserve without causing a decline in the market prices of governm ent securities. T h at being the case, they were induced to adjust new loans into closer balance with funds received from new savings and repayments of old loans. Since institutional investors could no longer con vert bonds into new money without penalty of lower prices, commercial banks were no longer the recipients of additional reserve balances, as had been the case when the Federal Reserve bought freely the bond holdings of those investors, or those of the banks at set prices. Under the Defense Production A ct of 1950, con sumer installment credit regulations were imposed under Regulation W , and a new regulation cover ing credit in the real estate field, Regulation X , was instituted. Th u s by the same stroke, the refusal to purchase governm ent bonds from institutional holders so freely was a refusal to create bank reserves so freely— reserves on which additional commercial bank loans might be based, and new money made available for lending by institutional lenders. Late in December, the Board of Governors an nounced higher reserve requirements 011 member There was another aspect of the drop in govern ment bond prices (higher market yields) and the 8 is most likely to increase. If instead of allowing their prices to decline, they are kept at a fixed level, such as par, by Federal Reserve purchases, no automatic restraint on further sales exists, as is the case under free market conditions. In fact, such fixed prices induce sales to the Federal Reserve which, as we have seen, add to the public’s money supply and to bank reserve balances. Thus, high fixed government security prices heighten infla tionary pressures— especially at times when infla tion is most strong. • Bank loans increased with the increase for the half of 1950. Loans for tries figured importantly at a steady rate in 1951, year less than for the last defense-supporting indus in causes of the increase. higher yields on short-term securities in 1951. Banks, which no longer gained ample reserve balances as was the case when the Federal Reserve purchased large amounts of governm ent securities, found it advisable to borrow from the Reserve banks in order to adjust their reserve positions. Th is development can have a restraining effect on bank loan expansion because banks are reluctant to expand loans when they have outstanding bills payable. Reversal of Open Market Policy Was Necessary Step It is significant that inflationary pressures in the economy declined beginning in the second quarter of 1951 coincident with the unpegging of governm ent security prices. Doubtless this action contributed to the abatement of previously strong inflationary forces at that time. It h as been demonstrated, I think, that monetary policy can be effective in the arsenal of weapons for defense against inflation. T o be sure, other measures to fight inflation are important. Taxation, price and w age controls, and selective credit con trols can be helpful if they are wisely conceived and administered, but the burden placed on them is unnecessarily great if the monetary factor in a period of intense inflationary pressures is allowed to contribute to further inflation. M onetary policy can contribute mightily to the maintenance of strength and stability in our econ om y— and can do so without com promising the freedoms we cherish. These somewhat technical observations, and others that might have been made, can be reduced to one; namely, that the reversal of open m arket policy as it affected government securities was a necessary step toward a free market—one in which prices more nearly reflect supply and demand forces. In a free market for government securities, dissatisfaction over prevailing rates relative to re turns on alternative investments leads to selling of governm ent securities, whereupon their market yields rise and they again become more attractive investments. It is in the prosperity phase of the business cycle when the demand for credit is great that the volume of governm ent securities offered for sale 9 OPERATIONS REPORT Advances in Check Collection and Coin Facilities Highlighted Bank’s Year N E picture, it has been said, is worth onethousand words. One statistic can be equally m eaningful. O Business figures, for example, can tell a story of prosperity or depression, inflation or recession. Banking statistics also are eloquent story tellers, because they reflect the business conditions of the communities which the banks serve. • R ecord 81.6 m illio n ch eck s were pro cessed , for an 18 per cen t increase. • Sp ecial u n it h a n d led 5 m illio n o f n e w b a n k a b le postal m o n ey orders. • N ew coin vault p rom o ted efficiency in o p era tio n o f th e coin d e p a r tm e n t. • O u tg o in g cu rren cy s h ip m e n ts in creased 10 per c e n t, coin 19 per c e n t. • R e d is c o u n tin g o p er a tio n s, for years a b o u t d o r m a n t, revived sig n ifica n tly . Since the Federal Reserve Bank of Minneapolis is a clearinghouse for many of the banking trans actions in the N inth Federal Reserve district, figures indicating the F ed ’s work volume often reflect the general level of district business activity. are larger and more frequent. If business is poor, the F ed ’s work load should decline. If business is good, the number and dollar volume of checks, bills, and coins handled by the Reserve bank should be high, because money payments What do the figures show for 1951 ? T he over-all picture, as shown by the volume figures for Reserve bank operations, is one of business at a record level. In number and dollar value, checks flowing through the F ed ’s collection department during the year lar outdistanced those of any previous 12-month period. W hen the totals were added at year-end, it was found that the Federal Reserve Bank of Minneapolis and its Helena (M ontana) branch had handled in 1951 a record-smashing 81.6 million checks and other cash items with a face value of S25.9 billion. T h is exceeded the 1950 total of 69.3 million items by 18 per cent and compares with a 1949 figure of 65.2 million. T he increased work load in the F ed ’s check col lection department led to several changes at the Minneapolis head office during the year, including expansion and complete rearrangement of the de- • Pictured at the left is one of 10 specially designed machines used for listing the new bankable post office money orders. Note how operator reads the faces of the checks as they drop into lighted slot. 10 # Dubbed the "penthouse" because it was built atop the bank's five-level vault, the new coin vault is lined with 60 tons of 1-inch steel and has a capac ity of 100 tons, or $2 ,0 0 0 ,0 0 0 worth of small coin. A labor-saving feature is an electric fork lift which hoists skids of coins as high as 11 feet into the steel bins. At left, an operator is engaged in w rapping coins—which totaled over 58 ,0 0 0 ,0 0 0 in 1951—and at right is one of three sorting machines which ran through more than 110 million pieces during the year. partm ent’s w orking space— with a reorganization of the work flow for greater efficiency, increased use of machines for check handling, and enlarge ment of the departmental staff. For the first time, a late night shift from io:^o p.m. to 6:30 a.m. was inaugurated. F o r the first time, also, check sorting and proving was made almost entirely a mechanized operation —going from 100 per cent m anual to about 90 per cent processing by IB M proof machines. W ith these increased in number from 20 to 80, the M in neapolis Fed came to have the largest installation of its kind in the Upper M idwest. Not all of the 1951 increase in check volume was due to expanding business activity, however. More than five million of the new, bankable postal money orders were processed by the Fed in the last six months of the year. T h e new money orders, which were placed in use July 1, are of the punchcard type, and it was necessary to install a battery of proof machines with specially designed cardpunching attachments to handle them. 11 Part of the increased volume was the result, too, of changed check-handling procedure by com m er cial banks. Nevertheless, a good share of the F e d ’s increased work must be attributed to higher prices and a continuing high level of business activity. T h is conclusion would seem to be supported by bank debits figures which for 134 cities in the district were up an average of 10 per cent from 1950. Currency and Coin Totals Exceeded 1950 Volume T h e Reserve bank’s currency department also experienced a grow th in w ork volume in 19 5 1 . A s the public called on commercial banks for more cash with which to do business, shipments of cur rency to member banks from the head office and branch rose to $446 million, 10 per cent above the 1950 figure. Coin, which was so much in demand in late 1951 that it looked for a time as if the Fed might have trouble in fully supplying member bank needs, showed an even greater rise in dollar volume of outgoing shipments. T h e 1951 figure of $15.4 m il lion topped the previous year’s figure by 19 per cent. Fortunately, in M arch a new coin vault and added mechanical facilities for handling coin were placed in operation at the head office. T h e dollar amount of coin wrapped during the year was also higher than in 1950. T h e increase in dollar value was 26 per cent. T h e rise in volume of w ork so far as incom ing cash was concerned was not as great. Incom ing currency counted and sorted totaled 71.2 million pieces, r per cent above 1950’s total. T h eir dollar value of I475 million was up a little less than 3 per cent. In the course of the year, the sorters also removed 2(S million pieces of unfit currency worth $ 112 million from the stream of paper money, while $158 million in new bills were placed in circulation by the head office and branch. Incom ing coin sorted and counted also increased, but again the rise was not as much as that of out going coin. Note circulation of the Federal Reserve Bank • In the interests of greater efficiency, extensive changes were recently completed in the Check Col lection departm ent. W orking arrangements were re vamped to establish a better flow of the work and operations were almost entirely mechanized. The view above shows part of the administration section, which extends back in the first bay, and some of the proof machines (increased from 20 to 80 in the extensive mechanization) in the second bay. • Shown on the opposite page is the M ail d ep art ment, where cash letters from direct-sending member banks in and out of the Ninth district are broken down into immediate and deferred groups of city and country items. These go to the incoming proof division. Board on w all is placard of simplified alphabetical unit sort by states. Note slots for con solidated mail at rear. (M ore views on pages 14-15.) of M inneapolis increased $21.3 million during 1951. T h e total of notes in circulation on December 31 stood at $632 million, down $4 million from the year’s high on December 24 and short of the 1948 all-time record by only $6.4 million. Advances to Member Banks During 1951 Up Sharply Transfers of funds also showed a sharp rise. Total dollar volum e of transfers for 1951 reached a record-breaking $14.3 billion, one-fifth again as much as 1950’s record figure. Noncash collections were also up. G rain drafts, which m ake up more than two-thirds of such collections, rose 10 per cent in number and 21 per cent in dollar amount. One of 19 51’s largest and most interesting gains percentagewise was in the number and dollar' volume of advances to member banks secured by United States government obligations. Fo u r hun dred and twenty such loans were m ade in 1951 compared with 332 in 1950, and the aggregate dollar amount of $1.7 billion was up 90 per cent. O f course the amount outstanding at any one time was not nearly so great. T h e high point was $56,010,000 on June 28. Even more noteworthy, perhaps, was the fact that for the first time in years three advances were made to member banks on collateral other than governments, even though the total amount in volved was only $300,000. Evidently some banks had reached a point where they no longer had government securities available to use as loan col lateral. Volum e of securities owned by com mercial banks and held in custody by the F ed was also up 4 per cent. T h e year-end total was $1.4 billion. T he only 1951 volume figures which showed significant decreases were those involving w ork of the fiscal agency department. Savings bond sales in the district (not including post office sales) dropped an impressive 48 per cent in dollar volume and 8 per cent in number. Redem ptions of savings 13 bonds were also down 12 per cent in number and 14 per cent in dollar volume from 1950’s figures. Total sales in the district amounted to $134.6 million compared with redemptions of $214.7 lion. These figures are not strictly comparable, however, since the sales figure does not include post office sales. A lso down were purchases and sales of govern ment securities cleared through the Fed for the account of N in th district banks. These showed a year-to-year decline in dollar amount of 24 per cent. Staff Goes Over 700; Flodin ? Zelle New on Board died September 26, and W . D . Cochran, who passed away December 5. F . A . Flodin, president of the L ak e Shore Engineering Co., Iron M oun tain, M ichigan, was appointed to fill M r. Cochran’s unexpired term, and E dgar F . Zelle, chairman of the board of the First N ational Bank of M inne apolis, was elected to fill the vacancy left by the death of M r. Quay. A t the regular Novem ber election of directors, C. W . Burges, vice president and cashier of the Security National Bank, Edgeley, N orth D akota, and R ay C. Lange, president of the Chippew a C an ning Co., Chippew a Falls, W isconsin, were re elected to three-year terms beginning January 1, 1952. T h e increase of work at the Fed made necessary an expansion in the bank’s staff, as could be ex pected. F or the second consecutive year the num ber of employees on December 31 at head office and branch was larger than on that date the previous year. T here were 714 on the staff at the end of 1951 compared with 673 in 1950 and 1949^ postwar low of 633. Roger B. Shepard, St. Paul, Minnesota, was re designated chairman of the board and Federal Reserve agent for 1952, and Paul E . M iller, di rector of the University of M innesota's agricul tural extension division, St. Paul, was reappointed Effective January 1, 1951, all Federal Reserve employees were blanketed under the provisions of the federal Social Security program. • This view of Check Collection shows the battery of Recordak machines at the rear of the third bay where items are microfilmed after the letters have been proved and sorted into units. In the foreground are adding machines used at various times during the day for certain manual listing operations. ^ T h e bank was saddened during the year by the death of two of its directors, A rthur H . Quay, who 14 • Located in the fourth and fifth bays is the out going proof division. Along the sides are racks used for assembling the proved checks by banks. After the items are recapped by banks as to amount, the work flow takes the cash letters to the consolidated mail section for enclosure to the respective banks. to a three-year term as director and named deputy chairman for 1952. T he H elena branch received a new director with the appointment of A. W . Heidel, vice president of the Powder River County Bank, Broadus, M on tana, to a two-year term beginning January 1, 1952. G . R. M ilburn, manager of the N -Bar Ranch, Grass Range, Montana, was reappointed for a similar two-year term and was made 1952 chairman of the branch board. tural organizations. N e w in 1951 was a two-day Montana Forum sponsored by the Helena branch and attended by more than 100 bankers in that state. Also a part of the Fed's program of education was promotion oi its movie, T h e Federal R eserve Ban/( and You, produced in 1950. By year's end, 1951, well over a quarter-m illion persons, not in cluding television audiences, had seen this film. More than 7,000 copies of the b an k’s picture book let also were distributed during the year, mostly to schools. A new 11-fram e currency exhibit, com pleted in M ay, was in constant display use by Ninth district member banks during the rest of the year. Educational Features Continued During Year In addition to the reorganization and expansion of the check collection department and the addi tion of new coin vault facilities, an improvement made at head office saw installation of an entirely new fluorescent lighting system in the bank lobby. T h e Federal Reserve Bank of M inneapolis dur ing 1951 continued its program of conferences, short course classes, forums, clinics, and other meetings designed to further its educational ob jectives. It also participated in the educational programs of other banking, business, and agricul For the year ahead, the Federal Reserve Bank of Minneapolis pledges its efforts to promote the welfare of banking, business, agriculture, and the general public in the N inth district in perform ing its service functions and in carrying out the mone tary policy of the Federal Reserve System. 15 FEATURE SUBJECT SERVICE STATION... ...for Your F O L D I N G M O N E Y Besides Keeping Currency in Circulation Fit, the Reserve Banks Can Convert Acceptable Bank Assets into Currency I f Y O U found yourself on a radio or television qu iz program , how would you fare if the emcee asked you, “ H o w much money is in circulation in this country to d ay?” W ould you “ strike it rich” ? currency is made up of Federal Reserve notes?” Suppose the quiz-master wanted to kn o w : “ W hat denominations of bills are favored by coun terfeiters?” W ould you “ break the bank” ? More than likely those who work in the curren cy departments of Federal Reserve banks would come up with a greater number of right answers in this sort of quiz. H ow ever, if all of us could take a look at how the currency department oper ates, even “ the big payoff” might come our way. If the emcee asked, “ W hat is the average life of a one-dollar b ill? ” , would you “ double your m oney” ? Federal Reserve Notes Give Currency Elasticity M aybe you’d find some of these questions easy, but would you be a loser or a winner on this 64dollar stum per: “ W hat percentage of the nation’s Issuance of currency is a function that Federal Reserve banks were charged with perform ing by the original act of Congress which created the 16 Federal Reserve System. T h e preamble wordage . . to furnish an elastic currency, to afford means of rediscounting commercial paper . . .” gets to the heart of the matter. By far the most important kind of currency is the Federal Reserve note. M ore than $24 billion of the record $29.4 billion of currency and coin in circulation in late December 1951 was this kind of money. Tw enty-four billion dollars is a lot of cash. If it were all in dollar bills, for instance, it would m ake almost 29,000 stacks as high as the W ashington monument. Since Federal Reserve notes, however, are printed in denominations of from $5 to $10,000 and many of the bills are in the large denominations, the actual notes in circulation would m ake a consider ably smaller pile. Federal Reserve notes are important not only because they make up such a large part of our total cash supply, but also because they are the only type of United States currency which is elastic; that is, currency which can autom atically expand or contract in supply according to the needs of the nation’s economy. A s stated before, such an elastic currency was one of the chief objectives of the Federal Reserve Act of 1913. Th e importance of this elastic quality in Federal Reserve note issue can be appreciated when one realizes that the needs of business and individuals for currency vary widely from season to season and from year to year. From the seasonal standpoint, currency is par ticularly needed at harvest time and during the pre-Christmas buying period. It is least needed, ordinarily, in January and February. In 1951 there was a typical holiday expansion in the nation’s currency and coin circulation in the four weeks ending December 26. In this period, currency and coin in use rose $660 million to set an all-time record. In the two weeks follow ing Christm as there was a sharp drop in currency and coin circulation amounting to $600 million by January 9, 1952. • Currency sorters at the Minneapolis Fed counted and sorted more than 70 million bills during 1951. On the facing page are pictured half of the d ep art ment's 16 units, where sorters detected 126 counter feits while also removing 28 million pieces of unfit currency from the stream of paper money in 1951. • Internal audits are A t right, two auditors for a rapid check of post-holiday influx. In bills is being trundled regularly made of currency. are shown using tickometers bills which were pari- of the the circle a bin of counted into the bank's lower vault. 17 Seasonal Demands Met , Money Panics Averted Before the Federal Reserve System was estab lished, whenever depositors asked for more cash than usual from the commercial banks the smaller banks would draw on their accounts with big city banks, know n as correspondents. Because the city banks had no way of enlarging their own supply of currency as needed, the cash situation often became very tight at those times of the year when many small banks were asking for extra cash at the same time. T h e result was a sharp rise in interest rates, particularly during the crop-moving season, at which time the demand for money exceeded the available supply. A t times— when there existed a widespread fear that property values might fall —- there would develop an abnormal, more than a seasonal, de mand for cash. A t the beginning of a movement ot this type, a few people would sell property to gain cash. Thereupon, others seeing the decline in prices and fearing further weakening of prices would offer property for sale. Lenders would in sist on repayment of loans. In short, everyone would want cash at the same time. T here was 110 method, however, by which more cash could be injected into the economy to supply the demand. Panic would ensue as individuals and business firms competed for the limited supply of coins and currency in existence. A t such times there was alw ays the danger that some banks might be forced to suspend currency payments. Should a number of banks fail, panic conditions would be intensified. T h e rigidity in the currency supply which brought about or intensified such situations was due to the fact that all of the various types of cur rency existing prior to 1914 were limited as to total issue— either by the value of specific government securities, of which there was a relatively small amount, or by the value of the country’s gold and silver. T h e Federal Reserve note was designed to satisfy seasonal demands for currency and to prevent re currences of money panics which, strangely enough, had occurred at fairly regular intervals. 18 • Here you see registered mail receipts of incoming currency shipments from member banks being opened and verified by package count in a cage by a currency teller. Messengers from the local banks bring in deposits of their surplus currency. Gold Certificates and U. S. Securities Back Notes O riginally it was provided that Federal Reserve notes should be backed by a 40 per cent gold re serve and by a 100 per cent collateral of so-called “ eligible paper,” which consisted of certain short term customers’ notes and acceptances discounted by commercial banks with the particular Federal Reserve bank which issued the Federal Reserve notes. (Discounting, as bankers know, is a pro cedure by which banks’ paper arising from loans may be converted into cash or reserves at the F ed eral Reserve banks.) In 19 17 the 100 per cent re quirement on eligible paper was reduced to 60 per cent. By providing a currency based 011 this particular type of commercial bank asset, the framers of the Federal Reserve act believed that the supply of cash would automatically increase during the periods when it was most needed and automatically decrease when the need was past. T h is belief proved to be substantially correct during the early years of the Federal Reserve System, but in the period follow ing the crash of 1929 the country had a rude awakening. W hile ordinarily the demand for currency is greatest at times of heavy borrowing from com m er cial banks, the situation in the early 1930’s was just the reverse. In the face of a long and severe price decline, the public began hoarding currency as the safest and most profitable possession they could hold. T h e demand for currency increased by leaps and bounds at the very time that the supply of commercial paper was declining. In such circumstances, the Federal Reserve note lost its cyclical elasticity—the property of expan sibility and contractibility in connection with the long-term waves in business activity. Th ey were tied to requirements concerning collateral, the supply of which contracted at times when the demand for currency was extremely heavy. T h e Glass-Steagall Act of 1932, which tem porarily allowed government securities as well as eligible paper to be used as backing for Federal Reserve notes, was designed to remedy this situa tion. In 1945 this authority was made permanent, and the required gold reserve (now consisting ol gold certificates) was reduced from 40 per cent to 25 per cent. In recent years government securities have almost entirely replaced eligible paper as backing for Federal Reserve notes. Fed’s Total IXote Circulation Increased $21 Million in ’51 On December 31, 1951, the Federal Reserve Bank of Minneapolis had $647 million of its notes out standing. T h e year’s high of notes in actual cir culation— in the hands of the public and in banks —totaled $636,138,000 on December 24, close to the record $638,351,000 in circulation December 12, 1948. Collateral held against the $647 million notes outstanding December 31 consisted of $150 million in gold certificates and $505 million in government securities. These securities were part of those pur chased by the Federal Reserve System in the open market. Incidentally, note circulation rather than the re serve accounts of member banks, as some persons believe, is the largest single liability of the Reserve banks. Total note circulation of the M inneapolis Reserve bank increased about $21 million during 1951, which was in line with the general increase in the use of currency and coin. It is difficult to imagine how the United States could have managed during W orld W ar II w ith out the use of the expandable Federal Reserve note. Currency and coin in circulation showed an almost four-fold increase from 1939 to 1946, and most of this expansion was in Federal Reserve notes. Today, when a member bank needs more cur rency it simply draws on its reserve account at the Federal Reserve bank, k n ow in g that if this account falls below the legal m inim um required it can be replenished by the member ban k’s bor rowing from the Reserve bank against a pledge of any sound assets. When the need for cash slacks off and currency returns to a member bank, it will ordinarily send such currency to its Reserve bank for credit to the member’s reserve account or for repayment of borrowing. T he actual bills may then be retired from circulation and replaced with new paper money when there is again a call for additional currency. N o Reserve bank can (without penalty) pay out the notes issued by any other Reserve bank. Such notes, if fit for further use, must be returned di rectly to the bank of issue. Unfit notes are also sorted as to the issuing bank but are returned direct to the Treasury department for redemption. Since there are 12 Federal Reserve banks issuing notes, this requirement means many additional sorts for Federal Reserve currency handlers. In 1951 the M inneapolis bank and its H elena branch shipped to other Reserve banks approxi mately $50 million dollars worth of fit notes which had gravitated to the N in th Federal Reserve dis trict from other parts of the nation. It may be said that the Federal Reserve note has endowed all forms of the nation’s currency with elasticity, since all kinds of paper money are freely exchangeable and the public is hardly conscious of the fact that there are different kinds in use. Some Civil War Greenbacks Still in Circulation Silver certificates, second in importance in the major types of currency, rank far behind Federal Reserve notes in circulation with a total of a little more than $2.3 billion in late 19 51. T h e backing for these bills is the metal from which they get 19 their name. F o r each dollar issued in silver cer tificates there is deposited with the U. S. Treasury 371.25 grains of pure silver. United States notes, with a maxim um author ized issue of approxim ately $347 million, are backed by a gold reserve of $156 million. T h is is nominally a redemption fund, although, of course, it covers only 45 per cent of the total value of the outstand ing notes— and none of our currency has been re deemable in gold domestically since 1934. From a historical standpoint, it is interesting to note that these notes are a remnant of the C ivil W ar “ greenbacks.” T h eir total circulation remains virtually static, since the notes which wear out are constantly being replaced. W e have come a long way in our currency sys tem since 1863, when there were more than 7,000 kinds of bank notes in use—of which 1,700 were issues of the spurious wildcat banks. In such monetary chaos, business must of necessity have been carried on in a most leisurely manner. T h is situation was further complicated by the existence of m ore than 3,000 kinds of counterfeit notes. Secret Service Keeps Close Tab on Counterfeits T h e counterfeiting problem is not one of his torical interest only, however. T h e detection of spurious money is still one of the important jobs of Federal Reserve currency sorters. Counterfeits are usually recognized from their appearance, al though the feel of the paper is occasionally the giveaw ay. terfeit money, purporting to have a value of $1,4 71. T h e banks which sent them in for deposit suffered the loss— unless they were able to determine from whom the bogus bills were received. Alm ost all of these counterfeits were tens and twenties, the denominations favored by counter feiters. Since very large denomination bills are seldom counterfeited, a person can feel reasonably confident of the authenticity of any $10,000 bill he finds in his pocket. Millions of Pieces Sorted and Counted During Year Servicing the nation’s currency is a big job and, as is already evident, the Reserve banks deal in big figures so far as currency is concerned. Every safeguard must be thrown around these large amounts of cash, not only while they are in the Federal Reserve bank but also during shipment to and from member banks. Incom ing money shipments to the Federal R e serve Bank of M inneapolis arrive by registered mail and are picked up at the M inneapolis post office by the bank’s representatives in armored trucks. A t the bank a receiving teller verifies the amount of each incom ing shipment by package count. T h e packages of currency are then turned over to the currency sorters, who not only classify it as to kind, fitness, and genuineness, but also Detection of spurious currency has become an in creasingly difficult job in the last few years— this because of the greater number of counterfeits in circulation and because of the improved quality of w orkm anship they reveal. W hen “ funny m oney” is discovered by a Federal Reserve bank currency sorter, it is immediately turned over to the United States Secret Service, which has the responsibility of suppressing at tempts by private enterprisers to interfere with Uncle S am ’s “ m onopoly” in the field of currency production. In 1951, currency sorters at the Federal Reserve B ank of M inneapolis picked up 126 pieces of coun 20 • Unfit bills are cancelled by punching four holes in them in a pattern which identifies them as having been cancelled by the Minneapolis Reserve bank. machine-eount the bills in each package to verity its correctness. T h e electrically operated counting machines are so sensitive to the thickness of paper that if two bills are accidentally fed into one ol them at the same time, the machine will jam. Most persons don't care about the pedigree ol a five-dollar bill so long as Mr. Lincoln's portrait is genuine and it is in their possession. Currency sorters, however, must be able to recognize instant ly each of the different types of United States cur rency in general use. The most obvious distinguishing Icaturc ol the various types is the color ol the serial number and seal. On Federal Reserve notes this color is green, on silver certificates it is blue, and United States notes are red. In addition to these major kinds ol currency, there are still in circulation a limited amount ol special bills issued tor emergency use during World W ar II, a tew national bank notes issued prior to 1(^5, and a hodge-podge ol miscellaneous issues which intrigue currency collectors. T he war emergency currency consists ol notes bearing the label “ National Currency, Series ol i()2() \ with brown seals and serial numbers; silver certificates having gold-colored seals instead ol the usual blue (the so-called North African invasion currency); and notes of the San Francisco Federal Reserve bank on which the word “ H aw aii” has been overprinted on face and back and having brown seals and serial numbers. As indicated previously, each of these types ol currency has different backing, although all, of course, are obligations of the United States gov ernment. Federal Reserve Supplies Member Banks with Currency One of the jobs of each Federal Reserve bank is to see that every piece of currency it receives is examined so that those which are soiled, limp, torn, and plain “ beat" can be retired from public use and replaced with new. Last year the Federal Reserve Bank of M inne apolis and its Helena (M ontana) branch removed from the money stream some 2< million pieces ol S old paper money having an approximate value ol $ 112 million. N or was this an all-time high. • Before being sent to the Treasury for burning, the bills are "guillotined" into halves by this blade, and the halves are then sent in two separate shipments to Washington for complete destruction. How do the Federal Reserve banks happen lo have acquired the job ol keeping our dollar bills crisp and clean.' W ell, F'ederal Reserve banks are “ bankers' banks." Any commercial bank which is a member ol the Federal Reserve System must keep lunds on deposit with the Reserve bank ol its district. These deposits are known as reserves, or reserve accounts. When a member bank has more currency on hand than it needs or than is safe to carry in its own vaults, the currency is shipped to the Federal Reserve bank for deposit to the member bank's reserve account. In the Reserve bank, currency sorters carefully inspect each incoming bill. Last year, sorters in the Federal Reserve Hank of M inneapolis and its Helena branch examined and passed judgm ent on 7 1 million pieces of currency, worth $475 million. A great many of these bills, of course, even though no longer new are still in good enough condition for another “ tour of duty.” M any ol them, however, are deemed unfit for further use and marked for destruction. Some of them, in fact, have been so badly damaged by fire, water, decay, or other destructive forces that they cannot be identified. In such cases, the remnants or ashes Concluded on Page 26 21 EARNINGS AND EXPENSES 1950 1951 Earnings from: Discounted Hills ................................................................ United States Government Securities Industrial Advances .......................................................... All Other ............................................................................ T otal Current Earnings Expenses: Net Operating Expenses.................................................... Assessments for Expenses of Board of Governors . Federal Reserve Currency: Original Cost .................................................................. Cost of Redemption ...................................................... $ 190,320 12,258,370 7,784 8,425 $ 81,248 8 ,441,067 8,581 5,988 $12,464,899 $ 8 ,536,884 2 ,850,014 103,700 $ 2 ,359,069 86,300 $ 138,749 18,309 163,454 20,877 $ 2 ,602,427 Current Earnings ........................................................................................$ 9,326,854 Additions to Current N et Earnings: Profit on Sales of U. S. Government Securities 0 All Other ............................................................................................ 71 $ 5 ,934,457 T otal S Deductions from Current Net Earnings: Loss on Sales of U. S. Governm ent Securities Reserve for Registered Mail Losses........................................ All Other ............................................................................................ $ 51,867 14,131 1,270 T otal ........................................................................................$ 67,268 $ 12,114 67,197 $ 1, 101,178 $ 7 ,035,635 294,034 T otal C urrent E xpenses ............................................$ 3,138,045 Net Deductions to Current Net Earnings $ 71 N et Earnings .................................................................................................. $ 9,259,657 Dividends Paid ......................................................................................... 314,934 Paid to U. S. Treasury (Interest on Federal Reserve N otes) .......................................................................... 8,050,167 Paid to U. S. Treasury (Section 1 3 b )............................................ 0 Transferred to Reserves tor C ontin gen cies................................ 0 Transferred to Surplus (Section 1 3 b ) .......................................... O ' Transferred to Surplus (Section 7 ) ................................................. 894,556 1, 113,176 116 1, 113,292 0 11,596 518 6 ,067,408 0 0 0 674,193 S u r p l u s A c c o u n t ( S e c t i o n 7) Balance at Close of Previous Year $13,168,052 Transferred from Profits of Y ea r.................................................... 894,556 B alance at C lose of Y ear $14,062,608 $12,493,859 674,193 $ 13, 168,052 S u r p l u s A c c o u n t ( S e c t i o n 13b) Balance at Close of Previous Y ear................................................. .....$ 1,072,621 Transferred to Surplus (Section 13b) 0 B alance at C lose of Y ear $ 1,072,621 $ 1,072,621 0 $ 1,072,621 S T AT E MENT OF CONDIT IO N Dec. 11, 1951 Dec. 31, 1950 $ 325,261,086 25,018,166 $ 366,114,49S 2 1,466,655 $ 350,279,252 $ 387,581,153 6,060,199 ASSETS (><>1(1 ( 'ertilicates Redemption Fund lor F. R. Notes T ot a l G old C e r t i f i c a t e R eserve Other Cash .............................................................................. 7,055,811 Hills Discounted ............................................................. 0 Industrial Advances LJ. S. Government Securities: Ronds ................................................................................. Notes ................................................................................. Certificates ot Indebtedness....................................... Hills ..................................................................................... T otal LJ. $ 641,194,000 $ 749,486,731 $ 641,379,301 705 7,727,500 96,788,956 1,082,816 4,035,864 S ecirities $ 749,353,000 590 5,612,500 113,210,107 1,114,221 3,645,414 $1,216,457,635 S. G o v e r n m e n t 142.940.000 387.549.000 72.218.000 38.487.000 $1,158,603,485 Due trom Foreign Hanks F. R. Notes ol Other F. R. Hanks Uncollected Items Bank Premises Other Assets T ota l A ssets L I A B I L I T I E S Federal Reserve Notes in Actual Circulation $ 632,028,690 $ 610,642,820 464,389,342 8,308,750 13,012,500 4,434,515 391,854,990 22,613,859 22,192,500 4,909,573 $ 490,145,107 69,117,707 491,368 $ 441,570,922 82,741,455 171,162 $ 1,191,782,872 $1,135,126,359 I )eposits: Member Hank— Reserve Accounts U. S. Treasurer—General Account Foreign .............................................................................. Other Deposits T ota l D eposits Deterred Availability Items Other Liabilities T otal L ia b il it ie s CAPI TA L AC CO Capital Paid In Surplus (Section 7) Surplus (Section 13b) Other Capital Accounts otal L iabilities, C 185,301 169,655,000 160,891,000 403,955,000 14,852,000 T otal Hills and S ecu riti es T 0 133,731 II NTS $ apital A ccounts 5,362,650 14,062,608 1,072,621 4,176,884 $1,-16,457,635 $ 5,073,700 13,168,052 1,072,621 4,162,753 $1,158,603,485 F E D E R A L R E S E R V E B A N K OF M I N N E A P O L I S DIRECTORS Chairman of the Board and Federal Reserve Agent B, S h e p a r d Paul, Minnesota R oger S t. D eputy Chairman Pai l E. M i l l e r Director, University oi Minnesota Agricultural Extension Division St. Paul, Minnesota C . W . B ur ge s F. A . F lodin Vice President and Cashier Security National Bank Edgeley, North Dakota H o m e r P. C l a r k Honorary Chairman, West Publishing Co. St. Paul, Minnesota President, Lake Shore Engineering Company Iron Mountain, Michigan R a y C. L a n g e President, Chippewa Canning Company Chippewa Falls, Wisconsin W illiam H arold N . T homson A. D enecke Livestock Rancher Bozeman, Montana Vice President, Farmers and Merchants Bank Presho, South Dakota F. X e l l e Chairman, First National Bank Minneapolis, Mi nnesota E dgar O F F IC E R S President First Vice President J ohn N . P e y t o n , A lbert W. M ills, B A N k I N (; D E PA HI > 1 E NT A. B e r g l u n d , Assistant Assigned to Helena Branch H ar ol d H ar ol d C . C o r e , Cashier Vice President in Charge of Personnel K y l e K . F ossum, M aurice C lement Vice President A rthur W . Johnson, Assistant Cashier Assigned to Helena Branch Check Collection A r t h u r R. L a r s o n , Assistant Vice President Noncash Collections Currency and Coin Securities Safekeeping M i l f o r d E. L y s e n , Operating Research Officer Planning W i l l i a m E. P e t e r s o n , Assistant Cashier Accounting O i ls R. P r e s t o n , Vice President Public Services Rockwell, M a r c u s O. S a t h e r , O rthen W. Assistant Cashier Vice President Assistant Vice President N ice, A U D IT D E P A R T M E N T O hnstad, A uditor B A N K E X A M IN A T IO N D E P A R T M E N T H arold O. M c C o n n e l l , Vice President F ISC A L A C E N C Y D E P A R T M E N T E a r l B. L a r s o n , Vice President Government Securities C hristian R ies, Assistant Cashier ( rovernment Securities LECAL COUNSEL S igurd U e l a n d , Vice President, Counsel, and Secretary Assistant Cashier Discount and Credit Credit Regulations Accounting V an Assistant Cashier C larence W . C roth, S t r o t h m a n , J r ., Public Services General and Internal Operations G eor ge M. H. Discount and Credit Credit Regulations RESEARCH DEPA R TM EN T J. M a r v i n P e t e r s o n , F ranklin Director of Research L. P arsons, Research Associate Director of HELENA BRANCH DIRECTORS Chairman G. R. M i l b u r n Livestock Rancher Grass Range, Montana E. C o r e t t e , J r . Vice President, Montana Power Company Butte, Montana J ohn T he od o re J acobs President, First National Bank Missoula, Montana E. A. W . H eidel Vice President, Powder River County Bank Broadus, Montana D . M acH a efie Helena, Montana O F F IC E R S C larence W . G roth, Vice President H arold A . B erglund, Assistant Cashier MEMBER OF FEDERAL ADVISORY COUNCIL J o s e p h F. R i n g l a n d President and Chairman, Northwestern National Bank Minneapolis, Minnesota INDUSTRIAL ADVISORY COMMITTEE Chairman V. W ood President, Minneapolis Electric Steel Castings Co. Minneapolis, Minnesota S heldon J ohn M . B ush The Cleveland-ClifiFs Iron Company Negaunee, Michigan A . H . D aggett President, Gould-National Batteries, Inc. St. Paul, Minnesota L. M i l l e r President, Miller Broom Company La Crosse, Wisconsin A lbert M. R i n g e r President, Foley Manufacturing Co. Minneapolis, Minnesota W alter CURRENCY FEATURE C o n tin u e d fro m Page 21 of the bills are forwarded to the Treasury depart ment for determination, if possible, of their value. Fed Cancels Unfit Bills; Destroyed by Treasury Currency determined to be unfit for circulation by our sorters is counted and packaged as carefully as the good currency. Instead, however, of being re-circulated or placed in the vault for later use, four rectangular holes are punched in each package of bills by a specially designed machine. Shape and position of these holes identifies the bills as having been cancelled by the Federal Reserve B ank of M inneapolis. T h e next step is to slice the package of bills lengthwise. T h e bottom halves are then packaged and shipped to the currency redemption division of the Treasury department. Identical packages of the top halves are retained at the Reserve bank until notification arrives from W ashington that the bottom halves have been re ceived and verified, whereupon the top halves also are shipped. F in al step in destruction of unfit bills is burning them in an oven whose temperature reaches 2,100 degrees. In an average year the Treasury burns more than $8 billion in old currency, or about seven tons daily. N inety per cent of this money is in $1 bills. Visitors are sometimes dismayed to see the de struction of paper money, but it is as necessary to the operation of the country’s currency system as the printing and engraving of new bills. Even the best quality paper w ill wear out. T h e average dollar bill has a useful life of only six to nine months. O f course larger denominations, more sparingly used, last longer. 26 Nearly Half-Billion in Bills Shipped to Member Banks T o replace the currency consigned to the fu r naces, each Federal Reserve bank maintains a stock of brand-new bills of all denominations. Last year the M inneapolis Fed and its branch placed in cir culation nearly $158 million in crisp, new paper money. Currency fit for further use goes into temporary storage in the Federal Reserve bank’s six-level vault, where it is protected by an intricate system of locks and two huge steel doors w eighing nearly 40 tons each. T h e entire bank is guarded day and night by members of its 30-man protection force. W hen currency orders are received from m em ber banks, the Fed fills them by taking both new and used bills from the vault. O utgoing shipments to member banks during 1951 totaled approximate ly $440 million. These shipments receive the same precautionary handling as do the incom ing. T h e next time you handle a $10 or $20 bill, take a good look at it. T h e chances are that it is one of the many thousands of Federal Reserve notes which make up roughly five-sixths of our currency and coin supply and which give it its elasticity. T h e chances are, too, that your bill w ill be in reasonably good condition. If not, it’s because it hasn’t visited a Federal Reserve bank recently. T h e odds are in your favor that the bill is genuine, too. If it isn’t, you can be sure that it has never seen the inside of a Federal Reserve bank. From all this you can understand that the F ed eral Reserve Bank of M inneapolis and its Helena branch, together with the other Federal Reserve banks and their branches, have a big responsibility. T h e wheels of industry and commerce in the na tion would come to a stop without “ folding m oney.” W henever and wherever it is needed, the Federal Reserve’s job is to see that currency is available— and if your credit is good, it always is.