fers may be made among all the federal reserve banks, between any federal reserve bank and any federal reserve agent, and between any federal reserve bank or any federal reserve agent and the treasury or any sub-treasury of the United States.

By means of the gold settlement fund, and of the other transfer facilities of the federal reserve banks, these banks are now enabled to make telegraphic transfers of funds to any part of the United States for their members without any charge whatever. They have also been able to inaugurate a system of federal reserve exchange drafts, according to which a member bank may draw special drafts on its federal reserve bank for amounts not exceeding $5,000, which are receivable for immediate availability at any other federal reserve bank.

The gold settlement fund system of transfers has almost eliminated the necessity of shipping money (other than federal reserve notes) between federal reserve banks. On September 12, 1919, that fund amounted in round numbers to $538 millions, while the federal reserve agents' fund amounted to $854 millions, making a total of $1,392 millions. The combined clearings and transfers for these funds sometimes amount to over a billion dollars in a week. These opera

tions involve very small changes in the ownership of gold in the funds, sometimes less than 2 per cent of their amount.

The federal reserve clearing and collection system is therefore providing a means of eliminating the evils of the old system. Excessive collection charges are rapidly becoming things of the past. Banks are enabled to dispense with the necessity of tying up large sums in scattered deposits with correspondent banks at low rates of interest for the purpose of securing for themselves adequate facilities for the collection of checks. These deposits can now be brought home and the funds loaned out at much better interest rates. The routing of checks is being eliminated and the "float" is being greatly reduced, all of which are important gains to the public. Heavy currency shipments are avoided, and the expenses of a large part of the currency shipments that do take place are assumed by the federal reserve banks for the member banks. These economies that are being realized by the new system are an important factor in the forces that have made possible the recent great reduction in the reserve requirements of American banks, a reduction which involves a saving of many millions of dollars annually.

Foreign Exchange

The federal reserve law has brought about important reforms in the matter of financing our foreign trade. The rediscount machinery created by our twelve federal reserve banks is doing much toward developing an American discount market. This development is being expedited by the heavy demands for American funds on the part of foreign nations, caused by the war and by the disruption of foreign money markets. Much of our foreign trade that was formerly financed through letters of credit, under which bills expressed in sterling were drawn, is now. being financed directly by means of dollar exchange, namely, bills drawn on banks and business houses in the United States and payable in dollars. Banks are willing to buy such paper drawn in connection with our import and export trade, because there is now a ready market for its sale and rediscount-a market created largely by the federal reserve system. Furthermore, bank acceptances in connection with foreign trade are now legalized in the United States, under certain restrictions, and importers may now arrange with American banks to have their foreign exporters draw bills in dollars directly on the importer's bank on the United States; while foreign importers may open credits in

American banks upon which American exporters may draw, the bills being accepted by the American bank and sold in the American discount market.

Federal reserve banks have established agencies abroad, in England with the Bank of England; in France with the Bank of France; in the Philippines, with the National Bank of the Philippines; in Italy with the Bank of Italy; in Japan with the Bank of Japan; in Sweden with the National Bank of Sweden; and in Norway with the Bank of Norway. The foreign exchange division created by the federal reserve board in December, 1917, rendered valuable service during the war in stabilizing exchange both with our allies and with neutrals.

Under the provisions of the federal reserve act, national banks with a capital and surplus of a million dollars or over may be authorized under certain restrictions to establish branches abroad; and many such branches have already been established. National banks may furthermore invest to an amount not exceeding 10 per cent of their capital and surplus in the stock of banks chartered in the United States and principally engaged in international or foreign banking or banking in American dependencies, or engaged in such phases of international or foreign finan

cial operations as may be necessary to facilitate our foreign export trade. In this way a number of banks have been established which are owned either wholly or in part by groups of national banks.

In order to encourage American trade and the investment of American capital in foreign enterprises, there was added to the Federal Reserve Act on December 24, 1919, an important amendment popularly known as "the Edge Amendment."1 This amendment authorizes the organization of corporations "for the purpose of engaging in international or foreign banking or other international or foreign financial operations." The field of operation extends to insular possessions of the United States. Corporations organized under this amendment may conduct their business either directly or through the agency, ownership, or control of local institutions abroad. They may not carry on any part of their business in the United States except such as, in the judgment of the Federal Reserve Board, shall be incidental to their international or foreign business. The minimum capital of these corporations is $2,000,000. In addition to the right of receiving deposits outside of the

1 The amendment is given in full as Sec. 25 (a) of the Federal Reserve Act. Appendix, p. 161.