up, whether we need it or not, to a certain measure of our 2 per cent bonds. But it can not get up any further; and it practically can not come down. Nor, under our system, can ordinary transactions of business go forward uninterrupted in a time of stress and strain. And yet the final test of a banking and currency system is that the ordinary banking facilities needed by business shall be provided at all times and under all circumstances. NATIONAL CURRENCY ASSOCIATIONS. During the past summer and autumn I have encouraged the national banks of the country to avail themselves of the provisions of the Aldrich-Vreeland bill to form national currency associations, giving themselves the opportunity without any delay to issue currency in case of need. Many of the banks of the country became interested in this policy, and now these associations have been formed in many parts of the country, including Washington, D. C.; Georgia, at Atlanta; Boston; New York City; Louisiana, at New Orleans; Philadelphia; Chicago; St. Paul and Minneapolis; Detroit; and St. Louis. Others are in process of formation. NATIONAL BANKS. The administration of our relations with the national banks has continued to show steady improvement. The Government is getting more and more of its rightful supervision and control of these banks; and is distinctly aiding the officials of the better banks and is as distinctly protecting the communities against the vicissitudes of the others. The body of bank examiners is being gradually overhauled. The reconstructed force is being educated and trained and the esprit de corps is becoming excellent. Politics has been practically eliminated from the office of the Comptroller of the Currency. He who enters that service leaves politics behind. The developing and perfecting of these relations between the Government and the national banks can go on without reference to the impending banking and currency reform by Congress. Whether that reform should materialize soon or late does not concern the need of this better supervision and control. The banks will remain in any case, and the need of Treasury supervision and control will continue permanently. If, however, the general reform of our banking and currency system is not to be immediate some things which would be appropriate to the laws incorporating that reform ought, it seems to me, to be provided for at once. National banks abroad. For example, there is a clear need of American banks in foreign countries where American commerce needs banking facilities. The American banking system is therefore obliged to develop itself so as to perform this necessary international function. We are already doing a large trade with foreign countries, but we are to make this trade much larger, and especially in many countries where we now have little or no trade. Our trade must become much more general in the articles dealt in, and much more general in the markets we deal in. Now, there can be no doubt that we shall never be internationally a full-fledged commercial nation until we have merchant ships of our own and foreign banks of our own-a free supply of ships of our own and a free supply of banks of our own. We should have banks at all ports that are important to our commerce. And, of course, there is no reason why we should not have them if we wish them. And if we are to have banks doing a foreign business, what banks are more entitled to the opportunity, or what banks are better fitted, owing to governmental supervision and control, to afford real and reliable. facilities to our commerce than the national banks? Under present laws they can not engage in this necessary international undertaking because they are not allowed any kind of branches. But there is no reason that I know of why Congress should not make the national banks competent to do this foreign business-for the question of home branch banking is not involved in it at all. There is no administrative difficulty in the way and there is no principle of banking or political economy in the way. And as this is an opportunity that could be and would be availed of immediately and is needed immediately, and as it is detachable from the question of general banking reform, I do not see why the Congress should not pass upon the matter now. The larger scope of national banks. Other questions of importance to the national banks, and which might very well be considered independently of general banking reform, might wait at least a reasonable time upon the fortunes of the general issue. The national banks, compared with state banks, are much restricted. They started restricted. The men who started them did not mean really all they performed in the actual establishment of a great banking system. They builded better than they knew. We have in the national banking system a great institution and one whose usefulness is susceptible of great development. It carries, however, the marks of its imperfect inauguration. It is, in some respects unnecessarily, tied hand and foot. It can not, as I have pointed out, do international banking; and it is restricted closely as to the kind of domestic banking it can do. It can not, on anything like an equal footing, do the business the savings banks do, useful as that function is. It can not do the business the trust companies do, though the trust companies can turn from their trust business to become competitors of the national banks in their own restricted field of commercial banking. But why a national bank should not do all kinds of legitimate banking it is hard to say. If trust business in itself is safe-and it is essentially as safe as a rock-there is no reason why a national bank should not do that work as well as a state bank. And if the business of trust companies is of importance to the nation, then it would certainly be no disadvantage to let it be conducted under the supervision and control of the Federal Government. And if it is important to the country to develop the savings bank business and to put it more and more on a footing of absolute security, then it might be very well to have a part of it at any rate under the supervision and control of the Federal Government. RELATIONS OF THE DEPARTMENT WITH BUSINESS COMMUNITIES. The relations of the Treasury Department with the business communities are still quite artificial, unbusinesslike and burdensome. Unbusinesslike, I say, because unlike any business done by anybody else, governmental or private. I beg to call the attention of the Congress to a few of these matters that clearly ought to be set right, and which could be set right after the briefest consideration, for everything involved in them is palpable. Take, for instance, the payment of revenue to the Government. Why should an archaic regulation be permitted to continue that requires these payments to be made in actual currency-and in only particular kinds of currency at that? There is no serious practical danger in taking a certified check. All of the similar business of the country is done by checks, many not even certified. The certified check is considered the highest form of payment. The Government probably would not lose a penny in a thousand years by making this change; and in making it, the immense convenience of large fractions of the business public would be conserved-and the convenience of the Government almost equally. We are already doing things in the subtreasury cities-and in other cities-to avoid some of this hardship. For some time now the Treasury Department has allowed banks in New York to deposit every day certain actual money at the subtreasury, and the collector of customs takes orders drawn by the cashiers of those banks up to the amount of the deposit, on the theory that as the money is on deposit at the subtreasury it is actually paid, in accordance with the law, to the collector. And I have recently extended that privilege to all subtreasury cities. But in addition to such accommodation of the practical difficulties of customs payments it has long been true that internal revenues have, in some cases from actual necessity, been paid in checks at the risk of the collectors. That should be all wiped out, and certified checks of national banks should be universally received under such restrictions devised by this department as will completely safeguard the Government from all danger of loss. GOLD CERTIFICATES FOR BULLION AND FOREIGN COIN. At the last session of Congress I recommended that gold certificates be issued against foreign coin and bullion, but no favorable action was taken. As the law now stands gold certificates may be issued only against United States coin. The proposal that the Treasury be authorized to hold gold bullion and foreign gold coin as security for gold certificates offers several advantages. It would add to the facili ties of our great financial centers as free markets for gold by furnishing a better opportunity for bankers and dealers in exchange to secure or dispose of gold bars and foreign gold coin than has existed hereto fore. In the leading financial centers of Europe the large financial institutions, such as the Bank of England, the Bank of France, and the Reichsbank, count as part of their reserves, along with the domestic coins, foreign gold coin and also gold bullion, and the change contemplated by this proposal is intended to bring our arrangements in these matters into line with the policies of other countries. The main advantage of the proposal, however, is in the reduction of unnecessary coinage operations in our mints. During the last twenty years there has been imported into this country $374,000,000 in foreign gold coin, and of this amount $310,000,000 was deposited at the mints for recoinage. In the meantime $766,000,000 of the United States gold coin has been exported. The $310,000,000 of foreign gold coin was recoined at our mints at the expense of our Government, while more than double that amount of our own money was exported during the same period. The coinage of $310,000,000 of foreign gold coin into American coin must have cost at least $800,000, or $40,000 per year. We have now some $940,000,000 in gold coin stored away in the various subtreasuries and mints, the greater part of which is a reserve against gold certificates that in all likelihood will never be presented for redemption in coin. In the majority of cases where gold certificates are presented in large quantities for redemption it is for the purpose of securing gold bars, yet we continue to coin each year nearly $100,000,000 in gold at an annual cost of somewhere between $200,000 and $300,000. If gold certificates might be issued against this gold bullion the major part of this cost could be saved without in any way impairing the redeemability of the certificates, and at the same time bankers and exchange dealers would be in a position to secure bars, which they prefer for purposes of export, with greater promptness and less expense. In view of the fact that America produces nearly $100,000,000 in gold per year and that the inevitable drift of gold must be from America, it is peculiarly reasonable that a considerable part of the gold which we produce should not be transformed at once into coin. The plan contemplated offers abundant safeguards against the excessive reduction of the deposits of United States gold coin held against the certificates, in requiring that the amount of gold bullion so held shall not at any time exceed one-third of the total amount of gold certificates at such time outstanding and in providing that the receipt of gold bullion and foreign gold coin shall always remain at the discretion of the Secretary of the Treasury. POSTAL SAVINGS SYSTEM. The preliminaries in the case of the postal savings system will very soon have been sufficiently considered and adopted to permit the system to be put into actual operation. The economic effects of this new bank upon the operations of the Treasury and upon the general finances of the nation will be observed with great interest. SINKING FUND. I beg to call the attention of the Congress to the matter of the sinking fund. The sinking-fund law has fallen into neglect. It should be revised to a point where it can be obeyed. It is impossible to carry out the law as it is, for the Treasury Department has not at present any funds with which to pay off its debt. Presumably, I should set aside 1 per cent of the debt; and Congress has made a permanent appropriation for this purpose, but it does not furnish the money with which to carry it out; and the sinking-fund law has been not exactly a dead letter but a dead-and-alive letter for nearly forty years. It is not pleasant to continue this present situation, and it is not necessary in the least that it should be continued. Very little legislation would make the matter right; and I commend to Congress the suggestion that it make the sinking-fund law conform with the actual facts of the Government's finances. CUSTOMS SERVICE. The improvement in the customs service has continued to receive a large amount of attention. The sugar frauds were found to be much further extended than was at first supposed. They were found to cover in one form or another nearly all of the sugars coming into the port of New York. The total recovery of unpaid duties mounted up |