Mr. ELLIOTT:

It may not be very material but in my opinion the onus of showing good faith would be upon the commission.

Mr. HANSON (York-Sunbury):

I do not think that follows.

Mr. ELLIOTT:

If that is not intended it should be made quite clear. In my opinion the man who brings an action would have to overcome the question of good faith; he would have to show bad faith.

Mr. MACKENZIE (Vancouver):

Does

this entail an amendment to the Currency Act?

Mr. BENNETT:

No, it does not. There

is no necessity for amending the Currency Act to accomplish the purpose we have in mind'. The bill, 'however, will make this permissive rather than obligatory; that is, this provision will come into force when proclamation to that effect is issued. But it is intended to proceed with the revaluation at once. That, of course, arises from the action that was taken last year in the Bank of Canada Act and the subsequent order in council passed', to which reference has already been made in the house.

The change from the S20.67 valuation to the current value of gold is, of course, largely a bookkeeping entry. It is known that the forty per cent of the gold held by the banks has by order in council been made available for their foreign balances and foreign business. The effect of the revaluation will be to enable the Bank of Canada to make the necessary bookkeeping entries and complete the transaction; but the resultant profit, as I have said, will not be dealt with as provided for in the Bank of Canada Act but retained as a fund which may be- available upon proclamation for the purpose of enabling whatever government is charged with the responsibility to utilize it for stabilization purposes.

It will be recalled that the gold purchases from the banks were on the basis of $20.67 per ounce. Some objection was made, but as a matter of fact all the gold was turned over to the Bank of Canada, and the reserves provided for under the Currency Act are twenty-five per cent in gold, under the Bank of Canada Act, with respect to our issue of paper money. This, of -course, will have the effect of extending to some extent the issue power, because twenty-five per cent on the new valuation will create more gold than under the old valuation of $20.67. I think it will be agreed that it is probably not regarded as good common sense for the bank to be -conducting business and making a report from month to month or week to week-I have the last week's beside me-on

3728 COMMONS

Exchange Fund-Mr. Mackenzie (Vancouver)

the basis of gold being valued at $20.67, as it has been doing ever since it came into being, when as a matter of fact in the markets of the world, alike in London, New York and Paris, gold has been sold at the figure of $35 and in some instances an odd cent or two more, in other instances an odd cent or two less than $35.

The provision of the bill does not contemplate any commitment being made in regard to the future policy of this country with respect to its monetary system. It is not intended so to do. It is rather to give effect by legislation to-dlay to the revaluation of our gold reserves and to provide by variation of the terms of the Bank of Canada Act that on proclamation this shall be available for the purpose of being utilized to support, if necessary, the value of our dollar abroad. As we proceed, I shall be prepared to answer any questions that may be asked as to the law prevailing in other countries, but I do not think I can say more with respect to the principle of the legislation than what 9 have already said.

Mr. EULER:

What amount is made available under that rate?

Mr. BENNETT:

Perhaps we had better

wait until we get into committee, and I shall give the information in detail.

Hon. IAN MACKENZIE (Vancouver Centre):

Mr. YOUNG:

Are we sitting in on a poker game?

Mr. MACKENZIE (Vancouver):

My point is that you cannot protect the Canadian dollar with such a small fund as this. My opinion is that you must protect the Canadian dollar by the expansion of Canadian trade. That is far more vital protection than is the creation of a stabilization fund of the proportions of this one.

I wish to deal with the second feature which arises in connection with this bill. This is very largely by way of companion legislation to the Bank of Canada Act of last year. We remember that under that act power was taken to take their gold from the banks and transfer it to the Bank of Canada. Under the operation of that section a sum of $37,480,404.46 was taken over. Last year there was inserted in the Bank of Canada Act a section which gave the governor in council discretion to decide what proportion of the gold taken over from the chartered banks of Canada would be entitled to the profit as between $20 67 and $35; that is the proportion required by the banks for their outside commitments or foreign obligations. I should like to refer the house to some questions I asked during the proceedings of the banking and commerce committee last year of one of the heads of a chartered bank in Canada. I asked whether the banks themselves could definitely decide or assess the percentage that was required of the gold they actually held then for foreign commitments. The answer was as given on page 379 of the proceedings of last year: "I am sorry I cannot give you even an approximate idea. It would be difficult to tell you what the percentage

Exchange Fund-Mr. Reid

would be." Despite the fact that the bank managers themselves, those who are running the chartered banks of Canada, were unable to assess the percentage of gold which was required for their external commitments, this government in its wisdom or unwisdom proceeded during the recess, on the 29th day of April, 1935, by P.C. 1110, to make an arbitrary assessment of 40 per cent to which the banks were entitled. Then it proceeded to give special concessions to two of those chartered banks, and the necessity for that is referred to, I must say, in the order in council, but has not yet been specifically explained to the house. As a result of the 40 per cent of the $37,480,404.46 I have mentioned, the amount of profit which will revert to the chartered banks would be $14,992,161.78, and to that must be added, according to the terms of the order in council, 60 per cent of the $300,000 to be returned to one chartered bank, or a sum of $180,000, and 60 per cent of $89,609 to another bank, or a sum of $53,765.40, or a total profit to be given back to the banks of $15,215,927.18, leaving the amount of gold with the Bank of Canada, which will be conjoined to the Finance Act gold for the purposes of carrying out the provisions of Bill No. 101, of $22,264,477.28. If we add to that the Finance Act gold which was also transferred to the Bank of Canada under the provisions of the legislation of last year, we have available for the purposes of the present bill a total of $91,670,500.31.

Last year we on this side protested very strongly against the principle of transferring not only the gold belonging to the chartered banks, amounting roughly to $37,000,000, but the Finance Act gold, the gold belonging to the taxpayers of the dominion, to a private corporation. Now we find that by Bill 101 which is before us for second reading, we have created a special fund, the profit arising from the revaluation of gold. I am very glad to see that in this bill most of the powers remain with the minister, with the government, except in regard to section 7 where there are some transactions and some powers given to the Bank of Canada in respect to certain negotiations concerning securities; in other words some negotiations affecting this gold are left, under the provisions of section 7, according to my interpretation, with the Bank of Canada. If they have left with the minister this power to deal with this contingent fund at a contingent date, I submit that the argument made last year is stronger than ever. This sum of $107,000,000 which has been transferred to the Bank of Canada will be worth to-day or to-morrow, whenever this

bill is proclaimed, not $107,000,000 but $180,000,000. On a basis of twenty-five per cent of metallic coverage, which was the basis adopted at the conference of 1933 at which the Prime Minister was present, without the slightest suggestion of inflation that gold reserve of $180,000,000 entitles the Bank of Canada, if that should be its policy, to issue notes of the Dominion of Canada up to a total of $720,000,000 on, a sound scientific principle. So I am sure the house will realize the tremendous power we placed in the hands of a private or quasi-private corporation last year, and I am glad that to a certain extent at least the government has abandoned some of its ideas of a year ago, and entrusted most of the control of this contingent fund to the minister, I presume the Minister of Finance.

I am not opposing this bill; as I have said before in this house I believe that we should use the note issue that is possible on a scientific basis due to the appreciated value of gold for the reduction of the national debt and for the substitution of non-interest bearing securities for maturing interest bearing bonds. That, however, is a suggestion that is not exactly germane to the principle of this legislation. I am not going to oppose the second reading of this bill; I hold as strongly as I did a year ago the opinion that the control of this gold, which belongs to the Dominion of Canada, should be vested in a bank that is under the control of the government of Canada, who are responsible to parliament which in turn is responsible to the Canadian people.

Mr. THOMAS REID (New Westminster):

Like the last speaker, I am pleased that the government, even at this late stage, are about to take steps to revalue our gold stocks. It is not my intention to delay the second reading of this bill; I wish only to say that I am indeed sorry that the government are not also at this time taking steps to value silver and to use silver as further base for currency. It is my intention when the bill is in committee to move some amendments, because it will be remembered that I endeavoured to introduce two bills not long ago, and I am indeed sorry that I was prevented from laying before the house and the government certain suggestions which I think should be adopted in the interest both of our mining industry and of our currency. I shall reserve my further remarks until the bill is in committee.

Mr. YOUNG:

Will the Prime Minister explain how it is proposed to operate this fund?