That is, they receive deposits, loan money, and buy and sell
drafts in the ordinary course of business. In addition, these banks are
given the right "to issue notes." In doing this, the bank first buys on
the market a certain amount of United States bonds; these it sends to
the Treasury at Washington and leaves there on deposit. The bank will
then receive from the Treasury "National bank notes" equal in amount to
the face value of the bonds deposited. These notes say that "The
National Bank of ---- will pay the bearer $----, on demand." Now, the
bank may fail, i.e., it may not be able to pay what it owes to its
depositors and other creditors. But the holders of National bank notes
will not suffer loss. For the Treasury will sell the bonds and thus
obtain cash with which it can redeem the notes held by individuals.
The amount of Treasury notes of 1890 is comparatively small, and this
kind of money is destined to disappear within a few years.
SUPPLEMENTARY QUESTIONS AND REFERENCES.
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