The Importance of Acceptances and High Grade Commercial Paper to the Maintenance of a System, Which More Than Anything Else, Furnishes a Basis for Establishing the National Ideal of a Liquid Currency The introduction of the Fereral Reserve System prepared the way for the re-introduction of the trade acceptance and for the creation of the bank acceptance in this country, and established an open discount market for high grade commercial paper.

The expression "open market" was one with which comparatively few bankers in the country were familiar at the time of the passage of the Act. They were acquainted with existing methods as previously used and were satisfied with them. They did not desire any central authority to regulate their operations, as they believed the Federal Reserve Board would do.

The Act, the passage of which was the result of a time-worn call for banking reform, had as its ultimate purpose the establishization of a sound financial credit system.

This, the Board sought to bring about through the standardization of commercial paper, according to the nature of their origin, and by the selection of the best classes of such paper, to create a continuous market for them. The purpose of the present chapter is to outline the essential features of an open discount market and the advantages of such a market to the commercial, financial and public interests of the country.

Functions Of The Discount Market. The Open Discount Market. Importance Of A Discount Market To Efficient Banking System

The mobility of reserves is a necessary complement of a good banking system. The European countries have found from experience that the efficiency of their banking systems is dependent mainly upon the maintenance of a wide and highly developed discount market. They realized still further the importance of such a discount market in that it could act as a regulator of the banks, as well as the countries' cash and investment position, and maintain a state of liquidity of their assets.

The Discount Market As A Reservoir Of The Country's Funds

A discount market, for the reason that it gathers together the funds of the investing classes of the country, viz., of the commercial, investing and savings' banks, private bankers, trust funds, corporation funds, funds of insurance companies, paper brokerage and discount houses, and investors of all classes, is capable of being a reservoir for the available reserves of the country. Above all, the banker and business man wants to be assured that he can get money, other things being equal, when he wants it. If he knows that there is money to be obtained with ease by utilizing his commercial paper holdings, he will be encouraged to invest his funds in standardized commercial paper.

Performs Functions Of Buyer And Seller

A discount market performs the functions of both buyer and seller. It brings together the party who has money and the party who seeks it, and provides a means whereby funds which are needed may be obtained, as well as gives employment to such funds. A discount market should be wide enough to afford these facilities to the buyer and seller at all times.