Dollar Exchange Provided For By Act

The Federal Reserve Act has provided through its rediscount machinery expanded facilities for the financing of American foreign trade directly by dollar exchange, that is, by bills drawn on banks and business houses in the United States, and payable in dollars, as distinguished from those drawn upon foreign centers in pounds sterling or other European currency.

Dollar Credits Come Into Use

Prior to the adoption of the system, by far the major portion of international commerce was financed by means of the English standard, as a result of which millions of dollars in interest and commissions were paid to the English institutions.

As a result of the Great War and the introduction of the Federal Reserve System, coupled with the dislocation of the machinery of foreign exchange in the financial centers of Europe, dollar credits came into large use.

Importance Of Dollar Credits To American Importer

For the importer in this country the use of dollar credits is most economical, since the risk element in the fluctuation of exchange is eliminated. The importer knows that the amount which he has to pay will be in dollars, the cost of which always remain the same. Now that there has been created a market for such paper, which is eligible for rediscount with the Federal Reserve banks, the other banks of the country are willing to buy this class of credit paper, which assists greatly the foreign trade progress of the country.

Establishment Of Foreign Agencies

The Federal Reserve Act has provided, further, for the establishment of various agencies with governmental banking institutions abroad, particularly those of England, France, Italy, Japan, Sweden, the Philippines, etc.

Up till a very recent date, national banks were permitted, provid-iding their capital was one million dollars or more, to establish branch banks abroad for the assistance of American foreign trade merchants. With the passage of the Edge Act for foreign financing, the national and member banks of the system have received a direct advantage in that they may now participate in the ownership by stock of corporations which may be organized for the purpose of accepting, discounting and rediscounting commercial paper in connection with American foreign trade. (Refer Part V, "Foreign Financing Under the Edge Act").