or if in obligations of the United States shall be in form acceptable to the Secretary of the Treasury of the United States under the general regulations of the Treasury Department governing transactions in United States obligations.

5. Exemption from taxation. The principal and interest of all bonds issued or to be issued hereunder shall be paid without deduction for, and shall be exempt from, any and all taxes or other public dues, present or future, imposed by or under authority of France, or any political or local taxing authority within France, whenever, so long as, and to the extent that beneficial ownership is in (a) the Government of the United States, (b) a person, firm, or association neither domiciled nor ordinarily resident in France, or (c) a corporation not organized under the laws of France.

6. Payments before maturity. France, at its option, on June 15 or December 15 of any year, upon not less than ninety days' advance notice to the United States, may make advance payments in amounts of $1,000 or multiples thereof, on account of the principal of any bonds issued or to be issued hereunder and held by the United States. Any such advance payments shall be applied to the principal of such bonds as may be indidated by France at the time of the payment. 7. Exchange for marketable obligations.-France will issue to the United States at any time, or from time to time, at the request of the Secretary of the Treasury of the United States, in exchange for any or all of the bonds issued hereunder and held by the United States, definitive engraved bonds in form suitable for sale to the public, in such amounts and denominations as the Secretary of the Treasury of the United States may request, in bearer form, with provision for registration as to principal and/or in fully registered form, and otherwise on the same terms and conditions, as to dates of issue and maturity, rate or rates of interest, if any, exemption from taxation, payment in obligations of the United States issued after April 6, 1917, and the like, as the bonds surrendered on such exchange. France will deliver definitive engraved bonds to the United States in accordance herewith within six months of receiving notice of any such request from the Secretary of the Treasury of the United States, and pending the delivery of the delivery of the definitive engraved bonds will deliver, at the request of the Secretary of the Treasury of the United States, temporary bonds or interim receipts in form satisfactory to the Secretary of the Treasury of the United States within 30 days of the receipt of such request, all without expense to the United States. The United States, before offering any such bonds or interim receipts for sale in France, will first offer them to France for purchase at par and accrued interest if any, and France shall likewise have the option, in lieu of issuing any such bonds or interim receipts, to make advance redemption, at par and accrued interest, if any, of a corresponding principal amount of bonds issued hereunder and held by the United States. France agrees that the definitive engraved bonds called for by this paragraph shall contain all such provisions, and that it will cause to be promulgated all such rules, regulations, and orders as shall be deemed necessary or desirable by the Secretary of the Treasury of the United States in order to facilitate the sale of the bonds in the United States, in France or elsewhere, and that if requested by the Secretary of the Treasury of the United States, it will use its good offices to secure the listing of the bonds on such stock exchanges as the Secretary of the Treasury of the United States may specify.

8. Cancellation and surrender of obligations. Upon the execution of this agreement, the delivery to the United States of the principal amount of bonds of France to be issued hereunder, together with satisfactory evidence of authority for the execution of this Agreement by the representative of France and for the execution of the bonds to be issued hereunder, the United States will cancel and surrender to France at the Treasury of the United States in Washington, the obligations of France held by the United States.

9. Notices. Any notice, request, or consent under the hand of the Secretary of the Treasury of the United States, shall be deemed and taken as the notice, request, or consent of the United States, and shall be sufficient if delivered at the Embassy of France at Washington or at the office of the Ministry of Finance at Paris; and any notice, request, or election from or by France shall be sufficient if delivered to the American Embassy at Paris or to the Secretary of the Treasury at the Treasury of the United States in Washington. The United States in its discretion may waive any notice required hreunder, but any such waiver shall be in writing and shall not extend to or affect any subsequent notice or impair any right of the United States to require notice hreunder.

10. Compliance with legal requirements.-France represents and agrees that the execution and delivery of this agreement have in all respects been duly authorized and that all acts, conditions, and legal formalities which should have been com

pleted prior to the making of this agreement have been completed as required by the laws of France and in conformity therewith.

11. Counterparts.-This agreement shall be executed in two counterparts, each of which shall have the force and effect of an original.

In witness whereof France has caused this agreement to be executed on its behalf by Hon. Henry Bérenger, its ambassador extraordinary and plenipotentiary at Washington, thereunto duly authorized, subject, however, to ratification in France, and the United States has likewise caused this agreement to be executed on its behalf by the Secretary of the Treasury as chairman of the World War Foreign Debt Commission, with the approval of the President, subject, however, to the approval of Congress, pursuant to the act of Congress approved February 9, 1922, as amended by the act of Congress approved February 28, 1923, and as further amended by the act of Congress approved January 21, 1925, all on the day and year first above written.

THE FRENCH REPUBLIC,
By HENRY BERENGER,

THE UNITED STATES OF AMERICA,

For the World War Foreign Debt Commission:

Approved:

By ANDREW W. MELLON,

Secretary of the Treasury and Chairman of the Commission.

EXHIBIT A

[Form of Bond]

CALVIN COOLIDGE, President.

THE REPUBLIC OF FRANCE

$

No.

The Republic of France, hereinafter called France, for value received, promises to pay to the Government of the United States of America, hereinafter called the United States, or order, on June 15, 19 the sum of Dollars ($ ), and to pay interest upon said principal sum after June 15, 1930, at the rate of 1 per cent per annum from June 15, 1930, to June 15, 1940, at the rate of 2 per cent per annum from June 15, 1940, to June 15, 1950, at the rate of 21⁄2 per cent per annum from June 15, 1950, to June 15, 1958, at the rate of 3 per cent per annum from June 15, 1958, to June 15, 1965, and at the rate of 3% per cent per annum after June 15, 1965, all payable semiannually on the 15th day of December and June in each year. This bond is payable as to both principal and interest in gold coin of the United States of America of the present standard of value, or, at the option of France, upon not less than thirty days' advance notice to the United States, in any obligations of the United States issued after April 6, 1917, to be taken at par and accrued interest to the date of payment hereunder.

This bond is payable as to both principal and interest without deduction for, and is exempt from, any and all taxes, and other public dues, present or future, imposed by or under authority of France or any political or local taxing authority within France, whenever, so long as, and to the extent that, beneficial ownership is in (a) the Government of the United States, (b) a person, firm, or association neither domiciled nor ordinarily resident in France, or (c) a corporation not organized under the laws of France. This bond is payable as to both principal and interest at the Treasury of the United States in Washington, D. C., or at the option of the Secretary of the Treasury of the United States at the Federal Reserve Bank of New York.

This bond is issued pursuant to the provisions of paragraph 2 of an agreement dated April 26, 1926, between France and the United States, to which agreement this bond is subject and to which reference is hereby made.

In witness whereof, France has caused this bond to be executed in its behalf by its Ambassador Extraordinary and Plenipotentiary at Washington, thereunto duly authorized, as of June 15, 1925.

THE FRENCH REPUBLIC,
By

Ambassador Extraordinary and Plenipotentiary.

EXHIBIT 114

EXCERPTS FROM THE FIRST LIBERTY BOND ACT AND THE ACT OF JULY 9, 1918, AND ACTS OF FEBRUARY 25, 1919, AND MARCH 30, 1920, WHICH CONTAIN AUTHORITY FOR ACQUIRING OBLIGATIONS OF FOREIGN GOVERNMENTS

First Liberty bond act, approved April 24, 1917:

LOANS TO FOREIGN GOVERNMENTS

SEC. 2. That for the purpose of more effectually providing for the national security and defense and prosecuting the war by establishing credits in the United States for foreign governments, the Secretary of the Treasury, with the approval of the President, is hereby authorized, on behalf of the United States, to purchase, at par, from such foreign governments then engaged in war with the enemies of the United States, their obligations hereafter issued, bearing the same rate of interest and containing in their essentials the same terms and conditions as those of the United States issued under authority of this act; to enter into such arrangements as may be necessary or desirable for establishing such credits and for purchasing such obligations of foreign governments and for the subsequent payment thereof before maturity, but such arrangements shall provide that if any of the bonds of the United States issued and used for the purchase of such foreign obligations shall thereafter be converted into other bonds of the United States bearing a higher rate of interest than three and one-half per centum per annum under the provisions of section five of this act, then and in that event the obligations of such foreign governments held by the United States shall be, by such foreign governments, converted in like manner and extent into obligations bearing the same rate of interest as the bonds of the United States issued under the provisions of section five of this act. For the purposes of this section there is appropriated, out of any money in the Treasury not otherwise appropriated, the sum of $3,000,000,000, or so much thereof as may be necessary: Provided, That the authority granted by this section to the Secretary of the Treasury to purchase bonds from foreign governments, as aforesaid, shall cease upon the termination of the war between the United States and the Imperial German Government.

SEC. 3. That the Secretary of the Treasury, under such terms and conditions as he may prescribe, is hereby authorized to receive on or before maturity payment for any obligations of such foreign governments purchased on behalf of the United States, and to sell at not less than the purchase price any of such obligations and to apply the proceeds thereof and any payments made by foreign governments on account of their said obligations to the redemption or purchase at not more than par and accrued interest of any bonds of the United States issued under authority of this act; and if such bonds are not available for this purpose the Secretary of the Treasury shall redeem or purchase any other outstanding interest-bearing obligations of the United States which may at such time be subject to call or which may be purchased at not more than par and accrued interest.2

Senator HARRISON. I am sure that this committee appreciates Mr. Garvan's statement.

Senator WATSON. Very much, indeed.

Senator HARRISON. This afternoon we have two or three witnesses who will be here at 2 o'clock.

Senator WATSON. The committee will rise until 2 o'clock.

(Whereupon, at 12.12 o'clock p. m., a recess was taken until 2 o'clock p. m.)

AFTER RECESS

The Senate Finance Committee resumed the hearing at 2 o'clock p. m., Thursday, February 23, 1933, at the expiration of the noon

recess.

1 Sec. 2 of the second Liberty bond act, a amended, made an appropriation of $7,000,000,000 for the purchase of such foreign obligations, and in addition the unexpended balance of the $,000,000,000 herein authorized. See also secs. 2 and 3 of second Liberty bond act and secs. 7 and 8 of victory Liberty loan act. 2 See secs. 2 and 3 of second Liberty bond act.

Senator HARRISON (presiding). The committee has received from Mr. W. P. Sterns, Ph. D., of 1833 Lamont Street NW., Washington; D. C., an article which appeared in the Journal of Political Economy for September, 1898, entitled "A New Standard and a New Currency," also copies of two statements prepared by him recently dealing with the question of currency, which he desires to have published in the hearings. If there is no objection they will be incorporated at this point.

(The article and statements are as follows:)

A NEW STANDARD AND A NEW CURRENCY

In 1896 the people refused to sanction a currency policy that, in their opinion, would have resulted in silver monometallism and would have involved injustice to the creditor. May it not be a mistake to assume that this refusal was equivalent to a positive declaration in favor of gold monometallism, or that they would not as decisively reject any currency policy that seems careless of the rights of the debtor? Is it not probable that the policy that receives their positive sanction

I

O 3

FIGURE I.-Illustrating the organization of demand-deposit banks in the
United States

1. United States Issue Department, administered by the Comptroller of the Currency. 2. District clearing houses. 3. Associations. 4. Banks.

must not only provide every positive safeguard to the creditor, but must also afford the debtor every practicable facility for meeting his obligations? Such equal regard for the rights of both debtor and creditor is the purpose of the monetary system outlined in this article. An attempt will be made to set forth clearly and simply: (1) those measures intended to improve the media of exchange and facilitate the payment of debts in times of crisis; (2) those intended to provide for the stability of the standard and secure the rights of the creditor; (3) some general advantages to be gained by adopting the system.

1. The Government control of the proposed system will be through an issue department, of which the Comptroller of the Currency will be the administrative head. Bank checks constitute more than half of the media of exchange in the United States. It follows that there can be no effective regulation of the means of payment by the Government until all demand-deposit banks come under its control. To this end banks that organize under the new national system will be exempt from a tax on demand deposits that will be made high enough to cause all other banks to retire from business.

The deposits in the banks will then be converted into a means of payment, practically legal tender, but much more available than ordinary legal-tender money. This will be accomplished by requiring every bank to receive on deposit certified checks on, or checks on ascertained deposits in, any other bank in the

system, even though such bank has suspended payments. The clearing system that is to be introduced will quickly shift the burden of such payments from the individual banks to the banks as a whole.

But if the bankers are to suffer the losses arising from dishonest and inefficient banking, they should be given the power to prevent such banking. For this purpose a great part of the regulation of the banking business is entrusted to the banks. Every bank must belong to an association. The capital of the banks in each association must amount to at least $25,000,000. The central office of the association must be in some city of more than 50,000 inhabitants. Each association must be a member of some district clearing house. There will be six or seven of these district clearing houses, located by law in the most important business centers. Each bank will have one vote in its association; each associtaion one vote in its district clearing house. The association will regulate the business of banking among its banks, and its own administration subject to its district clearing house. The district clearing house will regulate matters common to all its associations and its own administration. The comptroller will have power to veto or revoke any regulation that grants special privileges to any bank or set of banks, and to decide controversies between district clearing houses and associations as to province of legislation.

Upon petition of three district clearing houses the President will appoint a special commission of inquiry as to regulations cited in the petition, which will have power to revoke such regulations if they are found to operate unjustly to the special advantage of any bank or set of banks. The organization of banks and their entrance into associations will be so regulated by law that every community that can support a bank will have one, and that monopoly in the business will be an impossibility. Figure I is intended to give a graphic representation of the organization of the banks. A glance will show that the banks in any association are not confined within territorial limits.2

The system of clearing will be regulated by law. Once every day each bank will send to its association all checks paid for other banks, and at the same time report the amounts of its reserve and deposits. The association will credit each bank with checks received from it and charge it with its own checks received from other banks. At 12 m. each day the association will report to the banks their balances and any change in reserve requirements. In each association city there will be located a representative of all other associations, whose business it will be to receive checks paid for the banks of those associations and officially acknowledge the debit for their payment. This official acknowledgment will be made by attaching his signature to the report telegraphed by the local association at 12 m. each day to its district clearing house giving the amount of its payments for other associations. The association will also report the amounts of the reserves and deposits held by its banks. Each district clearing house will forward to the others the reports of payments made for their respective associations as fast as they are received. Such reported payments will be cleared and the balances reported to the associations at 1 p. m., together with any new requirements as to reserves. They will at the same time report to the issue department net payments made for other districts and amounts of deposits and reserves in their own district. The issue department will clear these payments and report balances and new reserve requirements to district clearing houses at 2 p. m. All balances, less required reserves, will be subject to check the same as deposits. Figure II illustrates the operation of such daily clearings among as few banks as could be organized under the proposed plan. The district clearing houses must keep on deposit in the issue department for the payment of balances at least 1 per cent of all deposits in their respective districts. This requirement can be increased at any time by the comptroller.

The long accepted principle of uniformity of the currency will be adopted. Metals will not be used unless for small change. The currency will be restricted to the United States demand notes of the issue department. These will be a legal tender for all debts, public and private. All money, including gold and silver, now legal tender will cease to be so. But United States coins and demand obligations of the United States will be redeemed by the issue department in United States demand notes, if presented before a designated date. These notes may also be obtained from the issue department in exchange for either gold or silver, without

A bank will not be required to honor checks on such deposits to more than one-half the amount of its reserves till the deposited check has been cleared. The system of clearing to be introduced makes the time required for this purpose very short. Some officer of evey bank, even though suspended, will be required to certify to deposits on request. Banks may change their association if such change is acceptable to the Comptroller and to the association :hey wish to enter. An association can change its district clearing house under like conditions. It is expected that local clearings will be made before this report to the association.