The final settlement of the silver question went far to stabilize our monetary system, but it did not add elasticity to our money. Finally, under the stress of a panic (1907), the large banks of the country issued clearing-house certificates on their own credit backed by the commercial paper which they had in their vaults. It was at once seen that this pointed to the solution of the vexed problem of elasticity. Accordingly, Congress authorized a close study to be made of the monetary systems of Europe and America. The result was the Federal Reserve Bank Law of 1913, which provided that regional banks, twelve in number, can issue federal reserve notes to member banks in exchange for promissory notes given to them by their customers, and for other securities. The result is an elasticity in our currency. Now when a bank needs money to meet an extraordinary demand it can get it quickly from its regional bank. Further discussion of this system, however, must be deferred to the next chapter.

Amount of Federal Reserve Notes in Circulation (In Billions of Dollars).