Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)
Mr. Speaker, in view of the pending establishment of the Bank of Canada which will take over the dominion note issue, it is necessary to introduce in this house a bill which will repeal the present Dominion Notes Act and provide for a strictly limited interim elasticity in the note issue, the necessity for which occurs out of circumstances surrounding this period of transitional issiue and the neiw conditions incident to the establishment of the Bank of Canada. Section one of the proposed bill will provide that
8120,000,000 of dominion notes may be issued with twenty-five per cent gold coverage and that any issue in excess of that shall be covered to the extent of one hundred cents on the dollar.
Possibly the house may be interested in knowing something of the present condition of our note issue legislation. I had occasion during the session briefly to direct attention to this and I do not propose to review this matter in full. Under the Dominion Notes Act, which is chapter 41 of the Revised Statutes of Canada, 1927, dominion notes may be issued against a twenty-five per cent gold coverage or backing. Above this amount dollar for dollar in gold is required to be held by the Minister of Finance as security for the redemption of these dominion notes. It will be observed that the amendment substitutes 8120,000,000 for $50,000,000. In addition to that we have the Finance Act which provides, as is known, for advances of dominion notes being made to the chartered banks on the strength of such approved securities as may be deposited with the Minister of Finance. The Finance Act, as is well known, is chapter 70 of the revised statutes of 1927. Then, in 1915, by chapter 4 authority was given for the issue of $26,000,000 of dominion notes. These notes have been issued and are outstanding; 816,000,000 of them are issued against certain railway securities, and the balance of $10,000,000 has been issued without any specific security.
On the basis of the legal provisions, the dominion's note circulation on May 31, 1934, showed outstanding dominion notes amounting in the aggregate to $171,110,949.69, issued as follows: Under chapter 4 of the statutes
of 1915, to which I have just referred, covered by railway securities to the extent of $16,000,000, and not specifically secured as to $10,000,000-826,000,000. Under the Finance Act, being chapter 70 of the Revised Statutes of Canada of 1927, an issue of $38,444,000; advances made to the banks, secured by deposit of approved securities and under the Dominion Notes Act, being the chapter with which we are now dealing, chapter 41 of the
revised statutes of 1927, there was outstanding, May 31, notes to the amount of 8106,666.949.69, making a total issue of $171,110,949.69, as I have just indicated.
On the same date, the gold held by the Minister of Finance was reported as follows: Against notes as required by the Dominion Notes Act, chapter 41 of the revised statutes, .$69,166.949.69; in excess of the statutory requirements to which I have just referred, $371,002.46-1 will not repeat the statutory requirements-and the gold to which I referred yesterday, held in reserve as security for the deposits in the post office savings banks. $2,294,958.85, the statutory requirement being that 10 per cent of gold should be held against such deposits. That makes the total gold held, $71,832,911. If we eliminate the gold that is held for the savings bank deposits, we have a percentage of gold against paper issue of 40^ per cent; that is, for every dollar of outstanding notes at the end of May, the country held 40xh cents in gold.
Now, the most important change to which I am directing attention this afternoon is to authorize the issue of $120,000,000 of notes instead of $50,000,000 as now authorized. The $120,000,000 will be covered by 25 per cent of gold, and above this amount the 100 per cent provision will still apply. In this connection I will trespass upon the time of the house to read again the resolution which was adopted last year at London by the World Monetary and Economic conference. On the recommendation of the subcommittee on technical monetary problems, the conference of sixty-four nations unanimously adopted the following resolution relating to gold reserves to be held by the central banks-D in the report:
That in order to improve the working of a future gold standard greater elasticity should be given to central bank legal cover provisions; for instance, in so far as the system of percentage gold cover is applied a minimum ratio of not more than 25 per cent should be considered as sufficient; similar elasticity should be achieved' by appropriate measures where other systems are applied. However, such changes must not be taken as an excuse for unduly building up a larger superstructure of notes and credits; in other words, the effect of this resolution should be to increase the free reserve of central banks and thereby to strengthen their position.
That is the end of the quotation. It will thus be seen that the proposal I have just suggested to the house, which the proposed legislation enacts, is in accordance with the prudent recommendations of the world conference. In fact, we are providing a margin of reserve in excess of that deemed sufficient by the conference. I offer this comment in advance to dispel any possible doubt in the
Dominion Notes Act-Mr. Bennett
minds of those who may regard the proposed action as unorthodox or as a departure from the accepted canons of sound monetary practice. Now I shall give the particulars to the house.
The gold coverage under the old and new proposed arrangements is to be calculated as follows: Total dominion notes outstanding on May 31, 1934, as I have already indicated, $174,110,949. Gold held against the notes at S20.67 per ounce, that is, at the statutory figure-