Chapter II Quotations From

the Reserve Bank would have to be at least $1 billion.” Page 70: “Suppose, however; that the Reserve authorities were of the opinion that more loans might advantageously be made and that the bank should be provided with additional reserves so that it could make them. Suppose, therefore, they purchase $20 million of securities (corporation stock) in the open market. The seller of the securities would deposit in the commercial bank the money he received in payment (the Reserve authorities’ cheque). The commercial bank in turn would deposit it in its reserve account at the Reserve Bank. Having these additional reserves of $20 million, the commercial bank, by making loans, could increase its deposits to five times as much, or $100 million — $20 million being the 20 percent reserves required against deposits of $100 million.” Page 71: “The same principle that would hold if there were only one bank holds true of all banks taken together.” (All banks must be ONE. — the author.) . . . “By the normal and active process of clearing the enormous number of cheques that are constantly being drawn on one bank and deposited in another — thereby entailing the transfer of funds from one reserve balance of one bank to the reserve balance of another.” Page 75: “The practical consequence of this is that the Federal Reserve authorities, by supplying a relatively small volume of additional reserve funds, make it possible for the banking system as a whole to supply the public with a far greater additional volume of credit.” Note bottom Page 75: “The reserves required are not 20 percent at present (1938), but about 15 percent is the average. The figure 20 percent has been used for greater simplicity in illustration.” Page 84: “(The Nature of Federal Reserve Bank Credit.) Credit in general is a matter of monetary agreement, the essence of it being an acceptable promise to pay. Bank credit is a special form of credit, peculiar in that it involves a promise or assumption of liability by a bank, given in exchange for a promise made to the bank. Thus the bank accepts a promissory note of a customer and in exchange promises to pay the customer a corresponding amount, which, pending his order, is carried on its books as a deposit in his favour. “Bank credit