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Elastic Currency 
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)
                    

Money which can be expanded or contracted according to commercial needs.  ELASTICITY is one of the essential qualities of a good medium of exchange, and a sound currency system should provide this characteristic.  Before the Federal Reserve Act our currency system failed to provide for an elastic currency, but Federal Reserve notes, issued under the authority of the Federal Reserve Act, now supply the elastic element which is lacking in other forms of U.S. currency.  Since Federal Reserve notes now represent the largest portion of our circulating medium, elasticity is imparted to the entire circulation.  Elasticity is secured by basing the volume of circulating medium upon the volume of credit.  Federal Reserve notes expand as business expands, as indicated by increased turnover of member bank deposits and demand for currency to meet withdrawals by drawing on free balances (excess reserves) at the Federal Reserve banks.  Likewise when business contracts, the volume of currency in excess of till requirements is turned in, excess reserves are increased, and the excess of Federal Reserve notes is withdrawn from circulation.


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