Money and Banking in Canada

Money and Banking in Canada

EDITED AND WITH AN INTRODUCTION BY E. P. NEUFELD
Copyright Date: 1964
Pages: 385
https://www.jstor.org/stable/j.cttq47h9
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  • Book Info
    Money and Banking in Canada
    Book Description:

    This collection of original documents, contemporary commentaries and articles outlines the major developments in the history of money and banking in Canada.

    eISBN: 978-0-7735-6053-6
    Subjects: Finance

Table of Contents

  1. Front Matter
    (pp. [i]-[vi])
  2. Table of Contents
    (pp. vii-x)
  3. Introduction
    (pp. 1-8)
    E. P. NEUFELD

    Canada’s earliest monetary history repeatedly reveals a woeful scarcity of a medium of exchange for settling transactions in ordinary domestic trade, and it also reveals varied attempts of government to resolve the problem. The use of playing-card money in French Canada, serving both fiscal and currency purposes, was important for about sixty-five years until 1763, and was remarkably successful in peacetime–as Lester’s article (p. 9) clearly shows. Yet for decades Canadian bankers used that experiment as an example of the results to expect when government interfered with management of the currency.

    After 1763 acute scarcity of reliable currency continued,...

  4. PART ONE: PRE-CONFEDERATION PERIOD
    • Playing-Card Currency of French Canada
      (pp. 9-23)
      RICHARD A. LESTER

      Like the English colonies to the South, the French colony in Canada early used both farm produce for money and the expedient of raising the official rating of silver coins above their rating in the mother country. At various times wheat and moose skins were legal tender for the payment of debts in Canada.¹ Payments were also made in beaver skins, wildcat skins, and in liquor. Among traders in some outlying districts, accounts were even kept in terms of wildcat skins, a blanket being priced at eightcats. As late as 1740, for example, the accounts of the storekeeper at...

    • Currency Regulations, 1796
      (pp. 24-27)

      Whereas it will tend to prevent the diminution of the Specie circulating in this Province, that the same be regulated according to a Standard that shall not present an Advantage by carrying it to the neighbouring Countries, and whereas by the Ordinance now in force for regulating the Currency of this Province, an Advantage does arise by carrying Gold Coin out of the same, be it therefore enacted by the King’s most excellent Majesty, by and with the advice and consent of the Legislative Council and Assembly of the Province of Lower-Canada, constituted and assembled by virtue of and under...

    • The Canadian Banking Company
      (pp. 28-29)
      JAMES STEVENSON

      Although the city of Quebec possessed all the honours and advantages to which it was entitled as the capital of Canada, Montreal became, commercially, the most prosperous of the two Cities. Situated at the head of navigation, and at the foot of all the channels of communication with the upper country, the lion’s share of the growing trade with the West fell to the merchants of Montreal. As their commerce increased, greater financial facilities, than existing arrangements afforded, were called for: in short, they wanted a Bank to enable them to carry on the operations of trade conveniently and successfully....

    • In Support of Establishing a Bank in 1808
      (pp. 30-40)
      JOHN RICHARDSON

      MR. SPEAKER: As the approaching prorogation leaves no prospect of being able to get through the Bank Bill, this session, I have no wish to take up time unnecessarily, by going into a committee of the whole house upon it, as amended by the special committee, to whom it was referred. Before, however, moving to discharge the order of the day, for the purpose of following it up with a motion to print the Bill, that it may be maturely considered, with a view to the resumption of the measure, at the meeting of next Provincial Parliament, I shall endeavour...

    • Army Bills
      (pp. 41-44)

      The expence of the Militia, and of the ordinary Military Establishments of the Province, having greatly increased, and daily increasing in consequence of the unexpected Declaration of War on the part of the United States of America, the necessity of providing for the additional expenditure to be incurred on account of the Regular Forces lately arrived, and shortly to be expected, and the impossibility of procuring money for Government Bills to the extent required, having induced the Governor in Chief to apprehend the want of an adequate supply of specie, to answer the exigencies of the public service, he called...

    • Canada’s First Chartered Bank
      (pp. 45-52)

      It is scarcely surprising that by the year 1820 banking facilities were needed in the city of Saint John. Lumbering, which had begun with the cutting of masts for. the British navy about the time that the coming of the Loyalists in 1783 had given New Brunswick its first substantial influx of population, was spreading to every part of the Province. The trade in square timber, which had been enormously stimulated by the elimination of Baltic supplies during the Napoleonic wars and by the big preference which colonial timber had come to enjoy in the British market, was large and...

    • Charter of the Bank of Montreal
      (pp. 53-67)

      “At the Provincial Parliament begun and holden atQuebec, the Fourteenth day of DecemberAnno Domini, one thousand eight hundred and twenty, in the first year of the Reign of Our Sovereign Lord, GEORGE the Fourth, by the Grace of GOD, of the United Kingdom ofGreat BritainandIrelandKING, Defender of the Faith, &c.

      Being the first Session of the Eleventh Provincial Parliament of Lower Canada.”

      An Act for incorporating certain persons therein-named, under the name of “President, Directors and Company of the Bank of Montreal”

      17th March, 1821. Presented for His Majesty’s Assent, and reserved “for the...

    • Establishing a Bank in the 1830’s
      (pp. 68-76)

      A spirit of enterprise was abroad in Nova Scotia as the third decade of the nineteenth century began. The last great wave of immigration to the colony was approaching its crest: by 1837 the population was almost 200,000, having more than doubled in twenty years. Pioneer agriculture and the catching and curing of fish still formed the base of the economy, but lumbering had expanded rapidly – stimulated by British demand for square timber and by a growing West Indies trade in lumber and staves – and shipbuilding in Halifax and many little outports was an established and growing industry. There had...

    • Origin of the Canadian Banking System
      (pp. 77-86)
      ADAM SHORTT

      The history of banking in Canada, as in other countries, is but one phase of the general economic history of the people. Banking operations are so wholly dependent upon the commercial habits and ideas of the people, the character of their business and the nature of their occupations, that they cannot be studied with much certainty or profit apart from the general economic atmosphere in which they are carried on. It will be my purpose in these articles to set forth, as fully and as accurately as the material which I have been able to gather will permit, the origin...

    • Imperial Regulation of Colonial Bank Charters
      (pp. 87-90)
      R. M. BRECKENRIDGE

      In August, 1833, after both banks had been operating under the Acts of 1832 for over a year, rumours of a Royal disallowance of the Acts became current. The banks then had, in all, fifteen or sixteen offices and agencies, had discounted paper to the amount’ of £450,000, and issued some £300,000 of notes. A temporary panic was the result of the rumour, for debtors of the banks greatly feared the withdrawal of their credits. In some places mass-meetings protested against a disallowance, and petitions to the King were drawn up. In several instances small runs were started. The banks...

    • Commercial Crisis of 1837-38
      (pp. 91-94)
      ADAM SHORTT

      The commercial crisis of 1837-38, which came upon Canada very suddenly and unexpectedly, was not due, as often supposed, to the political difficulties which accompanied it, although these political difficulties to a considerable extent were precipitated by the financial crisis and helped in turn to aggravate it. The commercial and financial crisis, as invariably happened during the nineteenth century, came to Canada from Great Britain by way of the United States. The United States was almost entirely dependent upon Britain for the supply of capital to develop its natural resources. To a lesser extent American markets depended upon Britain to...

    • Lord Sydenham’s Proposal for a Provincial Bank of Issue
      (pp. 95-105)
      H. T. DAVOUD

      Three years have passed since the establishment of the Bank of Canada, and its record and possibilities were assessed in the October 1937 number ofThe Canadian Banker. Now that the Bank is a definite factor of our financial system it might be interesting to consider the first proposal for a central bank in Canada brought forth by Lord Sydenham nearly one hundred years ago.

      The political changes initiated by the revolts in 1837 are still influencing Canadian life and Sydenham’s proposal, had it succeeded, might conceivably have had a lasting effect on our monetary and banking structure. By 1840...

    • Hineks on Canadian Currency
      (pp. 106-115)
      FRANCIS HINCKS

      The undersigned, Inspector General of Public Accounts in Canada, has the honour to submit the following observations, on Sir C. E, Trevelyan’s letter to Earl Grey, under date 20th February last, communicating the opinion of the Lords Commissioners of Her Majesty’s Treasury, that the Canada Currency Act, No. 779, of 1850, should be disallowed.

      The objections entertained to this Act are:

      1st. That the right of Coining belongs solely to the Sovereign, and ought not to be exercised by any inferior authority.

      2nd. That the reduction of the current value of the dollar from 5s. Id. to 5s. is inexpedient;...

    • History of Canadian Metallic Currency
      (pp. 116-131)
      ADAM SHORTT

      Canadian metallic currency as we have it today has not been the result of any definite or conscious choice on the part of the Canadian people or their Government. In fact, if the earlier governments could have settled the matter according to their own convictions and wishes, our currency would be quite other than what it is. However, circumstances are stronger than policy, and popular usage than government enactments.

      At the time of the Conquest Canada passed into the hands of the British with practically no metallic money in sight. It was submerged in a flood of depreciated paper currency,...

    • Currency and Banking, 1840-1867
      (pp. 132-148)
      ADAM SHORTT

      Although, as we have seen, the recommendations of the British government in dealing with the charters of the Canadian banks had been very largely adopted, there was one feature to which the British authorities attached great importance which the Canadian government, at the instance of the Canadian banks and business interests, could not be induced to accept, namely, the abolition of bank notes under £1 currency. The object of this limitation was, of course, as in Britain, to increase the volume of metallic currency in circulation and in the vaults of the banks, with a view to steadying the exchanges...

  5. PART TWO: FROM CONFEDERATION TO THE FIRST WORLD WAR
    • The First Bank Act of the Dominion
      (pp. 149-162)
      R. M. BRECKENRIDGE

      Under the British North America Act passed by the Imperial Parliament in 1867, and the Confederation of the provinces of Canada, Nova Scotia, and New Brunswick, which this measure brought about, the Parliament of the new Dominion was given exclusive authority in all matters pertaining to currency and coinage, banking, the incorporation of banks and of the issue of paper money, savings banks, bills of exchange and promissory notes, interest and legal tender. Subject to this jurisdiction, directly the act came into force, therefore, were the eighteen banks chartered by Canada (thereafter divided into Ontario and Quebec), five by Nova...

    • The Canadian Banks and Wall Street
      (pp. 163-166)

      For some days back the papers have been copying paragraphs from New York journals respecting suits alleged to have been commenced against the Bank of Montreal and other Canadian banks for a breach of the usury laws of the State of New York, by loaning money in Wall Street at very high rates, said to be as much sometimes as 150 or 200 per cent per annum. We may as well say at the outset what is well understood in financial circles, that proceedings were really commenced, but the question mainly affects the Bank of Montreal. The only other Canadian...

    • Canadian Banks in New York
      (pp. 167-169)

      The opening of a branch in New York by the Merchants’ Bank of Canada is another illustration of Canadian banking enterprise which our neighbours in the United States rather marvel at. This makes four banks from Canada – the British, the Montreal, the Commerce, and the Merchants’ – all represented in the commercial capital of the United States, and all occupying most prominent positions in that city. Canadian readers are perhaps not all aware that United States banks are not sellers of exchange on foreign countries, but that that great business is done entirely by large private banking houses, such as Brown...

    • Reminiscences of Bankers
      (pp. 170-182)
      CAMPBELL SWEENY

      In 1863, the following chartered banks were operating in Canada: In Quebec, there were the Quebec Bank, Bank of Montreal, Banque du Peuple, Banque Jacques Cartier, City Bank, Molson’s Bank, and the Eastern Townships Bank. In Ontario, the Bank of Upper Canada, the Commercial Bank, Gore Bank, Bank of Toronto, the Niagara District Bank, and the Ontario Bank. The Bank of British North America was established in both Quebec and Ontario by royal charter.

      Business in Canada, especially in Upper Canada, was much upset at this time as a result of the land speculations consequent upon the building of the...

    • The Government Currency: The Monetary Times
      (pp. 183-186)

      The letter of Sir Francis Hincks, in reply to some observations of ours on the Dominion Note Act, is deserving of that attention which should be given to the statements of one to whom belongs the responsibility of the inception and carrying out of the scheme as it is now worked. We have always recognized the merits of any measure of his which was deserving of commendation, and have given credit where credit was due. The practical sagacity which led to the settlement of our bank charters on their present basis, and to the common-sense solution which he found to...

    • The Government Currency: Reply
      (pp. 187-191)
      SIR FRANCIS HINCKS

      To the Editor of theMonetary Times:

      Sir:From the readiness with which you inserted my last letter on “The Government Currency,” and from the courteous tone of your remarks in reply to it, I am encouraged to hope that you will grant me the privilege of a rejoinder, and especially because the subject is one of deep interest to the public, and not necessarily connected with party politics. After complimenting me on the possession of “practical common sense” – a common sense “guided by experience rather than by theory” – you are good enough to regret that I have not applied...

    • Bank Reserves
      (pp. 192-195)
      GEORGE HAGUE

      To the Editor of theWitness

      Sir:May I be allowed a little space to make a remark or two on the statements in your article on the financial situation in the Witness of Friday last, which statements, I submit, are calculated most seriously to mislead your readers both with regard to what has transpired in the past and with regard to the present position of our banking institutions.

      The subject of requiring banks by force of law to keep on hand a certain proportion of available resources to their liabilities was first mooted when the bank charters were renewed...

    • Fewer and Larger Banks
      (pp. 196-205)
      B. H. BECKHART

      The eleven chartered banks now serving the commercial credit needs of Canadian business, agriculture, and commerce represent the survival of a much larger number of institutions formerly operating in the Dominion. The tendency toward fewer and larger banks has been perhaps the outstanding characteristic of the banking structure of Canada within recent years. Not that the disappearance of banking institutions is a condition peculiar to the Dominion, for the same condition has manifested itself also in other countries. So aroused, indeed, did public opinion become in England over this problem, that a Treasury Committee¹ was appointed to investigate whether amalgamations...

  6. PART THREE: FIRST WORLD WAR TO SECOND WORLD WAR
    • The Canadian Banks and War Finance
      (pp. 206-217)
      C. A. CURTIS

      In Canada, as in other countries which took an active part in the Great War, the necessities and exigencies of war finance placed a heavy responsibility and strain upon the banking system. This strain resulted from the financial requirements of the Canadian and British governments, and also, directly, from specially developed, or expanded, war industries. As all these demands were over and above the usual commercial requirements of the country, the result was a great expansion in the amount of banking credit outstanding during the period of the war. Such a large and sudden increase in the amount of credit...

    • The Canadian Monetary Situation
      (pp. 218-222)
      C. A. CURTIS

      The operation and management of the Finance Act in the last three years – that is, under gold standard conditions – may now be considered. The test of the gold standard usually comes through the foreign exchanges. In the case of the United States and Canada, the gold points are roughly 5/32 of 1 per cent from parity, and when the exchange rate reaches either of these points gold normally moves. The gold points for United States–Canadian exchange are relatively steady because gold exported from Canada usually goes from Montreal, and gold can be sent from Montreal to New York, or...

    • Currency Management in Canada
      (pp. 223-233)
      A. F. W. PLUMPTRE

      After the war the gold standard was reintroduced throughout the world as the type of currency management which offered the best and most immediate security from the war and post-war inflationary mismanagement. But now, after nearly ten years of experience, there are increasing demands for a new type of management which will deliver the world from the deflationary mismanagement of the gold standard. Conscious control of credit is desired as an alternative to the semi-automatic and rule-of-thumb regulation which was the theoretical basis of the credit-based-on-paper-based-on-gold standard into which the gold-coinage standard of classical economics has gradually developed. And it...

    • The Existing Canadian Financial System and the Establishment of a Central Bank
      (pp. 234-246)

      It has been manifest, from what we have previously written, and indeed from much of the information afforded us in the course of our hearings, that in so far as the ordinary functions of banking are concerned, the Canadian banks give admirable evidence of security, efficiency, and convenience. In a time of universal economic difficulty, the Canadian banks have stood firm and have continued to render to the people of the Dominion the same high quality and the same wide variety of services as in the past.

      It is nevertheless necessary to ask whether there are any functions which a...

    • Constitution of the Bank of Canada
      (pp. 247-252)
      A. F. W. PLUMPTRE

      It was on March 11, 1935, that the Bank of Canada opened for business. The constitution under which it began to operate for the most part followed accepted lines.

      The Bank was privately owned. The capital of $5 millions was divided into shares of $50; and no shareholder could hold more than fifty of them. The intentional result of this was to disseminate ownership as widely as possible; and the first list of shareholders contained more than 12,000 names. Strict provisions prevented any foreigner, or anyone connected with one of the chartered banks (which were, of course, suspected of being...

    • Functions, Structure, and Operations of the Bank of Canada
      (pp. 253-258)
      GRAHAM F. TOWERS

      In dealing with the functions of a central bank I shall borrow freely from the report of the Royal Commission on Banking and Currency in Canada, and from the preamble to the Bank of Canada Act.

      The major function of a central bank is to regulate credit and currency in the best interests of the economic life of the nation. The bank’s efforts to perform this function must, of course, take place within the limits imposed by law and by its capacity.

      Secondly, a central bank should, so far as possible, control and protect the external value of the monetary...

  7. PART FOUR: AFTER THE SECOND WORLD WAR
    • Review of Post-War Monetary Policy
      (pp. 259-274)
      GRAHAM F. TOWERS

      Mr. Chairman, I judge from what I read in Hansard and what I was told subsequently that the committee would wish me to say something about the activities of the Bank of Canada, particularly in the post-war years; in effect to give a review of post-war monetary policy; and that is what I propose to do.

      I should say that the statement which I have prepared is not in any sense an economic treatise. It does not dot all the economici’s, still less cross thet’s, but rather tries to hit the high spots of our post-war policy. A...

    • Bank of Canada Policy Appraised
      (pp. 275-298)
      E. P. NEUFELD

      From March 1946 to August 1948 the Canadian cost-of-living index increased by 31 per cent and the wholesale price index by 52 per cent. Foreign exchange reserves declined from a total of $1,638.7 million to $814.2 million, with a low of $461 million on December 17, 1947, just after extensive direct controls on imports were introduced. The high rate of domestic capital development and consumer spending, the unexpectedly sudden drawings on foreign aid appropriations, the removal of controls and subsidies, and the strong influence of American prices were the main factors responsible for this.¹ Upward revaluation of the Canadian dollar...

    • The Bank Act Revision of 1954
      (pp. 299-307)
      R. M. MACINTOSH

      It is not commonly realized that the strength and stability for which the Canadian banking system is noted derive in no small measure from a third characteristic – adaptability. The capacity to adjust to the changing needs of the economy is in turn not only the product of the flexibility of the branch banking system, but also of the fact that the whole banking structure is exhaustively reviewed and, if necessary, amended at ten-year intervals. The periodic revision of the Bank Act enables the banks to participate in the development of new resources and to direct, at their discretion, a portion...

    • Economic Policy Views of James E. Coyne
      (pp. 308-317)

      I understand that this special Committee of the Senate on Manpower and Employment has nearly completed its inquiries. During the past five months the Committee has heard a great many witnesses and advocates, and from them and through the researches of its own staff the Committee has gathered an immense amount of factual information and analysis, of the Canadian economy, of economic growth in Canada, of labour force developments, and of employment and unemployment. A very wide range of proposals or suggestions for improving employment and production in Canada, for increasing the rate of growth, and for reducing the deficit...

    • The Economic Policy Proposals of the Governor of the Bank of Canada
      (pp. 318-332)
      DAVID C. SMITH and DAVID W. SLATER

      For over a year, Mr. Coyne, the Governor of the Bank of Canada, has argued vigorously for major changes in Canadian economic policy. He resists the use of an easier monetary and fiscal policy; he implies the need for controls by the federal government over imports, foreign borrowings, provincial and municipal and consumer finance, and over the use of investment funds in Canada. His arguments are partly based on subjective value judgments about the kind of economic development . . . our society should have. It is not our intention here to examine this aspect of the case. . ....

    • Statement by James E. Coyne Regarding a Bill Declaring the Position of Governor of the Bank of Canada to be Vacant BEFORE THE SENATE COMMITTEE AN BANKING AND COMMERCE
      (pp. 333-345)

      You have before you for study in this Committee of the Senate of Canada Bill C-114. The issues raised by this bill are detailed and complex, but they all revolve around two questions: (1) in what circumstances is it right that a Governor of the Bank of Canada should resign before the end of his term, and (2) what constitutes lack of good behaviour on his part justifying his compulsory removal from office, and how that removal should be brought about.

      Apart from the judges of our superior courts, there are relatively few high offices of state which are held...

    • Conditions Outlined by Louis Rasminsky on Assuming the Position of Governor of the Bank of Canada
      (pp. 346-348)

      I have been greatly encouraged by the many public expressions of goodwill which have appeared since the announcement of my appointment as Governor of the Bank of Canada. I have decided to make public at this time my views on certain matters connected with the administration of this office. These views had been made known to the directors and to the Government in the following form when my appointment was being considered.

      I believe that it is essential that the responsibilities in relation to monetary policy should be clarified in the public mind and in the legislation. I do not...

    • The Objectives of Canadian Monetary Policy, 1949–61: Empirical “Trade-Offs” and the Reaction Function of the Authorities
      (pp. 349-359)
      G. L. REUBER

      In recent years a great deal of attention has been given to the objectives of economic policy and to the possibility of conflicts among them, especially in the context of the performance of the monetary authorities. Empirical research on the problem has been stimulated by Professor A. W. Phillips, who introduced the concept of an empirical relationship between the percentage of unemployment and the rate of increases of wages and prices. Much has been done in refining Phillips’s concepts and estimation procedures and applying them to other countries in order to determine the “trade-offs” between policy objectives. But no comparable...

  8. PART FIVE: GENERAL REVIEW
    • Banking Legislation 1822 to 1944
      (pp. 360-370)

      The history of Canadian banking legislation began well over a century ago with the granting, between 1820 and 1822, of the Royal Assent to charters incorporating the Bank of New Brunswick, the Bank of Upper Canada, the Bank of Montreal, the Quebec Bank, and the Bank of Canada. The right to issue bank notes existed and was exercised by private banks without legislative sanction for a considerable period after the early charters were granted, and before banks became the subject of general legislation. In Lower Canada the practical monopoly of issue was conferred upon the chartered banks by an act...

  9. Note on the Contributors
    (pp. 371-372)
  10. Back Matter
    (pp. 373-374)