Reserve Bank's Foresight

Obviously, the new rediscount rate has not been established for the reasons which prompted its advance from 4 to 4 3/4 in November, 1919. The gold position of the Reserve system was then seriously endangered; now it is tremendously strong, its ratio of gold to notes and deposits being at present 75.8% and 79% for the New York Bank. Yet we now have too much gold for our own good, and much of our present stock of the yellow metal should be re-exported as soon as circumstances will allow, lest either lack of financial foresight or uneconomic legislation bring on another unsound inflation of American credit.

In explanation of the increase in rate, the Bank authorities stated that its purpose was to get the New York rate in line with the rates of the other Reserve Banks, which have remained for some months at 4 1/2%. Such a realignment of Reserve rates has recently become desirable, for since the beginning of the year Reserve loans in New York had increased $58,000,000, while loans of the other eleven Banks had decreased $180,000,000. Moreover, while the ratio of the whole system rose from 72.1 to 75.8%, the New York Bank ratio fell from 80 to 75%. Already the latter ratio has stiffened to 79% under this equalization of rates.