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.
Such a bank would furnish foreign exchange without profiteering or
speculating.
Such a bank would be concerned to keep the American dollar at par and
in co-operation with the Government of the United States would take the
essential steps necessary to that end, a function which no private bank
could exercise.
Such a bank through the Federal Reserve Banks could become a means of
extending to every member of the Federal Reserve System foreign banking
facilities and information for the benefit of the local importers and
exporters, so that a member bank could take a draft of a local exporter
on any part of the world and have it cashed whenever the local bank
desired the money.
Such a bank could place these bills with other Federal Reserve Banks
and with member banks who had unemployed money.
Such a bank as a bank of deposit could utilize some of the very large
deposits now placed at two per cent. and could furnish American
importers and exporters banking accommodations at as cheap a rate
as does Lombard Street. Lombard Street in London now finances the
commercial bills of the world, running into thousands of millions at
three and one-half per cent. per annum, while the current New York
and Boston rate is a minimum of four and one-half. The international
exchange business of the world cannot be brought to America unless
America extends accommodations on as favorable terms as London, which
is now the commercial and financial center of the world. America has
the power.
America, as a matter of fact, has loaned Great Britain and Allies since
we entered the war, April, 1917, many billions besides taking over
many billions in foreign securities placed in America—buying billions
of American securities held in Europe, in addition to the gigantic
financing of the war by the United States itself.
Such a bank publicly controlled by having gold deposits in Europe
and Asia could make it unnecessary to incur the economic loss of
transferring gold back and forth across the Atlantic and Pacific.
Such a bank could not only bring the American dollar to par, but what
is more important could fix the American dollar at commercial par and
maintain it there as a standard measure of value for international
contracts throughout the whole world. Unless this is done America
cannot become the financial center of the world.
Unless this is done the gigantic mercantile marine, which America is
now building at great cost, will not be adequately served and supplied
with the export and import business necessary to maintain these ships
under the American flag.
Such a bank would not only furnish foreign banking facilities to every
part of the United States, but would be in a position to furnish
reliable credit information to American importers and exporters,
manufacturers and producers as to foreign buyers and foreign sellers;
reliable information and accommodation with regard to shipping
conditions, storage, insurance and other questions essential to the
convenient, economical and safe transaction of international business.
Such a bank publicly controlled is the mechanism through which
international exchange can be stabilized, the American dollar maintained
at par, American commerce furnished with credit facilities and
adequately promoted throughout the world. It is the one thing needed to
perfect the Federal Reserve System of the United States, now
acknowledged by the banks themselves as enabling them to serve their
customers as never before, enabling them to conduct their business with
a sense of security they never felt before, and enabling them to make
better returns upon their capital than ever before.
I have felt justified in preparing this brochure that I might call
the attention of American business men and of American bankers to
the importance of thus perfecting the Federal Reserve System, in the
hope that with their approval and co-operation, public opinion might
sufficiently crystallize to make itself effective in legislative
enactment. Congress does not go very far ahead of public sentiment.
This question must be determined by public opinion and this booklet
is justified as one of the steps to attract attention and inform the
public on this question.
Some of the banks with foreign exchange departments seem to imagine that
such a bank would compete with them. The fact is the competition for
international bills has taken the very great body of these bills to
Lombard Street, and some American banks give their customers the
Lombard Street rate by sending their bills to Lombard Street instead of
to New York. The bills are issued to the extent of many billions and no
bank need fear not getting all of such business as they may really need
or desire. The trouble is we have not available the capital required
to handle foreign bills and we should take immediate steps to make
American banking capital more available for such purpose.
The available capital of American banks with foreign branches at
present is inadequate to handle international bills. The imports and
exports of the United States alone the last year exceeded nine
billions, and the imports and exports of the world business handling
international bills are very much larger yet. A number of the best
foreign exchange experts engaged in handling such bills have declared
themselves warmly in favor of this measure; they do not fear the
Federal Reserve Foreign Bank; they welcome it, realizing it would
serve the banks in the same way in the foreign field which the Federal
Reserve Banks serve in a domestic way.
Importers and exporters who have studied the question strongly favor
the publicly controlled Federal Reserve Foreign Bank. Preparedness now
for after-war peace problems is urgent—other nations are vigorously
acting. The United States cannot be a Great Leader of the world in
Commerce and Finance unless it leads in fact by concrete steps and by
wise laws providing the mechanism for such leadership.