Several important results flowed from this operation under the original provisions of the Act:

1. The federal reserve notes became themselves practically gold certificates, the federal reserve agent holding in gold about 90 per cent of the face value of the outstanding notes as security against them.

2. The federal reserve notes, instead of being quickly returned after issue and redeemed, were kept in circulation; the seasonal variations which it was expected would characterize the volume of federal reserve notes were less evident, and the volume kept increasing as fast as the gold and gold certificates in circulation decreased.

3. The federal reserve banks were put in a position to extend to the member banks quantities of federal reserve notes, in exchange for deposits of checks and the deposit of gold or gold certificates, as well as through rediscounting, which was probably the method contemplated by the Federal Reserve Act.

4. The federal reserve bank was given perfect facilities for effecting, according to the requirements of the bank, an interchange between the gold and rediscount paper held by the agent.

5. The federal reserve bank had sufficient stock of gold to meet the requirements of any member bank or other federal reserve bank, should such bank at any time seek credit in order to withdraw gold for foreign or domestic use. At the same time the increased circulation of its federal reserve notes did not impair the rediscount power of the federal reserve bank, since the gold to which the bank had access increased faster than the volume of its rediscounts. In fact its rediscount capacity was increased; if there were an unusual demand for redemptions and a corresponding reduction of notes in circulation, and a contraction of the currency threatened, the reserve banks might grant rediscounts more freely, without check from the reserve requirement until the reserve had been reduced to 40 per cent of the note and 35 per cent of the deposit liabilities. By the concentration of reserves the ultimate power of credit expansion is very greatly increased.

6. The defensive power of the banking system was increased as against the credit contraction that needs must follow the exportation of gold; for if the gold had been withdrawn from the federal reserve bank by the presentation of notes for redemption it would have reduced very little the country's supply of credit, since the credit based on the gold scarcely exceeded the amount of the gold; but if the gold had been withdrawn from member banks the credit contraction would have been great, since each dollar of gold in the member banks supported a superstructure of many dollars of credit. This defensive power, however, has recently been lessened through the greater expansion of federal reserve notes than of the reserve itself.