Page:Stabilizing the dollar, Fisher, 1920.djvu/187

. 1, H] of 2½% per year, which, let us assume, would require a yearly increase in the dollar's weight of about 2½%. From this figure we can calculate the time required to double the dollar's weight, and to reduce by half the number of dollars in a given physical reserve. This would be twenty-eight years.

This result assumes a gold reserve unchanged physically. As a matter of fact, the reserve would increase slightly. While the effect of the system would be to keep gold out of the country, this effect would stop short of sending it out, for that would contract the certificate circulation and, unless some special opposing cause intervened, reduce the price level. The displacement effect would stop at the point which would maintain the price level, and this, in a growing country, would admit of a slight inflow which would bring the twenty-eight years mentioned up to thirty or thirty-five.

H. A Constant 50% Reserve and a Variable Surplus. A third method would differ from the second, as described in "D" above, only from a bookkeeping point of view. There would be some advantage in separating off any surplus gold above the legal 50%. This "surplus" would then be considered as a secondary reservoir out of which the "reserve" proper could be maintained at a constant level of 50%. Reversely, whenever this "reserve" should tend to exceed 50%, the excess would overflow into the "surplus." The "reserve" proper would then be maintained at an unchanged ratio at all times.

We may, for convenience of thought, suppose the "reserve" and the "surplus" to be kept physically apart in two separate vaults in the Treasury and every week, or every day, the Treasury accounts to be squared off and gold physically transferred between the two rooms, in whichever direction it might be needed to keep the "reserve" at 50% and no more. We should then have a "reserve" the amount of which (in dollars, not weight) would always be 50% of outstanding certificates, and a "surplus" which would represent all above