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throughout the country. The authority of the board to confer power upon member banks to accept, up to 100 per cent of the capital and surplus of the accepting bank, foreign and domestic drafts and bills of exchange, properly safeguarded, is restored. The amendments provide for a more comprehensive mobilization of gold in the reserve banks and additional elasticity is secured to note issues without diminishing the security of Federal reserve notes. The issuance of Federal reserve notes, on the security of 15-day promissory notes of member banks, secured either by eligible commercial paper or bonds and notes of this Government, is also authorized.

One of the most important amendments directs that the reserve of all member banks shall be carried solely in the Federal reserve banks, and the percentage of reserve required is materially reduced, leaving optional with the banks the amount of additional cash which they shall carry in their own vaults for local currency requirements. Another amendment allows State banks entering the system to retain their full charter or statutory rights as State banks or trust companies without undue restriction, and authorizes the directors of the Federal reserve banks in their discretion to accept examinations made by the State authorities in lieu of examinations by examiners selected or approved by the Federal Reserve Board. Furthermore, State banks are now authorized to withdraw from the system on six months' written notice. There were also other minor amendments which related mainly to matters of detail or local management.

By some of the foregoing amendments the obstacles which have heretofore prevented State institutions from entering the system have been removed; and the numerous applications for membership which have already been received indicate that a broad general movement is now under way which it is hoped will before long result in securing for our country a more solid and unified system, embracing in its membership not only a great majority, but virtually all of the important banks and banking institutions of the country.

Intelligent men all over the country are beginning to realize that the financial power of the United States should be strengthened to the utmost limit if we are to meet successfully the tremendous strain upon our resources occasioned by our own part in the war and by the credits which it is essential that we should extend to the foreign governments cooperating with us in the war and if we are to be equal to the demands, in a large measure, at least, of world leadership which will inevitably be thrust upon us as a result of the war. Financial strength can come alone from a consolidation of the financial power of the country under one homogeneous system. It can not be had under the present arrangement, involving as it does 49 separate banking systems or banking controls in the United States. In the Federal system, we have the one cohesive and powerful financial organization in the country. In addition to the Federal system we

have 48 different systems, authorized by and administered under the laws of each of the States of the Union. This is a serious element of weakness and will be proven so when the test of greatest responsibility and need comes. We must be prepared for a larger measure of international demand upon our resources in the future than ever before in the past. Self-interest alone should impel every eligible State bank in the country to take membership in the Federal Reserve System; but, in addition to that, in this grave time of national peril, patriotism should combine with self-interest to make them take that course. It is my earnest hope that the State banks of the United States will see this question in its proper light. They have been joining the Federal Reserve System recently in greater numbers than ever before, but progress should be even more rapid. The Federal reserve law is now so liberal to State banks that they get nothing but advantages by joining the system, while they are bound to suffer serious disadvantages, especially in time of test and trial, if they remain outside.

THE STOCK OF GOLD.

The gold monetary stock (coin and bullion used as money) in the United States on November 1, 1917, is estimated at $3,041,500,000. The increase in the past 10 months has been $174,500,000; in the past three years $1,236,500,000; while in the past five years it has been $1,161,333,000. In five years the portion of the world's gold monetary stock held by the United States has increased from approximately one-fifth to more than one-third.

CONVERSION OF 3 PER CENT BONDS OF THE FIRST LIBERTY LOAN.

In consequence of the issue of the second Liberty loan at 4 per cent the right to convert the 34 per cent bonds of the first Liberty loan into 4 per cent bonds arose on November 15, the date borne by the bonds of the second Liberty loan. At the time of this writing it is not known whether the conversion privilege will be exercised in large measure or not. As conversion operations must be handled coincident with the issue of the bonds of the second Liberty loan, and just before the first interest payment date for the bonds of the first Liberty loan, the facilities of the Treasury Department and of the Federal reserve banks will be strained to the utmost to care for the situation, particularly if any great number of holders of the bonds of the first issue immediately present their bonds for conversion. To care for the situation, in a measure, coupon interest payments on bonds converted will be made through adjustment coupons attached to the 4 per cent bonds issued upon conversion. These special coupons will care for interest at 3 per cent from June 15 to November 15 and at 4 per cent from November 15 to December 15, or at 3 per cent from June 15 to December 15.

The conversion provisions are covered in Treasury Department Circular No. 93. (Exhibit F.)

DEPOSITS OF PUBLIC FUNDS.

Under the provisions of the acts approved April 24 and September 24, 1917, authorizing the issuance of certificates of indebtedness and bonds to meet expenditures incident to the war, authority was given to deposit with incorporated banks and trust companies subscribing to the various issues of bonds and certificates the proceeds arising from their subscription payments thereto.

While such deposits were necessarily of a temporary character, they nevertheless served to prevent any unusual disturbance of the money market or business conditions throughout the country.

In connection with the issues of certificates of indebtedness prior to the first Liberty loan, 134 national and 100 State banks and trust companies in six Federal reserve districts made application and were accordingly designated as depositaries for these funds.

Subsequently, 1,251 national and 780 State banks and trust companies in the 12 Federal reserve districts made application and were designated as depositaries of public moneys to enable them to make payment by credit for bonds of the first Liberty loan and to receive cash deposits of funds realized from the sale of said bonds. A total of $860,117,491.91 of Liberty loan funds was deposited with these banks, every dollar of which has since been gradually withdrawn through the Federal reserve banks and credited in the Treasurer's general account.

Prior to the second Liberty loan, the number of special depositaries was further increased by 83 national and 72 State banks and trust companies which subscribed for certificates of August 9.

The above deposits were made under Department Circular No. 81 (Exhibit G).

All designations made subsequent to August 9 and prior to October 6 covered deposits to be made on account of the sale of both certificates of indebtedness and Liberty loan bonds, and were made under Department Circular No. 81. Designations made after October 6 likewise covered the issue of both certificates and bonds, and were made under the provisions of Department Circular No. 92 (Exhibit H).

At the close of business on November 13, 1917, the Secretary had designated 1,903 national and 1,343 State banks and trust companies with authority to receive deposits on account of their subscriptions to any one or all of the various issues of bonds and certificates of indebtedness without the necessity of making application and being designated each time they subscribe to certificates and bonds and desire to pay for them by credit.

Summarizing the foregoing by Federal reserve districts:

Number of national banks and State banks and trust companies in each Federal reserve district designated as special depositaries.

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Interest at the rate of 2 per cent per annum is charged for these deposits, and at the close of business October 31, 1917, the Federal reserve banks had reported that there had been collected through them $1,443,956.42.

The following table shows the amounts of interest collected upon all public deposits during each of the past five fiscal years:

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EXPORTS OF COIN, BULLION, AND CURRENCY AND TRADING WITH THE

ENEMY.

The act of June 15, 1917, vested in the President the power to prohibit by proclamation the export from this country of any article mentioned in such proclamation except at such time and under such regulations as the President might prescribe. Accordingly the President on September 7, 1917, issued a proclamation to the effect that— except at such time or times, and under such regulations and orders, and subject to such limitations and exceptions as the President shall prescribe, until otherwise ordered by the President or by Congress, the following articles, namely: Coin, bullion, and currency shall not, on and after the 10th day of September, in the year one thousand nine hundred and seventeen, be exported from or shipped from or taken out of the United States or its Territorial possessions

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By Executive order of the same date the President directed that the regulations, orders, limitations, and exceptions prescribed in relation to the exportation of coin, bullion, and currency be administered by and under the authority of the Secretary of the Treasury, and upon the recommendation of the Secretary of the Treasury prescribed regulations providing that application for permission to export coin, bullion, or currency must be filed with a Federal reserve bank, which would transmit the application to the Federal Reserve Board. The

board, subject to the approval of the Secretary of the Treasury, was authorized to permit or refuse the exportation.

In pursuance of the Executive order the Federal Reserve Board, with the approval of the Secretary of the Treasury, issued regulations governing the administrative procedure with regard to the exportation of coin, bullion, and currency. (Exhibit I.)

At the time of issue of the above proclamation the United States was practically the only large country freely parting with the precious metals, and as a result there was a tendency to transfer to New York by means of exchange operations balances due by foreign countries and to export gold from the United States in payment of such balances. In these circumstances it became necessary for the protection of the gold reserve of the United States to place restrictions on the export of gold.

In the exercise of these powers no obstacle has been placed in the way of the free exportation of silver bullion or silver coin of foreign mintage, nor upon the export of United States notes, national-bank notes, or Federal reserve notes, nor upon Canadian silver coin or currency; but the exportation of gold has not been permitted except in those cases in which unusual circumstances have seemed to justify the issue of licenses for its export. The department has not, however, rested content with a negative policy of prohibition, but has initiated a series of negotiations having for their purpose the substitution of arrangements which, while avoiding the necessity for large exports of gold, would yet stabilize the exchanges between the United States and neutral countries. Progress in these negotiations has been made in various directions, although none of the negotiations has yet been carried to a final conclusion. By stabilizing the exchanges between the United States and any neutral country it will be possible to maintain with such country a course of trade much more nearly normal than if exchange rates continued subject to violent and erratic fluctuations. It is a pleasure to record that neutral countries have entered on these negotiations in a cordial spirit of cooperation, and it is hoped that arrangements may shortly be concluded with various countries.

Under the act approved October 6, 1917, commonly known as the trading-with-the-enemy act, wide powers were vested in the President, which, under Executive order of October 12, 1917, the President allocated to various departments of the Government.

By said Executive order a War Trade Board was established, consisting of representatives, respectively, of the Secretary of State, of the Secretary of the Treasury, of the Secretary of Agriculture, of the Secretary of Commerce, of the Food Administrator, and of the United States Shipping Board. The following extract from the Executive order deals with the functions confided to the Secretary of the Treasury:

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