Nothing But Emergency Currency Issues?

Years ago, I discovered a case that will be profiled here where the only large size currency issued through the bank consisted of emergency currency secured by “other securities.” However, much later, the bankers went on in traditional fashion to purchase bonds in order to secure an issue of small size notes.

The Aldrich-Vreeland Act was passed May 30, 1908 to provide a degree of elasticity into the national bank note money supply. Under its terms, bankers could deposit municipal bonds and certain forms of commercial paper to secure short-term increases in their circulations. This was the “other securities” paper referred to in the securities clauses on the faces of Series of 1882 and 1902 date back national bank notes.

Originally the act was set to expire June 30, 1914, but was extended to Jun. 30, 1915, by Section 27 of the Federal Reserve Act of Dec. 23, 1913.

The concept was to encourage bankers to increase their circulations when needed, but force them to contract them when not needed.