CHAPTER
II
OUTLINE
FOR A STATUTE
Introduction
In
order to enact the foregoing plan into law, the main provisions
necessary would be as follows:
(1)
Establish a Currency Commission1
(or "Monetary Authority"); this Currency Commission
to have the following powers:
(a)
to issue money2
- "Commission Currency" or "C. C.";
(b)
to rediscount3
promissory notes for, and guaranteed by, a Federal Reserve Bank
(the granting of any request for such rediscount being mandatory,
but the rate charged to be at the discretion of the Currency
Commission);
(c)
to buy and sell United States bonds and other United States
obligations and such other sorts of securities as are "eligible"
to be bought and sold by the Federal Reserve Banks;
(d)
to buy and sell gold and silver, and to administer all laws
regarding the buying and selling of gold and silver by the United
States;
(e)
to buy and sell foreign exchange;
(2)
Require that, in the United States, all loans by the Currency
Commission and all purchases by it be made in C. C. (or else in
credit on the books of the Commission).
(3)
Require the Currency Commission to buy of the 12 Federal Reserve
Banks sufficient United States bonds (or other eligible items)
to equip each of the said Federal Reserve Banks with a 100% reserve
against all its demand liabilities - including not only the deposits
of the member banks but also the Federal Reserve notes.4
Require each Federal Reserve Bank thereafter to redeem (with C.
C.) any of its notes outstanding and retire them.
(4)
Require the Currency Commission to buy further (through the Federal
Reserve Banks and with C. C. or credit) from all other existing
banks conducting a checking deposit business, sufficient United
States bonds (and other assets designated to be eligible) to provide
each of said banks with a 100% reserve against its deposits subject
to check and (in the case of a national bank) against its national
bank notes5;
require every bank thereafter to redeem (with C. C.) any of its
notes outstanding and retire them.
(5)
Require that all checking deposits shall have the legal status
of trust funds. Forbid all banks and other organizations or person
thereafter to open or maintain checking accounts without providing
and maintaining a 100% cash reserve in actual money against such
accounts (and obtaining a license from the Currency Commission,
through the Federal Reserve Bank, and submitting all books to
appropriate examination).
(7)
Require that all checking deposit business shall henceforth be
conducted by special "Check Banks." (Any existing bank
may set up a check bank very simply, by creating a separate department
for the purpose, said department to be given a separate corporate
existence to avoid confusion in the mind of the public.)
(8)
Under suitable rules and regulations of the Currency Commission,
prohibit all substitutes for checks on the authorized check banks,
as well as any other evasions of the 100% principle. For instance,
forbid the use of checks against savings deposits and the use
of any other evidence of ownership designed to circulate in the
place of money.
(9)
Under suitable rules and regulations of the Currency Commission,
permit banks offering checking accounts, to make warehouse and
service charges for use of these accounts.6
(10)
Require that all monetary operations shall henceforth be conducted
either with actual bearer money or against it by check on accredited
check banks.
(Sections
(11)-(14) are to be included only in case a Stable Money Policy
is to be combined with the 100% plan.)
(11)
Require the Currency Commission to control the value of the dollar
in order to reach and maintain the index as stipulated in "(12)"
by increasing or decreasing the quantity of money in circulation
through
(a)
varying the Commission's re-discount rate,
(b)
"open-market" operations of the Commission, i.e., buying
or selling Government bonds, or any other eligible items, from,
or through, the Federal Reserve Banks,
(c)
changing the price of gold, when necessary.
(12)
Let the criterion7 for said
control of the value of the dollar be a retail index number of
the cost of living at a legally designated normal, and require
the Currency Commission to use its best endeavors: first to restore
the retail price level to this normal, and then to keep it constant
thereafter.
(13)
Require that the Currency Commission conduct a thorough investigation
of index numbers and, from time to time, report to Congress its
recommendations for improving said index by suitable modifications,
or for replacing it entirely by some more suitable criterion;
also that it investigate all the important proposals for effecting
stabilization and monetary control (including the proposal to
tax currency according to the "stamp scrip" plan as
a means of controlling velocity) and, from time to time, report
on its investigations and make recommendations.
(14)
Authorize the Currency Commission to advise the United States
Treasury, the Reconstruction Finance Corporation, the Federal
Reserve Banks, and other banks and persons, about such policies
as may help toward the full and efficient cooperation of all concerned
in establishing a stable dollar.
(15)
Restore the limit of 6% on the profits of Federal Reserve Banks
as originally provided.
(16)
Make appropriations for the necessary expenses of the Currency
Commission, and require that all its revenues be turned into the
United States Treasury.
(17)
A few possible further details are mentioned in later chapters,
especially Chapter
IX.
- As an alternative it has been proposed
that the Government take over the Federal Reserve System buy
buying stock. (see Chapters IX
and XI.)
A compromise plan would be to place the Currency Commission
in the Federal Reserve System, as party of the Federal Reserve
Board.
- Or credit, if preferred, to avoid carrying
unnecessary stocks of money in bank vaults. Such bank credit
carried on the books of the Commission would be transferable
by check and would be redeemable in money if, as, and when
desired. This credit would be exactly analogous to bank credit
- in fact would be bank credit if the Currency Commission
were called a bank.
- This function could be dispensed with,
though it might be convenient in the first months after the
inauguration of the system, especially if, as supposed in
the present book, it were inaugurated over night. But, in
practice, a year might well be allowed for accomplishing the
full inauguration of the system.
- But see Chapter
IX for an alternative as to notes; also as to lending
on the security of the assets instead of buying them outright.
- But see Chapter
IX for alternatives as to notes; also as to lending on
the security of the assets instead of buying them outright.
- But see Chapter
IX for alternatives.
- But see Chapter
VI for alternatives.
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