4. Government Prints The Notes

Having complied with the law in depositing registered bonds as the basis of its circulation, a bank has fulfilled its part. The government buys the paper on which the notes are printed, makes the designs, and prints them and delivers them free of cost to the bank, except the express charges for sending the notes. When sent they are complete, lacking the signatures of the cashier and president.

The designs on American bank notes are very different from those on the notes issued by the Bank of England. Elaborate designs and colored inks are used here, because it is believed the notes can not be so easily counterfeited. The Bank of England designs are few and simple, but the notes are "in fact the most elaborately manufactured 'bits of paper' imaginable. The paper alone is remarkable in many ways, notably for its unique whiteness and the peculiar feel of crispness, while its combined thinness and transparency are guards against two once very popular modes of forgery, the washing out of the printing by means of turpentine, and erasure with a knife."

The wire mark, or water mark, is another precaution against counterfeiting, and is produced in the paper while in a pulpy state. The shading of the letters of this water mark further increases the difficulty of imitation. The paper is made entirely from new white linen cuttings and is so tough that a note will sustain the weight of thirty-six pounds. Again, the note is not of uniform thickness. The paper is thickest in the left-hand corner whereby it retains a keener impression of the vignette there, and is considerably thicker in the dark shadows of the center letters and beneath the figures at the ends. Counterfeit notes are invariably of uniform thickness.

Three plates are made for printing the notes of a national bank. On one plate four fives are engraved and printed; on another, three tens and a twenty; on the third, a fifty-and a hundred-dollar note.

5. Banks Should Not Pay Out Soiled Notes

A bank should exercise care in not paying out a soiled note either of its own or belonging to any other bank. Some banks are very careless in this regard. It is more difficult to detect forgeries of notes that are worn than of clean notes in which all lines are plainly seen. Hut as banks must pay the express charges for returning notes for redemption, some banks keep this item of expense at a minimum by putting back into the stream of circulation notes that ought to be sent to Washington for redemption.

6. Redeeming Notes

How are they redeemed or paid? There are two ways, First, every bank must redeem its own notes when they are presented over its counter in legal tender notes issued by the government. Usually a bank will pay specie for its notes if it is desired, but this can not be demanded by the presenter as a strict right. The second and far more general mode of redeeming them is through the treasury department at Washington.

Every bank must keep a fund consisting of United States notes equal to five per cent of its circulation with the United States Treasurer. If the circulation of a bank consisted of $50,000, this fund would be $2,500. When a bank accumulates $1,000 of soiled, torn, worn-out notes, or a multiple thereof, received from depositors and borrowers in payment of their loans, they are sent to Washington, and government notes of the same amount are received in return. The notes thus sent to the United States Treasurer are sorted for the purpose of finding out what banks issued them and, after this work is completed, they are charged up to their various issuers. In other words, the $1,000 sent by the government to the bank in exchange for these notes is taken out of the various redemption funds of the banks that issued the redeemed notes. For example, let us suppose that the $1,000 thus sent consists of one hundred ten-dollar notes issued by ten different banks, the First National in Chicago, St. Louis National, Philadelphia National, and so on. The official in charge of this business in Washington takes $100 out of the five per cent redemption funds of each of these banks and thus collects his $1.000 to send back in place of the soiled notes he received. Of course, the redemption funds of the bank become depleted by this process, and a way is provided for restoring them. When $500 has been taken from the redemption fund of any bank to redeem its notes, the bank is notified and requested to make the amount good. In a short time the fund is restored to the full amount.

Lastly, the notes thus returned are destroyed. Formerly they were burned, but this proved a somewhat hazardous process, as pieces were drawn up the chimney and picked up and put into circulation, or offered for redemption. As the result of this experience they are cut into small pieces and macerated; this method has proved effective. The bank whose notes have been destroyed can now ask the government to print and send to them a similar amount of new-notes, thus completing the cycle and filling up its circulation to the original amount. The government pays the express charges on the notes returned, the sending bank pays the expense for transmitting the notes to Washington.