guaranteed by the short-term bonds, discounted by the State Bank."
Should this proposal be accepted, Russia would be embarking upon a policy of regulation of paper money issue that would be very much similar to the National Bank system of the United States. The analogy is almost perfect, when we recall that the circumstances under which the United States established the National Banks as the banks of issue in the country, are almost identical with those which obtain in Russia to-day. Then, as now, it was a question of providing means of floating government bonds, the proceeds of which were imperatively required in order to cover war expenses. And then, as now, government indebtedness was laid down as the foundation of the country's supply of paper currency.
In embarking upon such a policy, it is more than advisable to bear in mind the story of the American system, its lack of adaptability to the business conditions of the country after the exigency of the war situation is over, and its final rejection in favor of the much more elastic and convenient system, introduced by the Federal Reserve Act. But there seems to be no doubt that, as an expedient, the plan can be utilized to great advantage. Fiat money is a dangerous institution, and often leads to financial disasters. But paper money, guaranteed by government bonds, has a much better chance of preserving the credit of the government above the point to which fiat money is likely to pull it.
There is another feature of the paper money situation which deserves attention. So far, we have considered only the State Bank and its facilities for keeping the exchange value of Russian money from falling too low. We have not taken into account at all the commercial banks of the country, which are also very powerful and have at their disposal means of aiding the preservation of the money standards of the country. The strength of these banks becomes perfectly apparent when we recall that on June 14, 1915, the total amount of deposits held by them was 3,308,200,000 roubles. With these colossal resources at their disposal, the commercial banks of Russia ought to be able to consummate a whole series of financial deals outside of the country, which would tend to raise the exchange value of the Russian money, which unfortunately has now fallen very much below the normal. Moreover, an alliance of the largest commercial banks might be powerful enough to extract from
