fund amply protecting holders against
the possibility of loss--but does prevent their being hoarded as
reserves or for any other purpose and thus contributes towards their
elasticity.
The connection now established by law between the maximum volume of
bank note issues and the capitalization of the banks renders necessary
the increase of the latter in correspondence with the expansion of
commerce in order to prevent a contraction of credit. Present law,
however, does not provide for such an increase. It is left to the
voluntary action of the banks, which seem inclined to increase surplus
funds rather than capital. The permission granted in 1908 to extend
issues beyond the amount of capital during the crop moving season, on
payment of a tax, is a makeshift and not a solution of the difficulty,
since a tax on issues is a means of forcing contraction of credit and
not of adjusting issues to legitimate needs.
Since Canadian banks are able to meet the greater part of the public
demand for hand-to-hand money by means of their own notes, they do not
need to carry in their vaults large amounts of gold and silver coin
and Dominion notes. They keep on hand only so much as experience
indicates they are likely to be called upon to supply to their
customers, plus a reasonable margin for safety and for the payment of
clearing house balances. The greater part of their reserves consists
of balances in banks outside of Canada, especially in the United
States and England, call loans in New York City, and easily salable
securities. In case of an emergency of any kind these resources may be
transformed into gold or their customers supplied with foreign
exchange, which is often as much or even more needed. Gold can at any
time be exchanged for Dominion notes if that is the currency wanted.
The lack of a central bank and of a rediscount market is to a degree
compensated by unity of action among the banks. This is the result not
so much of law as of conditions, among which the most important are:
the fact that the six largest banks do fifty per cent of the business
and that one of these, the Bank of Montreal, holds most of the
deposits of the government and is generally spoken of as the
government bank; the fact that the general managers are experts, in
first-hand touch through their branches with business conditions in
Canada and other parts of the world, and in possession of the same
data concerning these conditions, and through the s
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