Difficult for individuals to redeem in practice

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difficult for individuals to redeem in practice, especially those of the West and the South. The Second Bank had the clout to keep the banking system in line, as it had demonstrated first in 1816–1820 and later in 1828. Access to credit at the Second Bank could mean the difference between success or failure for a regional bank suffering from a seasonal liquidity shortage, as had happened in 1825. And because it had branches throughout the country (where banknotes could be redeemed), its banknotes traded widely and had gradually displaced the notes of competing regional banks. For these reasons, the Second Bank had more than a few opponents in the financial industry, including those in New York who were jealous that the country’s premier financial institution should be headquartered in Philadelphia. Though the Second Bank was essentially just a large commercial bank with few of the powers associated today with central banks, it was the first institution to acquire the kind of nationwide influence in its industry that would cause the railroad, steel, and oil companies to draw criticism in the 1890s. It did not help that foreigners owned more than a quarter of all the bank’s outstanding shares. The head of the Second Bank, Nicholas Biddle, aimed to resolve the conflict between the bank and President Jackson by asking for a decision on the bank’s recharter in 1832, long before the existing charter’s expiration in 1836. The bank was at the time very popular, and public sentiment sided with a recharter. Congress passed the re- charter bill, but Jackson vetoed it and Congress was not able to muster a sufficient majority to override the veto. Though the bank still had four years on its charter, it was a lame duck. Jackson moved immediately to curtail the activities of the Second Bank, including its ability to restrain the overissuance of banknotes by regional banks through redemption. The Jacksonians claimed that they were trying to defend the in- tegrity of the dollar from the manipulations of the Second Bank, but they had other things on their mind as well. In 1834 the economy was in recession. Not only that, the original bimetallic silver/gold ratio of 15:1, determined in 1792, was out of alignment with the Money in America 47
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bimetallic ratios of European countries and market values. France used a ratio of 15.5:1, and the market ratio was about 15.625:1. This tended to cause transactions to be undertaken in silver. In 1834, Congress changed the ratio to 16:1, although not by increasing the silver parity of the dollar, but by reducing the gold parity. In effect, the act was a small devaluation, and dropped the official gold value of the dollar from $18.65 per ounce to $20.67 per ounce, where it stayed until 1933. Because it was relatively cheaper than silver, gold became the primary basis of the bimetallic dollar. The United States was following the lead of Britain, which had begun gold monomet- allism in 1816.
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