The development of the bankers' acceptance in connection with our foreign trade has already been discussed, Concerning this development the Reserve Board says in its 1916 report:1

The Board notes with great satisfaction the progress made during the past year in developing a market for American bankers' acceptances, which now enjoy the standing to which they are entitled in most of the world's financial centers. American banking facilities are now being used in Europe, South and Central America, and Asia. The number of banks, trust companies, and private bankers engaging in this business has increased materially and the advantages of American bankers acceptances, payable in dollars, are now better understood both at home and abroad. A very satisfactory beginning has thus been made, but it should be borne in mind that it is only a beginning, though a promising one, and that the scope of this lew function of American banking must be greatly extended before it will be commensurate with the country's financial resourees.

Development of the bankers' acceptance

1 Page 4.

The amendment to the Reserve Act adopted September 7, 1916, authorized the member banks, with certain restrictions and under regulations prescribed by the Reserve Board, to accept 90-day drafts and bills for the purpose of supplying dollar exchange where the usages of trade required it. The Board authorized the drawing of such Dills in Porto Rico, Santo Domingo, Costa Rica, Peru, Chile, Brazil, Venezuela, Argentina, and Bolivia.1 Some applications relating to other countries were denied. The Board's position is that the purpose of the act is to provide this type of dollar exchange in countries where the check is not the current means of remittance in payment of foreign debts, but where the three months' bankers' draft is used for the purpose. The custom of selling such drafts origi-nated in countries where the mail collections were irregular, where the foreign exchange market was a limited one, and hence where it would be difficult for the drawing banker to be certain that he could find a cover for the checks drawn by him in time to forward such cover in the same mail with the check. If he drew a three months' draft ample opportunity would be afforded to cover. The Board held hat such conditions did not exist in England, France, or Germany, and hence refused to grant permission for the acceptance of long bills, of the kind referred to, drawn in hose countries.1 Concerning the possibilities of this kind of paper the Board stated in the December, 1916, Federal Reserve Bulletin:2

The time has so far been too short to ascertain what the development of the acceptance business thus indicated will be.

Dollar exchange

1 Federal Reserve Bulletin, December, 1916, p. 665.

2 Page 666.

Long bills

Purchases of paper growing out of such operations at federal reserve banks have naturally been small in the aggregate, but some of the banks have now considerable individual holdings.