March 27, 1933

LIB

William Lyon Mackenzie King (Leader of the Official Opposition)

Liberal

Right Hon. W. L. MACKENZIE KING (Leader of the Opposition):

Mr. Speaker, this bill is very brief; its purport is to give the governor in council power to suspend that section of the Dominion Notes Act which sets forth that dominion notes shall be redeemable in gold on presentation at branch offices established or at banks with which arrangements may be made for the redemption thereof.

I believe it is a fact that already the government has been exercising the power for which it is now asking. If that is the case the government must have had some authority for so doing, and if it had such authority presumably that authority was sufficient and is still sufficient. So under the circumstances I do not see why this measure need be introduced at all. I might add that the introduction of a measure of this kind, unless it is absolutely necessary, would seem to injure rather than aid the credit of the country. Perhaps the Minister of Finance (Mr. Rhodes) who has the matter in hand has good and sufficient reasons for further taking away from parliament its control over this allimportant matter, together with the other matters that we have been considering of late. It would seem that the parliament that laid down the special conditions under which this power should be exercised took a safer and sounder view of the authority and wisdom of parliament in the matter than the minister is taking at the moment. However, the minister may have special reasons for asking that this authority should be given at this time, and if so the minister might give us the reasons before we are asked to vote on the second reading of the bill.

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
CON

Edgar Nelson Rhodes (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. RHODES:

Technically I exhausted my right to speak when I made this motion, although I did not speak at that time, due entirely to the belief which I perhaps mistakenly held that no exception could be taken to the principle of the bill, and that any questions that might arise could be dealt with more properly in committee of the whole. I have, however, no objection to saying a word or two. I have not any doubt that this bill legally follows the one which was passed last year and which prohibited the export of gold. It is really a companion bill and if it

had been introduced at that period, I do not think any exception would have been taken to it. That it was not introduced at that time is due largely to the fact that the provision for redemption in gold was, in view of the fact that the gold could not be exported, an empty one.

I do not agree with my right hon. friend that by my bringing in this bill any question could be raised which would be prejudicial in any way to the credit of the country. It means merely that we recognize in the statute laws a situation which is virtually in effect. There can be no good object in an individual seeking to have notes redeemed in gold if he may not export the gold, and the measure is largely of advantage in preventing frivolous attempts to invoke the provisions of the statute as it at present exists. My right hon. friend is aware of the fact that under the Finance Act there is power to suspend the redemption of notes in gold, but the conditions there are so rigorous that the mere application of them would occasion a critical situation. The words used in the Finance Act are:

In case of war, invasion, riot or insurrection, real or apprehended, and in ease of any real or apprehended financial crisis.

Certain powers rest with the governor in council, amongst others being:

(d) Suspend the redemption in gold of dominion notes.

In the case of this bill, that should apply under conditions far short of those which are provided in the Finance Act. We do not for a moment admit that there is any financial crisis or that one is apprehended, but at the same time, as a matter of proper conservation of our gold supplies for the country's purposes, we propose asking that this bill should be enacted and in doing so I may say that we are only doing in effect precisely what has been done in Great Britain and in the United States. I have under my hand if, when we are in committee, it should be desired, the exact wording of the statute so far as the United States is concerned and also so far as the law in England is concerned. This is a measure decidedly in the public interest and I do not think any reasonable objection can be taken to it. My right hon. friend has intimated that there seems to be a desire on the part of the government to take more power unto itself. Necessarily a provision of this kind should be elastic unless we are prepared to take the ground that for all time we shall do away with the redemption of dominion notes in gold. That perhaps is a debatable question, but it need not arise at this stage. Certainly, we are seeking no

3410 COMMONS

Dominion Notes Act-Gold Standard

more power in this bill than, as I have intimated, already exists in both the United States, and Great Britain.

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
UFA

George Gibson Coote

United Farmers of Alberta

Mr. G. G. COOTE (Macleod):

Mr. Speaker, I have no idea of objecting to the bill now before us which, I think, is long overdue, except to say that I believe the section which is intended to be amended, should be struck out altogether. I am informed there is today no country in the world where legal tender notes are redeemable in gold and I do not see why we should continue any longer to keep this section of the Dominion Notes Act on the statute books. While it is there, I am in favour of the amendment moved by the minister to the effect that the government should have power to suspend it. It has actually been suspended since September, 1931, and it was suspended perhaps two years before that time. I think it was Professor Curtis who said that the test of a gold standard is the foreign exchange rate and when a premium on foreign exchange as high as two per cent obtains in Canada, this is a clear indication to me that we are no longer redeeming our notes in gold. In September, 1931, Great Britain was forced to abandon the gold standard. The action taken in Great Britain at that time, and taken by act of parliament, I may say, was to relieve the Bank of England from liability to redeem their notes in gold. I might quote Mr. Snowden, Chancellor of the Exchequer, who said, in introducing the bill:

This will not affect the free gold market in London. There will be no restrictions on the importation or exportation of gold and any gold sent to London for sale, for example from the South African mines, will like any other commodity fetch its market price whatever that may be. .

All that is changed is that the right under the subsection of the 1925 act to take from the Bank of England gold bars, is suspended. Finally and I only say this because of an unreasoning fear that appears to prevail abroad where we are under obligations to make payments in dollars or other foreign currencies, as for example some of the war bonds that were issued in New York, we shall of course continue to meet our obligations punctually in those currencies.

That was the action taken by Great Britain when she abandoned the gold standard. She suspended the redemption of notes in gold. She did not take the action now proposed by the Minister of Finance of giving the governor in council power to suspend redemption, but she did actually suspend it by law, and I think that is the action which should be taken in Canada at this time. This should have been done in September, 1931. At that time the government had power, under the Unemploy-

ment and Farm Relief Act, to pass an order in council suspending redemption in gold. That action was not taken, but so far a3 I can find out, the government have refused almost consistently to redeem on presentation dominion notes in gold. We have done extra legally that which we would not do legally. Although bound by law to redeem these notes in gold the receivers general have refused to do so. To make sure of that I applied on two different occasions to the Assistant Receiver General at Calgary for gold and I was refused. I was handed an application form. Such action could not by any stretch of the imagination be taken as compliance with the law and I think it is regrettable the government has waited eighteen months to do this thing legally. The government, however, should go further and suspend that section of the act. We have no intention of redeeming notes in gold; it is impossible to do so and no country in the world is doing so. In fact, dominion notes should not be convertible at all, because when the public or any large section of it desires to make our notes convertible, they become inconvertible. Every existing currency becomes inconvertible when any large section of the public attempts to. convert it, so why continue to pretend that our currency is convertible. There is only a small amount of legal tender in the country compared with the total deposits in the- banks. The situation is sound while the people have confidence, but as Lord Melchett said in a recent book Modern Money: "Confidence is suspicion

asleep," and whenever confidence' is shaken, suspicion wakes up and the bankers always get suspicious first. They curtail our credit and they bring about the very terrible depressions one of which we are now experiencing.

I did not intend to say very much about this measure until it got into committee, but I might quote Sir Basil Blackett who, when speaking at a meeting of the members of the Royal Institute of International Affairs at London in 1931, on the international gold standard, on this very question of convertibility into gold said:

The question, why do banks keep gold? can be answered, I think, frivolously, in several ways. I think the first and perhaps the most important answer is because other central banks keep gold. Perhaps another answer would be because the banks think that people think they ought to keep gold, or even because the banks think that people think and the banks think they ought to keep gold. Possibly another answer would he because the central banks are not clever enough to manage any system other than the gold standard, or they are not clever enough to persuade people to think they are clever enough to manage any such system.

Dominion Notes Act-Gold Standard

He says further:

The amount of gold that is required ought not to have any direct relation to the amount of currency that is out.

Gold is only used, he points out, not for the purpose of converting internal currencies, but to meet exchange balances with foreign countries. He says further:

The amount of gold that a central bank requires, if we could persuade public opinion to see the truth, is the amount that will make it perfectly safe for meeting an external balance of payments against it at any given moment. That ought to be the sole purpose in a peaceful world for which a gold reserve is kept,-to meet an external balance of payments that is against that country.

In the last paragraph he says:

The main purpose I had in rising to-night was to say that I believe the first and foremost principle that we ought to get driven home, and on which we ought to concentrate, is the truth that no currency note in the world is convertible, and that no sensible central bank ought to regard it as such.

Sir Basil Blackett, I think, is one jf the best-informed men in regard to monetary matters in the whole British Empire. He is a director of the Bank of England. He says:

No currency note in the world is convertible and no sensible central bank ought to regard it as such.

If no sensible bank ought to regard it as such, why should a sensible country regard its

currency as convertible? The reason it is not convertible is I think pretty well known, but

perhaps a quotation from Doctor W. H. Coates might help to exemplify that point.

There are probably twenty thousand millions' worth of transactions carried on in Great Britain each year on a base of one hundred and fifty1 millions of gold. That fact gives some measure of the credit structure the whole world uses. The central banks determine how much credit there is to be. They look in a cupboard to see how much yellow metal they have got! They might as well look to see how much coal they have. Gold should be put in its proper place.

While I am on my feet I should like to quote a paragraph from the report issued by a joint committee of the Federation of British Industries and the. British Economic Union last year:

Make it clear we are not in disagreement with the view of the Macmillan committee referred to below that in a stable and financially highly developed community neither gold nor any other metallic backing is required to support an internal note issue and that a metallic reserve is needed for no other purpose than to meet a foreign drain and provide an international standard of value.

I would suggest that as our dominion notes are used only for internal purposes we should 53719-216

strike out altogether the subsection referred to in this bill so that the amount of legal tender which we might have in Canada is not dependent on the amount of gold which we have in a cupboard over in the east block. I know that some people think that this would make it more difficult for us to meet our obligations in New York, but so far as this house is concerned I do not think there are very many members who any longer put much stock in that theory. I know that on February 29 of last year the Prime Minister said:

Now, if I ship down to New York nineteen one million dollar Canadian bills, would that pay the debt? Obviously it would not. Because those nineteen one million dollar bills could not be converted into nineteen million dollars of gold, there being no free market in respect to it. That was the position. It put upon us the tremendous obligation of making the necessary arrangements to carry over.

I think the Prime Minister was indulging in a little flight of fancy there because I do not think there are any one million dollar notes issued; if there are I hope the minister will correct me. But we can take it from the Prime Minister's own words that we do not meet our obligations in New York with our dominion notes, and therefore the question whether we have gold behind our dominion notes or not, or whether we are willing to convert dominion notes into gold, does not affect our ability to meet our obligations in New York. I wish we could dispose once for all of that fallacy which is in the minds of some of the people of this country, but which I hope by this time has disappeared from the minds of the members of this house. If it has not, I hope that when we are in committee this afternoon the minister will assure us that this change in the act would not in any way interfere with meeting our obligations in foreign countries.

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
LIB

Charles Marcil

Liberal

Mr. MARCIL:

Would the minister explain whether a bank can be called upon to give up its gold for its bills?

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
CON

Edgar Nelson Rhodes (Minister of Finance and Receiver General)

Conservative (1867-1942)

Hon. E. N. RHODES (Minister of Finance):

If my hon. friend from Bonavemture (Mr. Marcil) will not think me discourteous, I shall be very glad to attempt to answer any questions when we are in committee. My hon. friend from Macleod (Mr. Coote) was strictly in order in his discussion, but he raised the whole question of the gold standard which I submit is one which does not of necessity have to be dealt with in connection with this bill, and therefore I hope he will not think me discourteous if I do not follow the general lines of his discussion. I rise merely for the'purpose of correcting a mis-

3412 COMMONS

Dominion Notes Act-Gold Standard

apprehension under which my hon. friend is labouring. If I understood him correctly I understood him to say that in England they had eliminated from their law the provision for the redemption of notes in gold. But if my hon. friend will refer to the Gold Standard (Amendment) Act, 1931, chapter 46 of the statutes of Great Britain for 1930-31, he will find that section 1 provides as follows:

Unless and until His Majesty by proclamation otherwise directs, subsection (2) of section one of the Gold Standard Act, 1925, shall cease to have effect, notwithstanding that subsection (1) of the said section remains in force.

Put in layman's language that simply means that the governor in council may by proclamation restore the provision for the redemption of notes in gold. The provision that we are seeking by an amendment to our act is that if the occasion should arise when we wish to revert to the previous position, it will be competent for us to do so by order in council.

Just one more word which I might have said in answer to my right hon. friend the leader of the opposition (Mr. Mackenzie King) with respect to the governor in council taking authority by statute for such a course. I might point out that it is the logical step to take in view of the fact that the act respecting the export of gold which we passed at the last session contains this paragraph:

The governor in council may prohibit, from time to time and for any period or periods, the export of gold, whether in the form of coin or bullion,-

And so on. Parliament in its wisdom granted that authority to the governor in council. It follows, I think, as a logical consequence that in respect of the redemption of notes in gold the same course should be pursued; otherwise we should find ourselves in an impasse.

I have nothing more to say, Mr. Speaker, because as I intimated when I first rose, my sole object in speaking was to reply to the one phase of the matter, namely the point raised by the hon. member for Macleod.

Motion agreed to, bill read the second time and the house went into committee thereon. Mr. Cowan (Port Arthur) in the chair.

On section 1-Redemption in gold.

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
CON

Edgar Nelson Rhodes (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. RHODES:

Would the hon. member

for Bonaventure be good enough to repeat his question; I did not hear it.

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
LIB

Charles Marcil

Liberal

Mr. MARCIL:

What rule applies to the

banks, as to whether they are required to redeem their bills in gold or by legal tender?

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
CON

Edgar Nelson Rhodes (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. RHODES:

By legal tender.

[.Mr. Rhodes 1

Mr. COOTE-: Since September, 1931, I take it for granted that the department has been refusing, on most occasions at any rate, to pay out gold for dominion notes. I should like to ask the minister to tell us, if he will, what steps have been taken at different times since September, 1931-using the language of the department-to preserve our gold supply. What orders have been issued to the Receiver General?

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
CON

Edgar Nelson Rhodes (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. RHODES:

The licences for export, in the great majority of cases and involving the preponderant amount of gold, have been issued only in those oases where gold has been exported for the purpose of meeting our payments abroad. Individual instances have been few in number, and the amount of gold involved has been comparatively trifling. In the main those individual licences have been granted in the case of certain types of jewellers' and dentists' sweepings which were of such a complex character and mixed with other valuable metals to such an extent that there* was not any provision in Canada for their being properly refined. Consequently, in the main, they have been exported to the United States where there are refining facilities.

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
UFA

George Gibson Coote

United Farmers of Alberta

Mr. COOTE:

My question is this: How

many applications for gold have been received by the department? At least, have not applications been received by the department which were refused?

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
CON

Edgar Nelson Rhodes (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. RHODES:

Mr. Chairman, I should

not like to answer that question either by direct negative of affirmative. But I shall answer it by giving a concrete illustration. A request, which came before me for review, was made to the department by a corporation which wanted to present legal tender and receive a substantial amount of gold. The intimation which came in the letter was to the effect that they wanted to export it to pay their bondholders in foreign countries. It was pointed out by the department that if the redemption had taken place it would be of no value to the recipient for the reason that they could not export their gold, except under licence, and that under those conditions a licence would not be granted. The effect of the answer was that while the application was not withdrawn, no action was taken. I hope the illustration I have given will serve as an index. I do not believe we could go so far as to say that the department has refused to redeem notes in gold. It always has been at pains to point out the circumstance that the redemption would be of no value inasmuch as the gold would not be exported.

Dominion Notes Act-Gold Standard

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
LIB

William Daum Euler

Liberal

Mr. EULER:

Would you have refused, if

permission had been asked?

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
CON

Edgar Nelson Rhodes (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. RHODES:

I say to my hon. friend

from North Waterloo that the department has endeavoured jealously to guard our gold supply.

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
LIB

Charles A. Stewart

Liberal

Mr. STEWART (Edmonton):

I had intended to ask the minister a similar question. If that is the case, the department were refusing not on the ground that they refused to redeem in gold, but on the ground that they would not allow export. So it is not a fact that during the period of suspension of export they have actually been refusing to redeem their notes in gold.

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
CON

Edgar Nelson Rhodes (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. RHODES:

That has been largely the effect, Mr. Chairman. Of course, the committee will readily understand that if there were not an embargo on the export of gold, and were it not for the fact that it could only be exported under licence, our gold supply in Canada would not last one day; there would not be a dollar left.

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
LIB

Charles A. Stewart

Liberal

Mr. STEWART (Edmonton):

But we are not discussing that point. The point I wish to get clear is this: During the period of suspension of export were the government refusing to redeem their notes in gold? I understand the desirability of prohibiting export, and having the government control the gold supply. On the other hand, the government have a contract with the holders of the notes. And whether or not export would be allowed does not appear to me to be an important factor. The point is: Did the department refuse to redeem notes in gold, according to contract set out in the Finance Act?

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
CON

Edgar Nelson Rhodes (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. RHODES:

As I said to the hon. member for Macleod, I should not like to answer the question categorically. I know that in one instance not long ago we redeemed notes to the extent of some S3,000, but the circumstances were regarded as rather unique. Even if we did not refuse, the operation of the Gold Export Act is sufficient to render nugatory the provisions of the statute for the redemption in gold, because it would be of no use to the individual to carry gold if he could not export it.

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
LIB

Edward James Young

Liberal

Mr. YOUNG:

Could he not sell it at the market value?

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
CON

Edgar Nelson Rhodes (Minister of Finance and Receiver General)

Conservative (1867-1942)

Mr. RHODES:

Not in the form of coin.

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink
LIB

William Daum Euler

Liberal

Mr. EULER:

Ordinarily I would judge that people do not demand gold. Ordinarily if they have federal currency or bank currency they never question it, and would not demand 53719-216i

gold. But I was going to ask the minister- perhaps he does not desire to answer the question-whether, due to recent difficulties in United States banking operations, people in Canada holding federal currency did not feel quite so certain that our currency, that is, bills, bank notes or federal notes, were absolutely reliable and had any value? They might think that gold would be a much safer commodity to hold. I was wondering whether at that time applications had been made to the Department of Finance to pay in gold or to redeem in gold some of the federal notes?

Topic:   DOMINION NOTES ACT AMENDMENT
Subtopic:   POWER TO SUSPEND PROVISION FOR REDEMPTION IN GOLD-DISCUSSION OF GOLD STANDARD
Permalink

March 27, 1933