The note-issue,of the Reichsbank, though subject to considerable fluctuation over short periods, has shown a strong upward tendency, the average yearly circulation ranging from 600,000,000 to 800,000,000 marks between 1876 and 1886, and from 1,000,000,000 to 1,400,000,000 marks between 1890 and 1900. During this period the Bank increased its stock of coin in almost the same ratio. Its original holdings were but little more than 500,000,000 marks, while in the closing years of the century they averaged nearly 900,000,-000 marks. A part of this specie, as in the Bank of France, was silver, a heritage from the years of silver coinage before 1873. The amount of this silver, first disclosed in 1894, was not far from one third of the entire stock of specie held by the Bank.

The proportion of coin and its equivalents1 to the note-issue had never fallen below 55 per cent.

and was usually in the neighborhood of 70 per cent.

It follows, then, that the one-third rule had never been of any importance in the operations of the difficulty in meeting the requirements of ordinary years if it had been obliged to work under a rigid system of note-issue. It is noteworthy that before 1895 with one exception1 the limit had been exceeded only at the end of September and the beginning of October or at the end of December and the beginning of January, at the opening of the autumn or winter quarters of the year, when for various reasons there is regularly an increased demand for currency. These demands the Reichs-bank was able to meet without difficulty through the device of the elastic limit.

Reichsbank, since the notes had always been less by many hundred million marks than three times its cash reserve.

From 1876 to 1895 the note-issue not covered by cash seldom exceeded the limit at which taxation begins. During that time the device of the elastic limit was resorted to on ten occasions: five times for one week, four times for two weeks, and once for three weeks. The excess of issue varied from 19 to 109 million marks, but was never as much as ten per cent. of the total circulation. The effectiveness of the elastic limit in time of crisis was never severely tested during this period of twenty years but it was found to meet with much success exceptional temporary demands for currency which under the rigid English system of issue can be satisfied only by the withdrawal of specie or notes from the reserve of the Bank of England. On account of the slight use of checks in Germany the demand for notes is so considerable that the Reichsbank would have experienced great if the limit is exceeded when the rate of discount is under five per cent., the Bank suffers a distinct loss, since it must then pay more in taxes than it receives for the accommodation which it has given its customers. A five per cent. rate is so far above the normal rate that at times the Bank has paid the five per cent. tax when the return it has received upon discounts has been but four per cent., and on some occasions as low as three per cent. For this reason an increase of the uncovered issue not subject to tax was urged in 1899, when the regular decennial renewal of the charter of the Bank afforded an opportunity to change the law under which its operations are carried on. It was further urged that, in consequence of the growth of population and the rapid economic development of the country, its normal currency requirements were greater than in the early seventies, and that the amount of credit to be granted. At the outset, before experience with the working of the Bank had created unquestioned confidence in the management of the institution, the tax on the notes doubtless served a useful purpose. For the continuance of the tax it was urged that it served as a danger signal to the business community, but evidently, as an indication of the need of caution, it could have little or no value if taxed notes were to be constantly in circulation. In 1909 the limit on untaxed notes was raised to 550,000,000 marks and it was further provided that for the last week of each quarter the untaxed limit should be 750,000,-000 marks. This interesting modification of the law was designed to enable the Bank to meet the heavy requirements for cash which came at the end of each quarter of the year when in Germany, to a greater extent than in most other countries, a great variety of obligations are payable. Under these new arrangements and also owing to some slackening in the activity of trade, the frequency and the amount of taxed issues of notes were greatly reduced though not entirely eliminated during the years immediately following the revision of the charter of the Reichsbank in 1909.

1 The legal equivalents for coin, imperial treasury notes, and notes of other banks have not been subject to marked variation, seldom going above thirty-five million or below twenty-five million marks.

210 The German Banking System they were neither readily nor economically satisfied under a system of issue which permitted no permanent increase except in proportion to the inflow of specie to the Bank. In support of this contention, attention was called to the frequent resort to the elastic limit in the four preceding years.1 During these years the tax was paid for thirty-four weeks, the excess on fourteen occasions being above 100,000,000 marks, and more than once rising to nearly 300,000,000 marks. The law of June 6, 1899, renewing the charter, accordingly authorized an increase of the uncovered issue not subject to tax to 450,000,000 marks, a limit which had been exceeded but seven times in the history of the Bank.

This increase in the uncovered issue not subject to tax proved inadequate. During the period of ten years to the next revision of its charter, there was only a moderate increase in the cash holdings of the Reichsbank, and the limit was exceeded far more frequently and to a much greater extent than ever before. With the exception of years of business inactivity, the issue of taxed notes became an almost constant feature of the operations of the Bank. The elimination of the taxation arrangement would have been the simplest and most logical course, since the Reichsbank has never allowed liability to the tax to influence its policy in the determination of the rate of discount or