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FEDERAL RESERVE
BULLETIN

MARCH, 1927

ISSUED BY THE

FEDERAL RESERVE BOARD
AT WASHINGTON

Bank Credit and Money Rates
Text of the McFadden Act
Condition of All Member Banks

UNITED STATES
GOVERNMENT PRINTING OFFICE

WASHINGTON
1927

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Page 2

FEDERAL RESERVE BOARD

Ex officio members:

A. W. MELLON,
Secretary of the Treasury, Chairman.

J. W. MCINTOSH,

Comptroller of the Currency.

D. R. CRISSINGER, Governor.
EDMUND PLATT, Vice Governor.
ADOLPH C. MILLER.
CHARLES S. HAMLIN.
GEORGE R. JAMES.
EDWARD H. CUNNINGHAM.

WALTER L. EDDY, Secretary.

J. C. NOELL, Assistant Secretary.
E. M. MCCLELLAND, Assistant Secretary.
W. M. IMLAY, Fiscal Agent.
J. F. HERSON,

Chief J Division of Examination, and Chief Federal
Reserve Examiner.

WALTER WYATT, General Counsel.

E. A. GOLDENWEISER, Director, Division of Research
and Statistics.

CARL E. PARRY, Assistant Director, Division of Re-
search and Statistics,

E. L. SMEAD, Chief, Division of Bank Operations.

FEDERAL ADVISORY COUNCIL

District No. 1 (BOSTON) __>_ ARTHUR M. HEARD.

District NO. 2 (NEW YORK) JAMES S. ALEXANDER.

District No. 3 (PHILADELPHIA) L. L. RUE.
District No. 4 (CLEVELAND).„ ___„ HARRIS CREECH.
District No. 5 (RICHMOND) JOHN F. BRUTON, Vice President
District No. 6 (ATLANTA) „ P. D. HOUSTON.
District No. 7 (CHICAGO) _. . FRANK 0. WETMORE, President.
District No. 8 (ST. LOUIS) BRECKINRIDGE JONES.
District No. 9 (MINNEAPOLIS) THEODORE WOLD.
District No. 10 (KANSAS CITY) P. W. GOEBEL.
District No. 11 (DALLAS). . B. A. MCKINNEY.
District No. 12 (SAN FRANCISCO) ____ HENRY S. M C K E E .

II

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Page 52

196 FEDERAL RESERVE BULLETIN MARCH, 1927

first nine months, a still further decline in net
exports seems probable. On the other hand,
during 1925 and 1926 the entry of foreign
capital into Brazil from the United States and
London approximated $127,000,000, and was a
factor in the upward movement of the exchange
which took place between the middle of 1925
and of 1926.

Budget deficits.—Stabilization of the milreis
has been rendered more difficult, also, by the
recurrence yearly of deficits in the budget.
Some attempts to improve the budget were
made in 1922 and 1923, and during 1924 a
thorough reorganization of the system of budget
making was undertaken, with the gradual
elimination of all items of expenditure for which
revenues were not explicitly provided. The
result has been that budget deficits since 1922
have declined year by year as shown below, and
they present, therefore, less of an obstacle to
currency stabilization now than formerly.

BUDGET DEFICITS
Milreis

1922 448, 952, 000
1923 224,374,000
1924 ___„., 89, 739, 000
1925_ 1 40, 993, 000
1926 1 22, 975, 000
1927 * 1, 065, 000

Other factors.—Among other factors exer-
cising an unfavorable influence on the stability
of Brazilian exchange may be mentioned the
reaction from the postwar boom of 1919-20,
which was particularly severe in Brazil; the
revolutionary uprisings in Sao Paulo in 1924;
and the large floating debt, which rose from
863,000,000 milreis at the beginning of 1924 to
1,202,600,000 milreis at the beginning of 1925.
Furthermore, during the latter half of 1926,
the expectation that the incoming administra-
tion would recommend a lower rate of stabili-
zation than its predecessors had done, and the
growth of a considerable body of opinion in
favor of this policy, influenced the decline of
the milreis to about 12 cents by the end of the
year.

Currency law of 1926.—In view of the con-
tinuous fluctuation of the milreis during the
past four years, the new administration in
Brazil, upon assuming office in November,
1926, stated that one of its first concerns should
be monetary reform and the stabilization of
the currency. The Finance Committee, ac-
cordingly, introduced the new currency bill
which, as noted above, became a law on De-
cember, 18, 1926.

1 Estimated.

This law provides for the stabilization of the
milreis at 200 milligrams of gold, 0.900 fine,

er paper milreis, that is, at about 12 cents;
or the issue of new, convertible treasury

notes which are to be legal tender; and for
a new currency unit, the cruzeiro,2 the precise
value of which is not defined in the law, but
which is intended to be worth 4 milreis. A
stabilization bureau is set up, which, pending
definite return to the gold standard, is to insure
convertibility of the currency into gpld at the
determined rate of exchange, to receive gold in
Brazil or at its London and New York branches,
and at the end of the pre-stabilization period, to
be incorporated into the Bank of Brazil. No
gold will be put into circulation. The re-
sources necessary for currency redemption are
provided from the following sources: (1) Gold
already collected and deposited in accordance
with laws for the redemption, guaranty, and
conversion of paper money, and future receipts
from this source; (2) budget surpluses; and
(3) the yield of foreign loans. The exact date
and method of conversion are to be fixed by
executive decree six months in advance. The
Bank of Brazil is to be reorganized in con-
formity with the present law, and a new
contract is to be made with the bank by the
Government, the prior contract, providing that
the bank should have a 10-year monopoly of
note issue, having lapsed under the new law
providing for the issue of new and convertible
treasury notes. A foreign loan for stabilization
purposes is authorized.

The more important sections of the law are
in substance as follows:

CURRENCY LAW OF DECEMBER 18, 1926

ARTICLE 1. Gold, nine-tenths fine, shall constitute
the monetary standard of Brazil.

SECTION 1. The unit shall be known as the " Cru-
zeiro5' and be divided in hundredth parts.

ART. 2. The total supply of paper money now in
circulation, amounting to 2,569,304,350 milreis, shall
be converted into gold on the basis of 200 milligrams
per milreis.

ART. 3. Upon six months' previous notice, by a
decree of the executive power, the exact date and the
method of conversion mentioned in article 2 shall be
determined.

ART. 4. The financial resources for the conversion
herein provided for, shall be provided as follows:

SEC. 1. By gold already collected and deposited in
accordance with existing laws for the redemption,
guaranty and conversion of paper money.

SEC. 2. By amounts collected in the future as a
result of these laws.

SEC. 3. By budget balances after same have been
definitely converted into gold.

2 An abbreviation of "Cruzeiro do Sul" or "Southern Cross," one of
the symbols of-Brazil.

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MARCH, 1927 FEDERAL EESEKVE BULLETIN 197

SEC. 4. By the proceeds of credit operations in-
tended for this purpose.

SEC. 5. By any other means which may be intended
for this special purpose such as the banking profits
mentioned in Clause III of contract of April 24, 1923,
authorized by law 4635 A of January 8, 1923, and
included in the present project.

ART. 5. Pending the sanctioning of the decree
mentioned in article 3 the exchange of notes for gold
or vice versa on the basis indicated in article 2 shall
be made in the office of stabilization, which is hereby
created for this exclusive purpose. The office of
stabilization, known by this or another name, may
operate as a part of the Bank of Brazil as soon as this
bank is reorganized in accordance with the present law.

ART. 6. The gold received shall be reserved on
deposit by the office of stabilization or by its branches
in London and New York, and can not in any case
nor by any authorization be applied for any purpose
other than the conversion of the issued notes, under
the personal responsibility of the members of the office
and the guaranty of the Federal treasury. The notes
exchanged will be legal tender.

ART. 8. The executive power is hereby authorized to
buy and sell bills and exchange on foreign countries in
order to maintain the rate established in article 2.
In order to carry out these operations which can not be
done by the office of stabilization, the executive power
shall have authority, once the reorganization of the
Bank of Brazil is consummated, to use the gold fund
guaranteeing the present issue of the bank, for which
the Government will assume responsibility.

ART. 11. The executive power is hereby authorized
to amend the contract with the Bank of Brazil in ac-
cordance with this law.

ART. 12. The executive power is hereby authorized
to carry out credit operations, either domestic or
foreign, which may be necessary for the execution of
this law, determining the maturities, interest, sinking
funds, and guarantees.

ART. 13. The executive power is hereby authorized
to open the necessary credits up to 500,000 milreis
for the enforcement of this law.

ART. 14. All|provisions to the contrary are revoked.

ANNUAL REPORT OF THE BANK OF FRANCE FOR 1926

The annual report of the Bank of France for
1926, presented to the meeting of the stock-
holders on January 27, 1927, contains the fol-
lowing discussion of the economic and financial
situation of the country:
~.The year just past was marked by a severe

financial crisis and then by a vigorous and
remarkable recovery in the general situation.
The disastrous series of inflations, the alarming
growth of which was discussed in our last
report, has been brought to an end. Thus the
first condition indispensable to the restora-
tion of monetary and financial health, a con-
dition the necessity of which your board of
directors never ceased to emphasize during the
:past year, and the fulfillment of which they
never ceased to demand, has happily been
realized, and now the future can be faced with
confidence.

During the first half of the year the in-
creasing difficulties of the treasury continued
day by day to react more and more disastrously
on our money,. The treasury, deprived of the
regular supply of available funds from the sav-
ings banks, was forced, in order to meet its
budget charges and those of the floating debt,
to avail itself of advances which the law of
December 4, 1925, had authorized the bank to
extend. On January 1 the debt of the Govern-
ment to the bank was slightly less than 35,000,-
000,000 francs, while the legal maximum author-
ized by previous agreement was 38,500,000,000
francs. The available margin of 3,500,000,000
was being steadily and rapidly used up. At
the beginning of March it had been reduced to
2,800,000,000; at the beginning of June to

1,600,000,000; at the beginning of July to less
than 1,000,000,000; toward the end of the same
month to only a few tens of millions. On July
21 we were compelled to warn the treasury that
if it could not arrange to increase its current
account with the bank by immediately real-
izable assets, we should, find ourselves under
the necessity of suspending our " payments on
account of the State" throughout the country.
In order to avoid the adoption of so severe a
measure, we then agreed to purchase from the
treasury the remainder of the available foreign
exchange holdings in the Morgan loan, stipu-
lating that this acquisition of foreign exchange
should not interfere with our power of issue for
the benefit of commerce and industry, and that,
to this end, it should be accompanied by a
parallel and equal raising of the legal limit of
the note circulation. The details of this
arrangement, authorized by Parliament, were
made the basis of an agreement on July 24.
The drain of the treasury on the bank during
this time naturally influenced the volume of
note circulation. The total circulation, which
stood at about 51,000,000,000 at the beginning
of the year, rose to 52,000,000,000 in March; to
53,000,000,000 in May, and to 57,000,000,000
on August 5.

The acute crisis of the treasury and of the
note circulation, and the alarm concerning the
fate of the franc which this crisis caused both
in France and abroad, brought about a dis-
turbance of exceptional severity on the ex-
change market. The appreciation of foreign
exchanges, noted at the close of last year, in-
creased rapidly during the first months of the

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Page 103

MAECH, 1927 PEBEEAL EESEEVE BULLETIN 247

DISCOUNT RATES OF FEDERAL RESERVE BANKS IN EFFECT MARCH 1, 1927

Federal reserve bank

Paper maturing—

Within 90 days

Commercial,
agricultural,
and livestock
paper, n. e. s.

Boston
New York
Philadelphia. .
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis..
Kansas City_.
Dallas
San Francisco.

Secured by
United States
Government
obligations

Bankers'
acceptances

Trade
acceptances

After 90 days but
within 9 months

Agricultural
and livestock !

paper

1 Including bankers' acceptances drawn for an agricultural purpose and secured by warehouse receipts, etc.

GOLD SETTLEMENT FUND
INTERBANK TRANSACTIONS, JANUARY 20 TO FEBRUARY 16, 1927, INCLUSIVE

[In thousands of dollars]

Federal reserve bank

Boston -
New York
Philadelphia- - -
Cleveland
Richmond - _ _ -
A t l a n t a _ _ _
C h i c a g o - - - -
St Louis
Minneapolis _- _ _ - „.
Kansas City «. - -
Dallas _- -
San Francisco - .

Total four weeks ending—
Feb. 16, 1927 _
Jan. 19, 1927 _
Feb. 17, 1926
Jan. 20,1926__.

Transfers for
Government

account

Debits

5,000

1,000
1,000

500

7,500
43,000
6,500

35,000

Credits

3,000

1,000

1,000

1,666
500

1,000

7,500
43, 000
6,500

35, 000

Transit clearing

Debits

875,827
2,915,956

743,310
684,434
504,125
313,493

1,130,242
551,022
147,293
398,893
268,964
365,165

8,898, 724
9,084,279
8,274,910

i 8,957,034

Credits

881,402
2,863,100

743,712
705,863
504,427
329,429

1,154,045
548,068
146,183
397,805
271,975
352,715

8, 898, 724
9,084,279
8. 274/910

J- 8,957,034
: ' •

Federal reserve
- note clearing

Debits

4,227
9,547
4,870
7,501

1 3,183
3,813
6,297
1,742
2,254
2,583
2,005
2,691

50, 713
55,873
45,510

Credits

3,254
11,206
4,519
4,091
4,306
3,387
7,905
2,883

876
2,873
1,628
3,785

50, 713
55,873
45,510

Changes in owner-
ship of gold

through transfers
and clearings

Decrease

398
48,197

813
2,988

10,356

62, 752

Increase

51
19,019

425
14,510
25,411

202
3,134

62,752

Balance
in fund
at close

of period

25,701
152, 111
53,959
62 939
24,304
31, 785

142,826
22,535
13,930
32,883
23,944
29,936

616,853
503, 514
688 124
573,849

i Includes Federal reserve note clearing.

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Page 104

FEDERAL RESERVE DISTRICTS

- — * BOUNDARIES OF FEDERAL RESERVE DISTRICTS
——BOUNDARIES OF FEDERAL RESERVE BRANCH TERRITORIES
® FEDERAL RESERVE BANK CITIES
© FEDERAL RESERVE BRANCH CITIES
O FEDERAL RESERVE BANK AGENCY

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