The Federal Reserve Bank Offer

As it was presented in 1913

In 1909, the parties that had bought up most of the Corp. U.S. bonds (which came due in 1912) began the formation of the Federal Reserve Bank (hereinafter “FRB”).  When those bonds came due in 1912, Corp. U.S.’ Congress believed the FRB founders had created the FRB for the purpose of establishing a reserve for supporting future loans for Corp. U.S.  However, though the FRB of 1913 had plenty of money (gold and Silver coin minted by the United States of America Mint), it was not willing to loan any money to Corp. U.S.  Instead they offered that if Corp. U.S. wanted to learn about the FRB’s offer they would have to come down to Jekyll Island, off the cost of Georgia, to find out about it.

The Jekyll Island deal was this: the FRB would not loan money to Corp. U.S.  However, if Corp. U.S. could get the people to use the FRB’s ‘Federal Reserve Notes’ (hereinafter “FRNs”) as if they were money, then the FRB would provide Corp. U.S. the use of such FRNs for an annual usage rate.  In other words, Corp. U.S. could rent the FRNs at a specific rate related to the arbitrary value printed on the face of the so called notes.  The deal included that the rental rate would only accrue so long as the note was in circulation and it would then be due and payable.  The FRB also offered the following incentive, they guaranteed that if Corp. U.S. could get the people to accept these notes in circulation as if they were money, the FRB would guarantee their exchange by redeeming the notes from the people at their face value in United States of America gold or silver coin money.  Thus, so long as the notes remained in circulation, the rent accrued; and, until the rent was paid it compounded with interest at the same rate as the rent accrued.

Corp. U.S. accepted the offer.

To understand the deal lets take a closer look: it works a lot like a car loan (rental) where the car is borrowed at the specific rate agreed upon.  You pay the rate of the rental agreement and you get to keep the car for the term of the agreement.  In the case of the FRB’s rental of their FRNs, Corp. U.S. could borrow the notes, which had a specific face value printed on them, and the rental rate was set respective of that value at the time of the agreement.  Let’s say the rental rate was set at 3%.  That means that as long as Corp. U.S. keeps those specific FRNs, they have to pay 3% of the notes’ face value per year.  Thus, if they were to borrow $100,000.00 total face value in FRNs for a day, they would have to pay $8.22 cents in rental costs for the use of those FRNs for that day.  If they were to hold such notes for a year, they would have to pay, $3,000.00 in rental costs for the use of the notes.  Corp. U.S. could return the FRNs at any time and would only have to pay the agreed upon rental fee for the time the notes were held or were in circulation.  The deal also included the provision that if the people were to turn the notes in to the FRB, it would redeem the notes for their face value in real money paid to the people that returned the FRNs.

In 1913, that was all there was to it.  The notes were rented into circulation much like a car is rented.  As you can see, this appears to be a very good deal for Corp. U.S.

Close Window