The Bank Acceptance In America

In the same manner in which both France and Germany patronized the acceptance facilities of England, so, under similar circumstances, until the establishment of the Federal Reserve System in 1914, was America one of Europe's best customers in the use of its acceptance facilities. The common practice of financing American foreign trade was upon the basis of the pound sterling, and later, occasionally through Paris and Berlin. The annual tribute paid to Europe for this service was not only an unnecessary burden, but also reflected upon the dignity of a nation of the political and economic importance of the United States of America.

Creation Of Bank Acceptances Made Possible By Adoption Of Federal Reserve System

In short, the introduction of the Federal Reserve Act finally gave to national banks the power to "accept." The development of the acceptance in the United States was further made possible by the fact that the war had seriously affected the ability of foreign institutions to continue their acceptance business along normal lines. America, as a result of the great war had become the world's workshop, and its export trade increased to unparalleled figures. Aside from its trade with Europe, new markets were developed throughout the world, calling for greater banking facilities.

Beginnings Of The American Bank Acceptance

During the first year of the war, certain such drafts as were drawn upon American banks in dollars, when offered in the foreign markets, were looked upon by the foreign bankers with doubtful eyes and were not so favorably accepted from the start as were acceptances drawn in pounds sterling.

Slowly but surely, the banks and bankers all over the world began to realize that America had set its new financial machinery in motion; that a discount market was rapidly being established, and that bank bills drawn on New York could readily be discounted and at advantageous rates. As a consequence, foreign bankers began to quote closer rates for such bills, especially since, simultaneously with these offerings of American bank acceptances, a strong demand for remittances on New York and other American centers sprang up.

Previous to the introduction of the bank acceptance in the United States, the usual custom employed by merchants in this country to finance their overseas trade was by the drawing of bills on London, Paris or Berlin for the purpose of effecting a settlement of their debts, leaving the risk of exchange to themselves. The amount paid by American business establishments to foreign banks and bankers alone mounted into the millions of dollars. With the new conditions that arose, due to the circumstances resulting from the war, the acceptance came into use and was shown great favoritism by the leading banks and bankers of the country. Foreign countries also became ready buyers of American bank acceptances wherewith to create New York funds, selling such funds in turn to their customers who had debts to meet in the United States. In this way, a means was created for the ebb and flow of credit transfers between the United States and foreign countries, with the result that at present the American dollar is quoted at all the principal exchange markets of the world.