In his first annual report to Congress Mr. Dawes devoted considerable space to a discussion of the banking and currency laws of the United States, which, he stated, seemed to ignore the interests of the depositors in the banks, with whose protection the Comptroller was particularly charged.
In analyzing the various suggestions for reforming the currency laws that were being advanced at that time, Mr. Dawes summed them up into two main propositions, as follows:
First. That the disproportion between outstanding currency liabilities of the Government, payable in gold, and the gold held for their redemption, should be lessened by a contraction in the amount of the demand currency liabilities.
Second. That the void in circulation that would be caused by such contraction, should be filled by an extension of the circulation of the national banks, which circulation, redeemable in gold, would ultimately depend for its chief security upon a first lien on the commercial assets of the issuing banks.
The more important of these two plans, he stated, embodied in the ablest forms the general principles necessarily involved in a system of banknote issues, secured by the general assets of the banks, and looked to the ultimate displacement of Government credit money by a first lien upon the assets of the issuing banks and by a five per cent. redemption fund created in the first instance by a taxation upon solvent issuing banks and thus maintained.
In the event of any deficiency occurring in such contributions to the guaranty fund, resort would be had to additional taxation upon the solvent banks issuing circulation to supply the deficiency, such tax not to exceed one per cent. on the amount of their note issue per year.
These propositions, Mr. Dawes stated, assumed that unless there was to be a currency contraction, some radical extension of banknote issues was absolutely necessary to secure the proper adjustment of Government currency liabilities to the gold reserve, in order to subserve the greater safety of the gold standard, and that through this radical extension and change in the form of banknote issues alone was elasticity to be secured in our currency.
As opposed to these propositions, Mr. Dawes contended, that there existed no such condition of finances, revenues or credit in the United States to justify the proposed shifting of the burden of gold redemption of outstanding currency from the Government to the banks, or to make necessary any radical changes or concessions in the national banking laws relative to note issues, which would not be considered wise, if the interests of the community, irrespective of Government finances, were alone considered. He expressed the view that the resources, credit and financial condition of the United States were such that by means of the revenue laws and other amendments suggested by President McKinley in his message to Congress at that time, a safer ratio between outstanding circulation and gold reserve be attained, the stability of the gold standard insured, and the currency maintained upon a sound basis without contraction.
The most important function of the national banks, Mr. Dawes held, was in acting in the capacity of middleman between the depositors and the borrowers of a community, and that the note-issuing function of the banks was secondary in importance and usefulness under the then or any proposed system of banknote issues.
It was especially important, therefore, he held, that in any proposed changes in the laws relating to the note-issuing powers of the banks, the relation of the banks to their depositors and borrowers should be carefully considered.