irculating notes (essentially of the old style) called Federal
reserve bank notes, or may receive 3 per cent bonds not bearing the
circulating privilege.

The new kind of notes provided by the act are called Federal reserve
notes. They are not secured by the deposit of government bonds, but
they are secured beyond all question in other ways. First, they are
obligations of the United States receivable for all taxes, customs,
and other public dues, and are redeemable in gold on demand at the
Treasury of the United States. Secondly they are receivable by all
member banks in the twelve districts and by all Federal reserve banks,
and redeemable by the latter in gold or lawful money (which includes
greenbacks and gold and silver certificates). Thirdly, their credit
and prompt redemption is insured by certain elastic rules as to
reserves in gold which must be kept for the redemption of outstanding
notes. Fourthly, they are secured by collateral, consisting of notes
and bills accepted for rediscount from member banks, which must be
deposited by a Federal reserve bank with the Federal reserve agent of
its district, dollar for dollar for every note it receives. Fifthly,
the notes become "a first and paramount lien on all the assets of the
bank." This is what gives the notes their character of asset currency.
It is evident that the notes unite in a manner without example
the characteristic of asset bank notes with the characteristics of
political paper money.[7]

No notes, it will be observed, are issued by or on request of the
member banks, but only on request of a Federal reserve bank. After the
notes have been issued, the bank may reduce its liability any day by
depositing lawful money with the Federal reserve agent who is right
there in the bank. The Federal reserve banks and the United States
Treasury must promptly return to the banks through which they were
issued all notes as fast as they are received, and "no Federal reserve
bank shall pay out notes issued through another on penalty of a tax of
ten per centum." The regulations do not apply to the member banks,
but their effect must be to keep notes from circulating long in any
district except that for which they were issued.

Sec. 5. #Reserves against Federal reserve notes.# The rule applying in
normal times to reserves against note issues is that each bank must
provide a reserve in gold equal to 40 per cent "against the Federal
reserve notes in actual circulation, and