But even this limitation upon the bond-secured circulation should not have been imposed. The banks should have been permitted to increase or reduce their circulation at their discretion. The few instances of abuse which might have resulted from this unrestricted privilege would have been more than counterbalanced by the advantages that would have been derived from the added elasticity to the circulation.

Provision for the consolidation of banks is another amendment which had been repeatedly recommended without results until November 7, 1918. When it was desired to consolidate two banks, the only means of effecting the consolidation was to place one bank in liquidation and for the continuing association to absorb the assets and assume the liabilities of the liquidating bank. This method was exceedingly inconvenient and cumbersome, both to the banks and to the Comptroller's office.

As a means of facilitating and extending the trade of our merchants and manufacturers with foreign countries, especially with South America and the Orient, Mr. Ridgely recommended that national banks located in reserve or central reserve cities, having a capital of $1,000,000 or more, be authorized to buy and sell foreign exchange, to accept bills drawn on themselves, payable not to exceed four months after sight, to issue letters of credit, and to open and maintain such offices, agencies or branches as might be deemed necessary to conduct this business in foreign countries and in Porto Rico, the Philippines, Hawaiian Islands, and the Panama Canal Zone. This recommendation was incorporated in the Federal Reserve Act of December 23, 1913, which authorized national banks with a capital stock of $1,000,000 or more, with the approval of the Federal Reserve Board, to establish branches in foreign countries or dependencies of the United States.

In each of Mr. Ridgely's seven annual reports a good deal of thought was devoted to a discussion of the defects in the national currency system and to suggested remedies therefor.

In his earlier reports he favored an emergency currency based upon the assets of the banks, which, he thought, could be made absolutely safe and immediately available in times of stringency or panic, with a guarantee fund in reserve raised by a tax on circulation. Such circulation, he thought, would be an element of strength and not of weakness to the banks issuing it, and be preferable to any form of Clearing House certificates or emergency circulation issued by Clearing Houses or similar associations, such as were resorted to during panics, as each bank could act independently and quickly meet the conditions and necessities in its own community, and would go far toward preventing emergencies from arising or at least diminishing their seriousness.

Mr. Ridgely thought this plan would be the most simple and practical method of introducing an element of elasticity into our banknote circulation and make it readily responsive to the needs of the respective communities in times of stress or financial disturbances of any kind. He therefore recommended that all national banks which had been in operation for not less than two years, and which had a surplus fund of not less than twenty per cent. of their capital stock, be permitted to issue notes unsecured by bond deposits in amount not to exceed fifty per cent. of their bond-secured notes.

To protect such notes he proposed that such banks should be required to carry the same reserves as against deposits, in gold or its equivalent, and be further protected by a guaranty fund of five per cent., to be deposited by the issuing bank with the Treasurer of the United States before any notes were issued. From this guaranty fund all such gold reserve notes were to be redeemed on demand. This guaranty fund was to be maintained by a graduated tax on the gold reserve notes, beginning at a rate of not over two and one-half per centum per annum, and every bank issuing gold reserve notes should be required to provide means for the redemption of such notes in every reserve city, and at such other points as might be designated, sufficiently numerous and convenient to put every national bank within twenty-four hours of a redemption center.

Mr. Ridgely's plan did not contemplate any change in our present system of bond-secured circulation, but simply provided for an additional issue of emergency notes based upon a percentage of the bond-secured circulation, with a guaranty fund created and maintained in the manner hereinbefore explained.

In answer to the objections raised that an authorized issue of uncovered notes would lead to inflation of the currency and encourage promotion schemes and stock speculations, Mr. Ridgely contended that such would not be the case, as speculation is not carried on through the use of actual money. There is seldom any cash used in such transactions, he said. Operations in the stock market are generally conducted through loans and checks drawn against deposit credits. These proposed changes in the law, Mr. Ridgely said, would not add to the loans of the banks, nor make any additions to their credits, because the reserve requirements would be the same for notes as for deposits or credits, and thus afford no facilities for stock exchange or other speculative transactions.

In his last annual report, Mr. Ridgely enlarged upon his plan for a currency reform by favoring the establishment of a central bank of issue and reserve, combining in a measure his uncovered note and the Clearing House certificate plans, as affording the best means of imparting to our currency system an element of elasticity that would enable the banks to quickly furnish circulation in times of sudden demand without depleting the supply of reserve money. He regarded the central bank idea as the most effective and satisfactory way of supplying a currency that would meet all the needs of the situation and make our system of currency issues and redemptions more in unison with the most approved and reliable banking systems of the world.

He outlined his plan with considerable detail as to the formation and operation of the central bank idea, and his views in this respect make this report a valuable addition to the literature on this subject.