Banknote

“ So strong is the wish of most people to see their money that they for some time continue to hoard bank notes: for a long period a few do so. But in the end common sense conquers. The circulation of bank notes decreases and the deposit of money with the banker increases. The credit of the banker having been efficiently advertised by the note, and accepted by the public, he lives on the credit so gained years after the note issue itself has ceased to be very important to him. ”

“ It comes to be believed that bank notes have a substantive existence, that they, on which interest is obtained, are not like the notes of individuals, on which interest is paid; in short, that they are money, perhaps even capital.
The view of notes as supplanting specie to an exactly equal amount is what is called the "currency principle." According to it the note issuers have a monopoly privilege and strive with each other for shares in a quantum of gain which cannot be surpassed. ”

“ True, banks, when imprudently conducted, or when deceived in the character of their customers, frequently lend their notes to reckless persons, who overtrade them, and become bankrupt. But banks commit this error, when they do commit it, to a far greater extent by loans of their deposits and capital than by loans of their notes. In the second place, the immediate return of the notes, chiefly through other banks for gold, or for other portions of the reserve of the issuing bank, is a check to its issuing more notes than it has a reserve to meet. ”

“ A bank, by the issue of notes, puts into circulation as money its own promises to pay. The customer, in borrowing money or in withdrawing deposits or cashing checks and drafts from other banks, is paid with the bank's notes instead of with standard money. These notes may be returned to the issuing bank either to be redeemed in specie or to be paid in some other form of credit, such as deposits or exchange. The limit of the issue of such notes is the need of the community for that form of money, and if they are promptly redeemed in standard money on demand, they never can exceed that amount. ”

“ All the paper currency in the hands of the people, excepting $1 and $2 bills, is in the form of bank notes. There is no chance to substitute bank notes for government notes. Hence, if at any time business relaxes and the need for money among the people grows less, an increasing tide of bank notes flows into the banks. The people who bring these notes do not ask for money in exchange, for to them the notes are money. They take bank [Pg 418] notes to the banks just as people in the United States take greenbacks and silver certificates—to be exchanged for a deposit credit or account. ”

“ Thus a great deal of the paper money in circulation is issued by the national banks, which must, on demand, be redeemed with coin, and, in case of failure of the banks, are paid by the government, which reimburses itself from the deposits. A bank-note differs from a Treasury note in two particulars. The Treasury note or "greenback" is a promise of the government, and is legal-tender in payment of all private debts; the bank-note is the promise of a private company, and is not legal-tender. A bank-note is said to be paid when the bank gives a greenback or coin for it. ”

“ May not a merchant discount his own notes, without being considered a banker? The mere receiving money on deposit, to be paid out again whenever called for, is not banking. Surely a man may deposit his funds in safe keeping in the hands of a friend, without making that friend what is known in our law and in the commercial law, as a banker. Issuing a note to be put into circulation as money may, perhaps, be evidence of itself of an act of banking; and this may be the most important power which a bank possesses. ”

“ Upon the first point the evidence is, that on the day when the note became due, the note was in the bank at Cincinnati, the bank being the holder thereof, and it being payable there, and that after the usual banking hours were over, it was delivered to a notary by the officers of the bank for protest, they informing him at the time, that there were no funds there for the payment of the note. We are all of opinion, that this was a sufficient proof of a due demand of payment: Where a note is payable at a bank, it is not necessary to make any personal demand upon the maker elsewhere. ”

“ Is there an individual in this broad land who, from the foundation of the National banking system to this day, ever hesitated a single moment to take a national-bank note at its face value, no matter in what corner of the country the note was issued? You know there is not. Is it not true that business men deposit their money, as a general thing, in national banks with a greater sense of security than they ever felt with regard to any other banking system? ”

“ The reason given for considering bank notes as money, is, that by law and usage they have the property, in common with metallic money, of finally closing the transactions in which they are employed; while no other mode of paying one debt by transferring another, has that privilege. The first remark which here suggests itself is, that on this showing, the notes at least of private banks are not money; for a creditor cannot be forced to accept them in payment of a debt. They certainly close the transaction if he does accept them ”

“ Whatever be the value or denomination of the notes, the holder is at liberty to demand payment of the whole whenever he pleases, and receives it without abatement, as the banker makes his profit at the time of their issue. When notes are lost, payment is stopped, as here, and they are speedily traced, as it is the practice not to take notes of a high value—say, 100 dollars—without first inquiring at the bank as to their genuineness. ”

“ No note is ever issued a second time. When once it finds its way back to the Bank to be exchanged for coin, it is immediately cancelled; and the reader will probably be surprised to hear that the average life of a Bank-note, or the time during which it is in actual circulation, is not more than five or six days. The returned notes, averaging, as we have stated, about fifty thousand a day, and representing, one day with another, about one million pounds in value, are brought into what is known as the Accountant’s Sorting Office. ”

“ His first inquiry is, What is the market-value of the note offered? True, he knows that many of the notes he takes cannot be sold at all; but he also knows that the notes he is willing to take will in the aggregate be guarantied by a reservation of one, two, or three per cent., and that the note of the particular applicant for credit will tend to swell or to diminish the rate; and he cannot afford to exchange his goods for any note, except at a profit which will guaranty its payment when due,—which, in other words, will make the note equal in value to cash. ”

“ All that could be required is, that the note be there, ready to be delivered up if payment should be offered. When the note is held by a third person, it is practicable, and there is a fitness in requiring the holder to inquire at the bank for the maker, and whether he has provided any funds there to pay the note. But when the bank itself is the holder, it would be impracticable for it to make such inquiry in any other manner than by ascertaining that the note was there, and examining the books to see if the maker had any funds in the bank. ”

“ If they prefer to have gold spoons, or gold candlesticks, or gold watches, or gold anything else; or if, as traders, they require to make purchases in any parts of the world where their notes would not pass current, or where those from whom they buy do not require any commodity manufactured in this country, then they can have their gold at the Bank any day by presenting their notes. As, moreover, the holder of every bank-note has an equal claim, pro tanto, on the bullion in the Bank coffers, the more gold there is in them, the more will his note represent. ”

“ In a decision in which all but one member of the court concurred it was held that Congress had full power to provide for the issuance of such notes in time of war or of peace and thus to make paper money legal tender. These "greenbacks" and the notes of thousands of national banks have now for a generation been the familiar and favorite circulating medium of the Nation. The treasury notes and bank notes are used indifferently and indiscriminately and both are recognized as always and everywhere worth their full face value in gold coin. ”

“ In all these ways the banking power of a country is extended to several times the coin money in circulation, and that with perfect safety. But it is possible for banks to be tempted through the very perfection of their own credit. The note of an individual has no established market value. A deposit in the bank is valued as cash. It is possible to secure the credit of having a bank deposit by discounting an individual note. ”

“ Each bank is seeking, through its branches, to satisfy all the legitimate needs of the people for a circulating medium. When the note of a bank is in circulation it is earning money for the bank, but when it is in the vault or on the counter of the bank it is an idle and useless piece of paper. Hence every bank always pays out its own notes through its branches and sends the notes of other banks in for redemption, thus increasing its own circulation and strengthening its own reserve. ”

“ The only question therefore appears to be whether bank notes make a good substitute. They might, I suppose, by good management, be made sufficiently steady in value. They might, by common agreement, be made to signify any variety of convenient sums. They may be much more easily carried about; a note for the largest sum being no heavier than for the smallest. There is not the perfect likeness of one to another that there is in coins of the same denomination, but the nature of the promise they bear upon their faces serves as an equivalent security. ”

“ One curious circumstance about the Continental banks is, that they seem to possess marvellously limited stores of money, whether of notes or of gold and silver. People have just to take what the bankers can give. I have more than once been obliged in France to take a note for 1000 francs, or £40, which is practically useless, unless where residence in a place is to be of sufficient duration to enable the holder to tender the note in payment of his hotel bill. ”

“ A person has a note in one of the Western branch banks, and if the bank determines to extend no further credit, its custom is, when it sends out the usual notice of the time the note falls due, to write across the notice, in red ink, these three fatal words—well understood in that country—'Payment is expected.' This notice, thus rubricated, becomes a death-warrant to the credit of that customer, unless he can raise the wind, as it is called, to pay it off, or can discount a domestic bill of exchange. ”

“ Remember the mortgage must always be regarded as security. The note represents the debt.
Often wholesalers take a note as part or even full payment for a bill of goods to a retailer.
If the wholesaler needs money, he endorses these notes and putting them in his bank draws against them, less the discount he has to pay for the accommodation.
As has been shown, an account may be transferred and sold, but a note is more convenient for that purpose.
AN ILLUSTRATION As with a check the maker of a note is known as a "drawer," the person in whose favor it is drawn is the "payee." ”

“ A bank note, on the other hand, is both circulating medium and money. Between these two lies the final line of distinction between what is money and what is not. True, the line is delicately drawn, especially when we come to such checks as cashier's checks or certified checks, for the latter are almost identical with bank notes. Each is a demand liability on a bank, and each confers on the holder the right to draw money. Yet while a note is generally acceptable in exchange, a check is specially acceptable only, i.e. ”

“ A convertible bank note is one which actually can be thus changed into the coins whenever it is desired, and so long as this is really the case, it is evident that the note is just as valuable as the coins, and is more convenient. The only fear is that, if a banker be allowed to issue these bank notes, he will not always have coins enough to pay them when presented. Very frequently banks have been obliged to stop payment ”

“ A system of note issues is therefore the best introduction to a large system of deposit banking. As yet, historically, it is the only introduction: no nation as yet has arrived at a great system of deposit banking without going first through the preliminary stage of note issue, and of such note issues the quickest and most efficient in this way is one made by individuals resident in the district, and conversant with it. ”

“ The last indorsee or owner transmits it to that bank for collection; if funds are not deposited there to meet it when due, it is handed to a notary or agent of the bank, who makes demand and protest, and gives notice of its dishonor to the indorsers; if they live in the same town or city where the bank is situated and the demand made, and 'where the note was payable,' he serves it personally, or at their residence or place of business ”

“ It may be asked if we provide for the issue of circulating notes to banks, why not provide for the retirement of an equal amount of United States notes. The answer is that under the provisions of the banking act, by the law as it now stands, a bank cannot be organized and maintained in existence unless the reserve which is in that bank, or required for that bank in the ordinary course of business, either on its deposits or circulation, is at least equal to twenty per cent. ”