There is another division of the Comptroller's office known as the Redemption Department, where mutilated and worn-out bank notes and the notes of banks which have gone into liquidation are redeemed.

The Issuing Department. Another department, known as the Issuing Department, issues to the banks the amount of bank notes to which they are entitled. Until the Bank Act was amended during the administration of President McKinley, the amounts of circulating notes to be issued on the deposit of bonds was 90 per cent of the par value of the bonds. But under the present act, the total value of the bonds may be issued upon the 2 per cent bonds which were the refunding bonds of the former administration.

As to whether a bond-secured circulation is a wise circulation there are a good many suggestions. Safety does not enter into the question so long as the bonds of the United States continue good; which will be as long as United States revenues are collected; which will be as long as the people are able to pay internal-revenue taxes or duties on imported goods.

It has been suggested that the method of issuing banknote currency is not desirable, because it gives to the creditor of the bank who is a note-holder an advantage over the creditor who is simply a depositor, in making the former preferred over the latter. Under the existing bond system the note-holder is a preferred creditor, because before the bank gets started into active operation so many of its assets are taken in the shape of bonds and deposited with the Treasurer of the United States to secure bank notes, these bonds being sold in case of failure of the bank, and the amount received from the sale being used to pay the claim of the preferred creditor, who holds the notes of the bank. In case there is not a sufficient amount of money received from the bonds to pay the notes, the act provides that the noteholder shall have a prior lien on the other assets of the bank, out of which he shall be reimbursed before the payment is made to depositors.

Another objection which has always been found has not arisen from the idea that the safety could be improved, but is that with a note circulation amounting to only 90 per cent, or even to par on the deposited bonds, the premium on the bonds over their par value is always tied up. When the banks were allowed circulation equal to 90 per cent of the par value of the bonds and the bond was selling at 100 to 115, there was always twenty-five dollars locked up, not available for loaning purposes; and even at present there is still eleven dollars taken out of the active channels of business and permitted to lie in Washington, a source of profit neither to the bank nor to Congress.

So there are some very valid objections to the provisions for issuing notes by the banks, and I take it that as we make progress in the field of finance we shall come to understand what is the proper basis for a bank-note circulation, and we shall not be surprised if the bank-note issue shrinks to nothing, because it is more profitable to sell the bonds than to hold them as a basis for note issue. When a bank-note currency is based upon a security which varies in market value, no matter what may be the monetary needs of the country, if there is more profit in selling the bonds than in taking out notes thereon, the bonds will be sold.