The great danger in any system of protection of note issues is that the restrictions may be so rigid as to destroy or unduly circumscribe elasticity of issue. A note issue should be capable of expanding suddenly and greatly in case of emergency, and of contracting as readily when the emergency subsides. It should also be able to increase and decrease with the seasonal demands for money. The term "elasticity" is strictly applicable to the latter case only. Elasticity of the currency is desirable so that:

1. Accommodation, particularly to deserving and efficient borrowers, can be extended freely and the continuity of business maintained.

2. The market rate of interest may be stabilized and fluctuations of credit reduced.

3. The quantity of money rather than the price level may fluctuate seasonally.

It is highly desirable that an expansion or contraction of the volume of bank notes should be unmistakably in response, respectively, to an increased or lessened demand of the legitimate business world a demand not based, except to a relatively small degree, on speculative operations but on actual industrial and commercial operations. This correlation may be most surely-achieved by issuing bank notes only to borrowers who use the funds only for such legitimate purposes. In practice the persons who decide whether the purpose alleged is legitimate, and who watch to see that the loans are used for the alleged purpose, are the loaning bankers.