You must allow them something for administering the affairs of the country; you must remember that the banks pay all these interest coupons and cheques all over the country for the government at par.
Sir HENRY" DRAYTON: My hon. friend is right, and yet perhaps he is wrong. It is not quite fair to say that the government borrow7 on the same security used by the banks; they do not. As a rule the government gives its obligation with no further security, and that is first rate security. When the banks come to the Department of Finance for a loan, they do not give their obligations or anything like that; they give securities in other forms. For instance, when we had the stress on the currency at the time we first stopped the operations of the wheat
pool, we introduced what are known as prime bills. I thought they made a first rate basis for the emission of currency, and events proved that I was correct. The banks either use those bills or they leave with the government its ow7n securities, such as victory bonds and so on, which are held by the banks. So the situation is not exactly the came. My hon. friend from Battle River (Mr. Spencer) has followed this question very carefully, and he will recall the evidence given before the committee on banking and commerce the other day by Mr. Harding, who pointed out that all these emissions of currency, or emissions of credit one way or the other, have to be controlled by something which would make for an immediate and proper return at the right time, in order to do away with any danger of inflation. All these bank transactions are protected and fortified in that way. For example, when we looked after the financing of the wheat crop, all the emissions at that time which were on a 5 per cent basis, all the extra currency, all the issues had to be retired, because it was manifestly in the interests of the banks to retire them as soon as possible.
Now just one other point in connection *with these loans. The treasury report fixes the rate of interest, at least it ought to fix its rate of interest having regard to the then value of money and the then needs of Canadian commerce. My own view is that the latter consideration is greater than the first, but those are the two great considerations one must always have in mind. The rate of interest was then high and I used to be able to get 5 per cent without any trouble. To-day my hon friend was pointing out that at one time there was a very low rate, only 3J per cent. The reason of that woVild appear to be that at that time the banks could borrow at that rate and even less in New York; and it is just as well for us to keep our banks borrowing money here on perfectly good security, prime bills and the like, against which we issue currency, costing us nothing, and under such terms that the currency must in the very near future be redeemed. It is a question of fighting for the business, and that was the situation, I would imagine, at the time that low rate was got. That would have nothing whatever to do with the rate the government was paid because the times or conditions might not have been at all similar. I apprehend that if at that time the government also had been in the market for money it would have got a lower rate. The fact may be that the rate was higher at that particular juncture.
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