Aldrich-Vreeland Act
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The Aldrich-Vreeland Act of May 30, 1908, was passed in response to the Panic of 1907 and established the National Monetary Commission, which recommended the Federal Reserve Act of 1913.
The act also allowed national banks to start national currency associations in groups of ten or more , with at least $5 million in total capital, to issue emergency currency. These bank notes were not to be backed by just government bonds, but also just about any securities the banks were holding. The act proposed that this emergency currency had to go through a process of approval by the officers of these national currency associations, and then once approved were distributed by the Comptroller of the Currency. However, it is possible that because there was a 5 percent tax placed on this emergency currency for the first month it was "outstanding" and a 1 percent increase for the following months it was "outstanding," no bank notes were issued. Another possible explanation why the emergency currency never issued might have been because it wasn't necessary to do so. [1]
Congress modified and extended the law in 1914 when British and other foreign creditors demanded immediate payments, in gold, of amounts which would ordinarily have been carried over and paid through exports of commodities.
Nelson W. Aldrich was largely responsible for the Aldrich-Vreeland Currency Law, and he became the Chairman of the National Monetary commission. Furthermore, the law permitted Senators and congressmen to become involved in the affairs of banks.
A usage of the law occurred at the outbreak of the World War I in 1914 when the first great financial panic of the twentieth century befell the world, necessitating the closure of the New York Stock Exchange. Secretary of the Treasury William Gibbs McAdoo appeared in New York City and assured the public that ample stocks of emergency bank notes had been prepared in accordance with the Aldrich-Vreeland Act and were available for issue to the banks. As of October 23, 1914, $368,616,990 was outstanding.
The Federal Reserve Act of December 23, 1913 took effect in November, 1914 when the 12 regional banks opened for business. Ultimately the emergency currency issued under the Aldrich-Vreeland Law was entirely withdrawn.
- ^ Wells, Donald. The Federal Reserve System: A History. Jefferson: McFarland and Company, 2004.
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