The function of the gold settlement fund is to obviate the necessity of shipping gold - the gold need not be shipped unless the federal reserve bank has exhausted its balance with the fund, and even then shipment may be obviated by credit operations, such as loans or rediscounts.

The fund has particularly facilitated government fiscal operations. The government does business on a money basis, whereas upward of 90 per cent of business transactions are credit transactions ; accordingly the government has larger money shipments to provide for than are common to business. The creation of the gold settlement fund and the settlement of inter-regional debts by its means with book credits rather than by shipments of currency have reduced the average amount of money tied up in transit, and have therefore increased the efficiency of the dollar in active circulation.

The transactions commonly put through the fund include the clearance of interdistrict items in the collection system, payments to and from the redemption funds of the federal reserve banks and federal reserve agents, transfers through the federal reserve banks for account of the United States Treasury, etc. The volume of transactions through the fund is greatly increased by heavy gold importations or exportations, fiscal operations of the Treasury, seasonal variations in the need for funds in the different federal reserve districts, rediscounts between the federal reserve banks, the extent to which the banks use the federal par collections system, and other factors. The following table shows the immense growth which has taken place in the volume of transactions put through the fund.

Growth In Volume Of Transactions Put Through The Gold Settlement Fund (In Millions)

1915

1916

1917

1918

1919

1920

Size of fund on December 31: Gold settlement fund, account of federal reserve banks ........................

$ 77

$ 169

$ 3"

$ 401

$ 329

$ 357

Federal reserve agents' fund Volume of transactions for the calendar year:

56

102

497

928

886

896

Total clearings.....................

.............

.............

24,319

45,439

66,053

85,074

Interbank transfers..................

.............

...............

2,643

4,812

7,930

7,551

Combined............

$1,052

$5,533

$26,962

$50,521

$73,984

$92,625

Change of ownership of gold.

96

223

272

238

281

471

Ratio amount of gold changing ownership to total amount of transactions............

8.14%

4.05%

1.01%

•47%

•38%

.50%