Part 5

Since the war arose gigantic volumes of foreign securities have been placed on sale in the United States which serve to protect them against an adverse exchange in the United States.

By these means other nations have undertaken to protect themselves against an adverse balance of trade in the United States due to the great shipments of goods from the United States. A similar policy is necessary for the United States to protect itself in turn.

It will thus be seen that the United States has loaned its Allies five thousand, five hundred and nineteen millions, and that there have been floated in the United States in addition gigantic volumes of securities of other nations, amounting probably to a still larger sum. In addition to this we have bought from Europe and paid for several billion dollars of American securities held in Europe.

We have also met the cost of conducting the expense of the United States in preparing for war on Germany and Austria.

THE PRODUCTIVE POWER OF AMERICA

It has been estimated by excellent authority that the productive power of the United States, including the products of agriculture, of the mines, of the forests and factories on one turnover, exceeded sixty billions for last year (1917). The actual resources of the banking power of the United States, as shown by the tabulated returns, is over thirty-nine billions, so that the United States is financially the most powerful nation in the world; its credit is superior to that of any other nation in the world; its actual gold in the Federal Reserve Bank amounts to eighteen hundred millions, and in the Treasury it amounts, with the silver included, to twenty-eight hundred millions. The power of the United States properly organized and properly directed is sufficient to put the United States dollar at par throughout the world and keep it at par.

THE DOLLAR AT PAR

Every intelligent man understands the extreme importance of keeping the United States dollar at par in the United States, and it is of equal importance, according to the business transacted, to keep the United States dollar at par in our foreign business. We bought last year from other nations nearly three billion dollars’ worth of goods.

If the United States dollar is put at par and kept at par it will become a stable measure of value in international contracts and will enable merchants all over the world to use the American dollar as a standard measure of value. This will lead to international business being transacted on American dollars and will establish the prestige of the United States throughout the world according to the actual financial and commercial strength of the United States.

AMERICAN MERCANTILE MARINE

After the war America will have a gigantic international mercantile marine, which must be employed in international commerce; otherwise it will pass into the hands of other nations who will employ such ships in commerce. As a means of maintaining American commerce and keeping the American merchant marine employed we must expand our export business, and one of the factors of vital importance is to have adequate foreign banking facilities, information and credit furnished our exporters and our importers.

The banking capital employed in the foreign exchange department of the American banks probably will not amount to $200,000,000. The usual bills are 30, 60 and 90 day bills, so that the available American Capital in this service is by no means adequate to handle the foreign business. Our imports and exports in 1917 were over nine billions. We ought to handle a large part of foreign international bills, for we have the banking power if it were organized and employed. As a means to this end I have introduced a bill in the United States Senate (Sen. 3928) which I fully explained in the Senate Feb. 25, 1918, to establish a Federal Reserve Foreign Bank.

FEDERAL RESERVE FOREIGN BANK

The Federal Reserve Foreign Bank proposed by Senate Bill 3928 is strictly in line with the policy of the Federal Reserve Act in the powers granted to the Federal Reserve Banks, and is intended to make effective the principles of the Federal Reserve Act itself.

The Federal Reserve Act authorized the Federal Reserve Banks in Sections 13 and 14 to receive deposits, discount commercial bills and acceptances, deal in gold and silver, to exchange Federal Reserve notes for gold, to contract for loans on gold coin or bullion, giving therefor when necessary acceptable security, including hypothecation of United States bonds or other securities which Federal Reserve Banks are authorized to hold, to buy and sell at home or abroad bonds and notes of the United States, of foreign Governments, etc., buy and sell commercial bills of exchange, to issue bank notes and receive Federal Reserve notes, to open credits at home or abroad, to open and maintain accounts in foreign countries, appoint correspondents and establish agencies in such countries wheresoever it may be deemed best for the purpose of purchasing, selling, or buying bills of exchange or acceptances, arising out of actual commercial transactions which have not more than ninety days to run and which bear the signature of two or more responsible parties, and with the consent of the Federal Reserve Board, to open and maintain banking accounts for such correspondents or agencies, etc.

The original Federal Reserve Act also provided, in Section 25, that any National Banking Association with a capital surplus of a million dollars, or more, might be permitted to establish branches in foreign countries for the furtherance of the foreign commerce of the United States and to act as fiscal agents of the United States.

Such National Banks are also authorized to take stock in banks or corporations, chartered under the laws of the United States or of any State thereof, and principally engaged in international or foreign exchange.

Under Section 25 some of the National Banks have established branches in foreign countries.

Some of them have taken stock in banks doing a foreign business.

But the Federal Reserve Banks have not exercised the powers contemplated by the Federal Reserve Act in foreign bills or foreign business except in a negligible degree.

The Federal Reserve Banks have been intensely occupied in domestic business, so there is that reason why they have not been disposed to enter the foreign field. These banks have increased their resources until now they exceed thirty-eight hundred million dollars. But it is also true that six of their nine Directors are chosen by the privately owned banks some of whom fear the competition of the Reserve Banks in foreign banking.

Congress later amended the Federal Reserve Act, at the request of the Federal Reserve Board, and gave the Federal Reserve Board authority to require the Federal Reserve Banks to establish foreign branches, but practically nothing has been done under this authority granted by Congress. Senate Bill 3928 proposes to add a new Section to the Federal Reserve Act as Section 25 A., creating a Federal Reserve Foreign Bank of the United States, under the supervision of the Federal Reserve Board to be located in the City of New York, with a capital of one hundred million dollars, with an initial capital of twenty millions, the stock to pay five per cent., to be non-taxable, to be offered to the public and to the banks at par and if not taken by them to be taken by the United States Government.

The powers proposed for this bank are practically the same as are given to the Federal Reserve Banks, but the management of the bank is put into the hands of directors, nine in number to be designated by the President of the United States. The proposed Act directs that the members of the board shall be men of tested mercantile experience and fairly representative of the various parts of the United States. It does not say that they shall not be bankers, but if they are bankers they must be bankers who have had tested mercantile experience, such as is required of the Governors of the Bank of England.

THE PURPOSE OF THE BILL

The purpose of this proposed Act is to establish a publicly controlled agency in charge of men with tested mercantile experience, who shall administer the bank in the interest of American commerce, of American importers and exporters, of American manufacturers and producers, in the interest of American consumers, and not merely in the interest of bankers, but in co-operation with the bankers, as the Bank of England or the Bank of France co-operates with other banks while being influenced also by the general public interest.

Such a bank would buy and sell international bills of exchange and acceptances from and to American and foreign banks who desired to sell or buy such bills.

Such a bank would in this way serve the interests of other banks handling international exchange, but such a bank being publicly controlled would furnish American importers and exporters, manufacturers and producers with credits abroad, with banking facilities and accommodations at a standardized fair rate of profit, which would serve the common interest of American business men.

Such a bank publicly controlled would not expose an importer’s business or an exporter’s business to trade rivals,—a practice known to exist in certain foreign exchange departments where Germans systematically conveyed such valuable information to rival German firms.