At the other extreme of view have been those who consider bank notes to be essentially of the nature of political money.  If they are so, it is argued, the power of issue should not be exercised by any but the sovereign state.  In this view it is overlooked that bank notes, unlike inconvertible paper money, depend for their value on the credit of the bank, not on their legal-tender quality and on political power.[11] They must be redeemed on penalty of insolvency; government notes need not be, and yet will circulate at par if properly limited.  Adequate provision for the prompt return and redemption of bank notes makes them “elastic” in their adaptation to monetary needs, which fluctuate with changes in commerce and industry from season to season and even from day to day.

The predominant opinion to-day is that in their economic nature bank notes share to some extent the character both of private promissory notes and of political paper money.  They stand midway between the two.  Everywhere it has come to be held that the issue of paper money of any kind is in its nature a public monopoly, and yet everywhere the bank note policy has come to be that of permitting the issue only to certain institutions, under strict public legislation and regulation, and of requiring in return for this privilege some substantial services or payments to the government.

Sec. 11. #Banking credit as a medium of trade.# The credit which, in five ways, banks sell (see above, section 3) serves, in most cases, the purposes of money to their customers.  This is least true of time deposits, for the motive of the depositor in such cases is usually to invest his funds for a time rather than to keep them available as money.  However, there are many cases in which persons save for some moderately distant use—­such as the purchase of furniture, of a piano, of a house.  The safety and convenience of time deposits, combined with the reward of a small rate of interest, cause great sums, in the aggregate, to be deposited as temporary savings, which otherwise would be hoarded in the form of money and thus withdrawn from circulation.  In all such cases the time deposit is serving both as an investment and as a monetary fund for future use.  This is a great economy in the use of money, for experience shows that in the savings banks of America the average reserves of actual money kept against deposits are only about 1-1/2 per cent.  In countries where banks are little known, the amount of actual money hoarded is therefore vastly greater than it is in the United States where there are $5,000,000,000 of individual deposits in regular savings banks, besides large sums in time deposits in commercial banks.