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I I Additranal comments / ' — ' Commentaiies suppl^mentaires: This item it filmad at tlw rtduetion ratio chacktd btlow/ C« documant tst filmt au uux de rMiKtian indiqui ei-desious 'OX 14X 1«X 20X 22X D 32x Th* copy fllmad har* has baan raproduead thanka to tha ganarotity of: Libriry of the National Archival of Canada L'axamplaira fllri* fut raproduit grtca t la gtntrotitt da: La bibliothtqua da> Archival nationalai du Canada Tha imagat appaarirnd the close connection of the currrarv m,! /^"'"<'*"""' .hoseof,j.„ei«M,„„nn, KepuLH^^ :l^':::;:z::;t the period u,,on whirl, we are enlerin,- The C-,L7 , , partly fron, choice, partly fr„n, t^ecesJity c„o:: h." '^ot' ments and profited by ,heexpcnenceoftheA,nericr„nkrand of the mother oun ry „•;';: m"*^ ^*"'"" ^"^ P""-^ -^^::^;h^rrrt;r::s:.rt£^ •Chief sources : Dominion Archives, State Pan*.r« r «.. r- Sum„er."'r:Y°oU!':S96"'' '" ""''''""='' ^•>'-- «)' Gillian, Graham CaJda'f„";8"8;'"„'5'' '"''''° "' ""■ '''°"--' P-ham.„, 0, Low„ __ _^ Conclusion des Ol»erva.ions dAn.l-Banque snr 1., B«„„s dn Canada. Kingslon Chromcli. 1827-12 Qtuhec Qatttti 1833. 2 INK HfSTOffr Of VASADIAN llHRH.wy t vidence a.s to the workiiij^s of the hai.ks of tin* I'nited States. Neither thu comtnittee nor those wlio ^ave eviiiLnc*- hrfure it seemed able to throw much lij^ht upon thu hjnk'nji practices of Europe, thou;;h one of the objects f'lr which the ( utntTiittee was appointed was to ol)tain siicti information. Since the Canadian banks were still fulliiwinj* the better American models, it was quite natural that the criticism which was dir'-cted a^jainst the American banks should have found a more or less faithful ec'i ) in Canada. It was popularly assumed in b ith countries, thai the chartered banks were intended to act as public servants for th-j i,'eneral benefit of those engaged in trade and industry. Such being ttie case, tht; average trader could not understand why the banks should curtail their discounts on the mere suspicion of appro, u liiiig commercial distress. Surely it was just at such limes that the banks should come to the assistance of trade. Indeed, a great many of the smaller anks, having been established by men who held views of thi >lure, did not at first see the necessity for shortening sail on sign of rough weather, and the 165 bank wrecks between 181 1 and 1H30 were largely contributed by bank directors forti- fied by the courage of ignorance, rather than sustained by the wisdom of experience. However, as the surviving banks increased in wisdom their critics increased in number. The growing caution of the banks on the approach of bad times ted to their being accused by many of producing, or at least augmenting the crisis. Nor were the critics without considerable data for the making of a plausible case. When credit is once impaired an extra strain falls upon what remains, and every crisis is greatly augmented by the stress which it itself produces. In other words a crisis, once started, largely propagates itself. In the face of this fact, the very self-interest of the banks should forbid their leading a stampede for cover, since they are altogether likely to be ridden down in the general rout. As the responsible officers of credit, when retrenchment is needful the banks must conduct an orderly retreat. 1 his of late they have been able to do by means of organization. But before ex- perience had fully demonstrated tlie wisdom and possibility of t.U\ YHR HISTORY Of VA.V.AIU.IX trUKKXCI- thi. policy, ,he p„s„i >nof an individual An.erican hank, resting on .., own respon,,, ■ , was a very diffic.l, one, and no. t,^ b^ judged by our present - andards. At the period ws are considerinc, the nennle nn. „ i standing ,vh.v .he banks should vary .n'lhe.r feadtrto^tn't accomn.odal.on, var.ous s„sp„ ,c.n. and short theories were .Uru.d to account for it. V. ,,„i,.al part.sansh.p on Ij," the bank was a common exp,,.„at.on. especially where he in d.v„lual .vhose paper was ref„.ed d,d no, share the poli i al conv,c„ons of the hanker. The en,pl„vmen, of , ne 1 r^k^ funds ,„ the purchase „f exchanges, or other spe.ulat h y" d the terr.tory normally connected wi,h the hank, was another explanation. But the commonest of al. was th t oTpe s f.vo„r.„™. and especally the favour.ng of those conn c ed with the hank as shar. holders or directors. nne ctea These grounds of accusation, amon.r ,„hers we find ,„ l. very cou.mon ,„ both the Un„ed .States a'nd ^Z t i « o become more b.tte, and specfic at > ,of particula str .en y m th money market. VVe have ady seen how they were d,r cted as„„s. the Bank of .Montreal ,n the early twenr, :"s,s:f^;ir^"'"^°'"'"'°'''='^-''"'''--'^°'^ It was at this time that the so-called "bank war" ,„,. beKmn.ns in the United States between President Jaks 1 ».lm,n,s,rat,o„ and the Bank of the United States •• a ! „ the arKuments then being directed against the Bank of^h Un„ed States found a read- echo ,n Cana.la, d espeaal Iv tn Lower Cana,la. The Fre, ', Canadians were prep r d o reco«„„e ,n the Bank of Montreal in particular a Lo g'po ' c ° en my, tnasmt.ch as several of its directors and leading h re holders were among the leaders of the Et.glish minority in the ^ i^f :h::e— :^^;;r'' '^! ^t--' ^«-- r„,^ secti.,n„ the great body of the French Canadians were more or less constantly in pohtical conflict ^n«i ""'' ''"'"" '"■^'^ ^^"^'""^ ='"'1 "onsidetable street gossip, propagating accusations and suspicio -s as to the Z fee, or, a. best, the unfairness of the methods ai-inr.,^"^ the Ba k of Mo,.,rea,. a petition was ^::tr;l ^:t:^. ture of Lower Canada, January ,6th. ,8.9, by various persons 4 r/th: Hisroffv oi ■ f\.it>t.t.\' trKk't-xt y styling themselves mcrclianis and iradi rs of fjiiilii-r. The pt-'tition sets forth th;tt the public in ^'enerul .'>iid the petitioners in particular hiive siifTcrt'd much inconvenience and prtju'hce from the manner in which thi- H.uik of Montreal has conducted its business, both bt-fore and since its incorooration. The friends of the bank in the Asseml>ly, renardinj; the inoverntnt as simply a pohtical attack un the bank, at hrst attempted to prevent any action on the p.tiiion. liut an investigation was called fur by a very lart;e majority. Ch.mt^'in^' its t.irtics, thi.- li.mk of Montreal sent in a peti- tion, on the 2nd of February, requesting,' that a full invcsti^iation of the rh.itjies beiiia.le. and pruinisin^; to ricililaie this by pre- Seiitin^ special details of its busituss iiot called for in its i hart^-r. The accusations brought at,Min>t the bank, thouj;h cover- ing in a va};ue way quite a wide fielu, were summed up with sufficient ace -icy, by the committee, in the followint,' charges : *' I. That the public have sutTi-red much inconvenience and loss from the manner in which said bank has conducted its bnsiness. 2. That the bank had no le^al rij^ht to establish an office of discount and deposit at Qut bee. 3. That the oHice 01 (hscouiU and deposit at Quebec re- fused to redeem the notes i-su'd by tht; nioiher bank, 4. That the ofhce of discount and deposit at (Quebec have issued ni tes bearing the words " Payable al Quebec," and that they refuse to redeem any other. 5. That the Montreal Bank traffics in its own notes, by buying them up at a discount. 6. That the bank have traded lar^jely in deteriorated coins. 7. That the bank have not used proper precautioiia to pre- vent Its paper from beinj^ counterfeited. " Among these charges, the strongest pfactiral issue raised by the critics of the bank, was the refusal cf the branch at Quebec to redeem the general notes of thi- bank, confining its payment of notes to those stamped " Payable at Quebec " and issued there. In reply, the officers of 'he bank did n.>t attempt to deny the charge, but pleaded justification, and referred to the practice of several American banks, and especially the Bank of the United States, in support of their position. The point at issue was an interestmg one for all American banks, and, in one form or another, it fills quite a chapter in the history of American banking and inland exchange. OwinK to the K-reat .listancs ,„ A,„.,ica, ll,e 1,„: rnn,!, and ,n,p..rfcct n.rans „l transpnr,.,,, , .,„,( ,„s„,anc.., ,. «as I,, a loHK .,„,. a l,az„r,i„us .wul .,p.ns,ve „,a„er to tran.p.,,, spec, from ore p.a of ti.e country ,„ another. Another important element ,n the s,t„at,„n «as the lac, tha, ihe er, -.Ic port,,,,, of the A,„e,ican pr,.h,.e for the ,e„er..l „,ark« con! .ste,l of H«r,c„ltnral p„„1k, ,s and other ,a>v n.atenals, l,reuKht t.. market ,n iarije ,|M..r,t,t,es at sp, r,al seas,.ns of the year In conse,|„ence of th,., the mternal , xchan,.es were very irregular .n,he,ro,.era,.,. - r, ,,u,rinK ho^e movcMncnts of n.oney over cons,, e,, hie areas and for Ion,. d,s,an, es. or a special o,«aniza- .on of ,he ex. h„n.e.s to n.eet -he pecnliar „e, ds of the eo„r„ry. I'.ncc, hoth ,n the ln„ed S.a.es and Canada i,da,id hills of exchange were moch ,n den.and. a. varyir, pre,„iun,s, as an alternative to Ihe slujipint,' of sp. ie. liut hank notes, rede, n, e at po„„s where payments w.r,: .„ he ,„ade, hein« nu,c! ,„re co„ve,„en, for 'r'nspo than spece, shared w„h ,he hills of exchange in ,he general den.an, for means of re,n,ttan,e. In consequence of this certain hanks at centres where payments in r »cie were fre' quently to he made, loiind their notes cons,an, ominR 1 ach upon them for redemption ,n specie, which nee :taled a c'or respondruKly constant effort on their part to collect and hrine back specs to r,.ple,:,sh their stores, liut in the case of hanks havmg branche.s at .entres of deman.l for specie, they were liable to be called up,.n to re,leem large ,]nantities of the.r central rssues at these l.ranches. This ,„vclv.d the collection and transport of large quantities of specie from the central office to the branches, and the keeping of duplicate stores, to some extent, at the central ofSce and the branches. The Bank of The United States, having'a large number of branches, soon found this inconvenience very great, since the work of transporting specie all over the country largely fed to Its lot. By collecting its notes at any place whence payments were required, and sending them to the place where payments were to be made in specie, the bank was forced to transport the spece wh,ch otherwtse the person making the pajment would ^r« ^^ !,°T . "r"'"°' '°"^ """ '" "'ablishment ,„ 1818, the bank refused to redeem at the branches anything bu, O THE HISTOR V OF CANADIAN CURRENCY the notes issued there. But it undertook to sell inland exchange on its various branches, thus supplying the need but charging for the service. This was made a special point of attack upon the bank by its en'^mies. Nuw, the Bank of Montreal fnund itself in a similar position as regards its Quebec branch. All import duties were payable at Quebec in specie, which specie the Government transported to various parts of the two Provinces in making its disburse- nnents. Through what channels, then, was this specie to be collected and transported back to Quebec to begin its journey over agam ? We find that a great deal of it, as well as of that disbursed from the military chest at different points, was col* lected by the Bank of Montreal in the western parts of Lower Canada, and by its agents in the upper Province, and conveyed to the vaults of the central office. That considerable portion which flowed into the northern fringe of the United States had to be brought back from New York and Boston in exchange for Government and bank bills on London. Thus the normal flow of specie, as affecting Canada, was from the Unite ! States and the Upper Province to Montreal, and from Montreal to Quebec. At Montreal and Quebec it largely passed into the hands of the Provincial and Imperial Governments; to the former for duties, and to the latter for bills on Britain. Through Government expenditure, civil and military, the specie returned to trade and the circle was completed. That the greater part of the expense of collecting and con- centrating the specie fell lo the lot of the Bank of Montreal is to be learned from various sources. The bank itse.f supplied statistics showing that from its commencement in 1817 to 1828 it had transferred specie to Quebec ti the extent of ^322,698, while it had brought specie from Quebec to Montreal to the amount of ^177.393, of which ;^i29,i59 was brought up at the time of the financial difficulties of the bank between 1820 and 1824. During the same period the bank had imported specie from the United States to the extent of ^^665. 582, and exported specie to the extent of only £150,051, which, with the exception of ^1,762 in 1828, was all sent between iSiSand 1822. THE HISTOKf OF CAXADIAX CLRKEXCr 7 As showing the means by which this specie was obtained, we may take the following summary of the exchange dealings of the bank for the three years 1827-29. Exchanges purchased from the Government, ^228,900; from private individuals. ^123,706. Government bills disposed ofinNewYork, ^160 700 Total amount of liank of Montreal exchange drawn, ^204,'oo4, of which /76,954 was sold in Canada and ^117,000 in the United States. The private bills purchased by the bank, being mostly drawn against Britain, were sent there for collection and provided a considerable portion of the fund against which the bank exchange was drawn. Such being the normal trend of the Canadian exchanges it IS quite obvious that if the Bank of Montreal were prepared'to cash all Its notes at its Quebec branch, those having duties to pay or other specie obligations to meet at Quebec, would simply require to collect Bank of Montreal notes in the west, send them to Quebec and require the bank to deliver through its branch there the needed specie. This would entail upon the Bank of Montreal the expense and risk of transporting to Quebec a steady stream of specie to be transferred from com- merce to the Government treasury there. Naturally the Bank of Montreal objected to bear the whole burden of keeping this endless chain in motion. The Quebec branch had been estab- lished simply to do an ordinary banking business there, and to facilitate the exchanges in which the bank itself was interested The bank therefore supplied the Quebec branch with a special set of notes for local circulation, and it undertook to redeem at Quebec only those issued through the branch there. The Bank of Montreal, however, continued to issue drafts on the Quebec branch, for which it charged a commission which covered the risk and cost of transporting specie. If the Bank of Montreal had agreed to cash its general notes at the Quebec branch for a discount equivalent to the charge for draft's, the public would have had the option of having the notes cashed at a discount or of purchasing drafts on the Quebec branch. At first this cashing of its own general notes in Quebec at a dis- count seems to have been permitted to some extent. But as it gave occasion for the cry that the bank was trafficking in its own notes, it was discontinued. 8 THE HISTORY Ol- CAyADIA.\ CfRRESCV We have now seen why it was that the Bank of Montreal refused to redeem its general notes at the Quebec branch, and yet maintained that the Quebec office was not a separate insti- tution but a bona fide branch of the bank. The committee of the Legislature sustained the bank in its position on this important point. The Quebec Bank was not affected in the same way. It had no branch at Montreal, but, the flow of specie being down the river, even if it had established a branch at Montreal there would have been no tendency to present its Quebec issues for redemption there. The Bank of Montreal acted as agent for the Quebec Bank in Montreal, and readily cashed its notes there, since, by returning them to Quebec, it was saved the transport of that much specie. The Quebec Bank, however, would not receive at par the Bank of Montreal notes not redeemable in Quebec, as it would have to bear the expense of sending them to Montreal and bringing back the specie. In other words, it would have found itself in the same position as the Quebec branch of the Bank of Montreal before it refused to redeem the general issues of the bank. The other charges against the bank were mostly of a trivial nature and not supported by the evidence of any persons of importance in the country. On examination, most of the petitioners had to admit that they had suflered no personal inconvenience from the bank, but had signed the petition in con- sequence of the current criticism of the bank in the gossip of the shops. Others professed to be actuated, not by personal motives, but by an unselfish devotion to the public welfare. But, unfortunately, they had but a nebulous conception of the public welfare, and no specific idea as to how it was being endangered. Only as regards the coins in which the banks redeemed their notes was any unsatisfactory condition of affairs revealed, and that was plainly more to the reproach of the law of legal tender than of the practice of the banks. In their larger deal- ings, connected with the purchase and sale of exchanges, the banks were compelled to use a bullion standard. But in the redemption of notes presented by the ordinary citizen, and THE HISTORV OF CASADIAX cmSEXCY 9 especially the French Canadian, Ihey naturally took advanUKe of the law and handed out an inferior coinage parsing by tale and not by weight. In the course of the investigation, the old objection to the Bank of Montreal as monopolizing the exchanges (.f the country, was brought forward again. The centre of the grievance, which was mainly that of the importing merchants and the rival banks, was that the Bank of Montreal, as a competitor for foreign bills, raised (he price of them above their normal value and then sold to the merchants its own bills of exchange at an advance on the mercantile bills. The explanation of all this was simply that the Bank of Montreal, through its extensive foreign connections, cimid com- monly dispose of the foreign bills to better advantage than pri- vate individuals or the other banks. On the other hand, bank exchange, being more reliable than private hills, always sold at a higher rate. Again, owing to the bank's permanent connec- tions, it was able to furnish the merchants with exchanges during the spring and suinmer months, when practically no private bills were available, there bein,- few exports against which to draw at that season. The operations of the bank were thus most useful to the country, serving to keep up the value of exchange at the latter part of the year, when there was a plethora of bills, and furnishing exchange at a reasonable rate during the earlier part of the year. The bank thus encouraged exports and restramed imports, tending to equalize the com- merce of the country by preventing the importer from flourish- ing at the expense of the exporter. Incidentally we learn from the evidence of the Cashier before the committee of the Legislature, that the Bank of Montreal did not pay any interest on deposits, and that, though it had successfully weathered the financial crisis of the early twenties, yet, in order to strengthen its pisition by accumu- lating a reserve fund, it still refrained in 1829, and indeed till the renewal of its charter the following year, from paying dividends. The committee of the Assembly exonerated the bank from all the charges brought against it, and commended it as an institution whose business was beneficial to the country. The 10 THE HISTORY OF CANADIAN CURRENCY committee, however, was chiefly representative of the larger commercial interests of the country, and can hardly be taken as voicing the Reneral opinion of the Assembly, much less of tt» popular views of the Province. As the charter of the bank expired on June ist, 1831, the bank thought it wise, in the face of the popular oppositioQ, which was partly political, to make an early test of the situa- tion. It applied for a renewal of its charter on February 3rd, 1*^30. In the petition presented to the Assembly, the bank claimed that the interests of the country, which induced the first granting of the charter, having considerably increased and having been fostered by the bank, that institution had become indispensable to the prosperity of the country and the develop* ment of its resources. On these grounds they pray for the renewal of its charter for such a number of years and with such amendment as the Assembly may see fit. As was no doubt expected, this application brought to the front a good deal of latent opposition to the Bank of Montreal in particular and to banking corporations in general. The fact that the French Canadians, as a body, were &U11 largely dis- trustful of paper money and still given to hoarding coin, affords a key to much o*" the criticism of the banking system. The author of a series of letters signed Anti-Banque, argued with a good deal of ability and with copious references to the leading economic literature of the day, against the substitutioD of paper for metallic money in the currency of the country. He sought to prove on rigid economic grounds what many . ^Id only as a geneia! couviction, that the banks, by the issue of their notes, and especially the small notes for $1 and $2, had driven out of circulation the greater part ofthe metallic currency. Now, apart from the question as to whether Canadian con- ditions could be decided by European standards, such con- clusions were both true and false. -.. was quite true that, had it not been for the bank notes, there would have been a much larger quantity of metallic money in circulation in Canada than was found necessary under existing conditions. But, on the other hand, it is equally true that, had the country been com- pelled to depend upon metallic currency for its domestic exchanges, these would have been greatly curtailed, and the THE HISTORY OF CAKADIAX CUSKENCY 1 1 business of the country would not have been nearly so well developed as it was. AntiBanque himself admitted that the Western Province had made much greater progress since 1815 than Lower Canada, and he tried to make the banks respon- sible for this stagnation. But the fact remained that it was ir. the trade with the English element of Lower Canada and the Upper Province that the banks found the chief employment for their funds and almost the whole circulation for their paper. Again, in arguing that the whole of the paper issues of the banks were not real but fictitious wealth, a popular conception of the time was fully expressed. There was a general failure to distinguish between the value of a service rendered and the value of the instrument which renders the service. Money, when used as money, is simply an instrument for the transfer- ence of values, or the exchange of wealth. When the money, or instrument which makes the transfer, is equal to the value of the wealth transferred it adds nothing to the service rendered, though it does insure the holder of the money against loss should the exchange fall through or fail to be completed. But, in all normal business, an instrument which will fully serve to make the trant.er and at the same time cost little or nothing itself, represents an immense saving to the country. It is re- lieved from the necessity of excluding from the field of active production a great deal of its capital in order to provide a medium for exchanging the remainder. On the opposite side, the failure to recognize these truths led to glaring examples of the illegitimate use of paper money, through the attempt to employ it, not merely as an instrument for the exchange of wealth, but as a substitute for wealth. These examples furnished the strongest element in the argument of the critics of the banks. Again, those who sought to obtain metallic money for the purpose of hoarding it, but found paper money taking its place, were naturally prejudiced against the banks and their methods. Lastly, the banks had to contend with the Imperial policy of the time, as represented in the British Treasury scheme for unifying the currency of the Empire on the British model. Com- missary General Routh, the exponent of this policy in Canada, strongly urged upon the Government his objections to the 13 THF. HISTORY . iF CANADIAN CURRENCY exchange business of the banks and their issue of small bank notes. He found in the specie dealings of the banks, their dependence upon the American money market, and their conse- quent adherence to American currency standards, as also in their issue of %\ and $2 bank notes, the chief obstacles to the introduction of British silver coins and their maintenance in circulation. He returned to the charge 'vith special emphasis when the question of renewing the charter of the Bank of Montreal was brought forward. The banks, he says, have no claim against the public good. They should be forced to redeem their notes in a sound circulating metlium ; in other words, there sliould be no premium on exportable metallic money so long as bank notes are freely redeemable in specie. The real cure for this, as he rightly claims, is a sound currency law dealing with legal tender. But this did not necessarily involve his particular view of a restricted legal tender, or the prohibiting of bank notes for less than $5. He makes use of the American argument that it is dangerous to permit the banks to obtain such a complete command over the currency of the country, since they may acquire an influence as great as that of the Legislature itself. Even at present, he points out, it is impossible for the Government to keep specie in circulation alongside uf the bank notes. The leading objections to the banks found expression in a petition from various merchants of Quebec urging that, should thecharttro^ the bank be renewed, "care should be taken to protect the interest of the public by restricting the said bank from dealing in bills of exchange and from issuing bills for small sums." However, apart from the influence of its friends, there were two strong factors in favour of the bank at this time. The first and most important fact was that Canada, in conimon with the rest of the world, had entered upon a very prosperous period. Trade and industry in general were rapidly developing. The Imperial Government had undertaken large military and public works, chief of which was the Rideau canal in Upper Canada. The Provincial Government also undertook to improve the internal means of communication. There was much demand for labor, a good market for the products of the coun- THE ll/VIUKV nr C.1.\AI>I,I.\ CI KKKXl r '3 try both at liome and abroad, and tlie merchants and small traders were in the best of spirits over the outlook. The second fact, depending on the first, was that the banks, already almost indispensable to trade, were fi.uiid to be increas- ingly necessary to the I>usiniss interests of ihr country. In fact, business was beRinnins; to demand more .icrommodation in the banking line th.in the ..-xisnnj,' banks, with their limited authorized capital, could supply. It was felt by every one who realized the position of the country that to refuse to renew the charte.s of the l«nks meant immediate panic and probable ruin for nincli of the reviving trade of the country. Thus the Hank of Montreal, as leading the van, found the force of circumstances strongly in its favour. Even the French Canadian leaders, while strongly critical of the bank, plainly recognized thai they dared not eflTectiveiy oppose the renewal of its charter. The Kingston Chroni.le of M.irch aylh, 1830, gives a very full report of the debates in the Assembly on the subject of the bank. Mr. Neilson, while not prepared to directly oppose the renewal of the charter, was still very critical. He declared that the bank had not fulfilled the expectations of the public with reference to the assistance to traile and the rendering of pay- ments steady and regular. He was doubtful of the advantages of the small notes in the currency of the country, and especially suspicious of the political power of the bank when he found that there were obligations due to it to the extent of ^600,000, which gave the bank a very great hold upon the people and a special opportunity for corruption. Mr. Papineau followed in the same line, and referred to the limited knowledge which the public were permitted to have as to the workings of the bank or its solvency. He hinted at the fact of the institution having been at one time on the verge of bankruptcy. He admitted that, so far, the Bank of Montreal had fulfilled all its obligations, but the future was uncertain and the example of many of the banks in the United States was a warning of what might happen. He was inclined to regard the investigation of the previous year as a whitewashing process for the bank, and desired a fuller account of its affairs from the officers of the bank. He also attacked the privilege of limited liability which the shareholders enjoyed under the existing charter. «4 THE HISTORY OF CANADIAN CURRENCY Mr. Leslie, one of the directors of the bank, defended it and promised all reasonable information as to its standing and general business. In the bill now before the Hous :. he said, a new form for rendering statements as to the condition of the bank was introduced, taken from an act of the State of Massa- chusetts, which he hoped would prove satisfactory. As to the issue of small notes, it had been forced upon the bank by the necessities of trade and by the fact lijat before they were issued their place was taken by small notes from banks in the United States. The small notes of the bank then in circulation amounted to about ^45,000. The reason for applying thus early for a renewal of the charter was that if the bank was not to be re-chartered it must have some time for calling in its loans and winding up its business. wMch would be a very serious matter for th ; country. This adroit statement drew from the leading critics of the bank the admission that the sudden wind- ing up of an institution which had such a hold upon the com- merce of the country, would indeed be disastrous to the mer- chants and, through them, to the people throughout the Province. But, while not prepared to go the length of refusing to continr the bank's charter, they would not consent to extend the charter for another ten years, nor let the bank off without a pretty thorough revelation of its business. Mr. CouviUier, formerly a director of the bank, told those who were clamouring for a complete exposition of its affairs, that they could not understand such a statement if presented to them ; even the stockholders could not fully understand it ; an observation which, however true, had anything but a sedative eflfect upon the oversuspicuous French Canadian representa- tives. After some pretty sharp debate, an extensive range of detailed information was called for by Mr. Young, member for the lower town of Quebec. This referred more particularly to the bank's dealings in exchange, and its granting or with- holding of discounts. The objection was made that the time necessary to supply the details asked for would prevent the charter from being passed before the session closed, and the interests of the country demanded that a decision should be arrived at that session. THE HISTORY OF CASADIAH Cl'KgENCY IJ Mr. Young, who declared himself not opposed to the re- newal of the charter but anxious for more detailed information innounced that he could contribute from his personal knowledRe one Item of information with reference to the relation of the bank to Government exchange. That was, •• that the bank had made an offer to pay the whole of the expenses of Government if they could have the refusal of all the Government exchange •' and when they were defeated in this project (and defeated they were, but-no matter how—) they then took such measures as indeed every trading company would, to effect their purpose by other means.- As this interesting bit of iuformation was not contradicted by the represent.itives of the bank there was no doubt some ele lent of truth in it. The people, sa.d Mr Young, are anxious to know what difference there was between the rates at which the bank bought and sold its exchanges. He intimated that the bank charged 5, 6 and 7 per cent, advance, owing to Its virtual monopoly of the exchange market The bank, however, steadily refused information on these points, and the Assembly had to go without it. The committee to wh.im the petition of the bank was referred, reported in favour of the renewal of the charter, with a recommendation that a mure detailed statement of the affairs of the bank should be required from it. It was recommene trouble. In rheir business the banks of Canada are closely connected with these of the Unit ,d Statf s. In case of an inter- national crisis, the command of specie would be absolutely necessary for the Government, and, under the circumstances, it might be difficuli to convert the [Mper into specie. It may be added (hat the Governor's knowledge of American banking was limited to the conviction that all the banks there were *' liitle better than gambling speculations." Tilt HISniKr Of iAKMll.lX riRSKSCV 19 Eventually il,e Home Govtrnnitnt decided to mike trial of the policy of cmployini? the Canadian banks in making its pay- ments. Naturally the Bank of M„nlreal was first selected, nnce to it the r,overnm-.nt had already disposed of the greater p»rtof.tsexchan);es, and the bank itself had been for some time urRinff this policy upon the authorities. We learn from Vt».qu,{„cGa,etU of January gth, 1833, that "All demanda .-.gainst the Commissariat Uepartment are now paid by cheque, on he Montreal Bank. This plan went into operation on the nrit of the present month." The Imperial policy with reference to the hanks beins in a transition state when the bill for the et.,l,lishinK of the City Bank came before the Governor, he naturally thought it wise to have the opinion of the Home Government on the subject. The Colonial Office did not object to the new bank, but discov- ered that the bill contained certain clauses seriously affecting the criminal law of the country. For instance, death was made the penalty for any servant of the bank "who should secrete, embezzle or run away with ' anv of the securities of the bank Now the objectionable clauses were simply coped directly from Ihe Acts chartering the Montreal and Quebec Banks, which had just been continued without any amendmen n these par- ticulars. Lord Goderich, in giving the re«oni for thedisallow. anceof the Act. stated that, while the Home Government had no intention to interfere with the criminal law of Canada yet it could not sanction the establishing of a special criminal code lor the protection of specific corporations. However, he intimated to the Governor that should a bill be passed chartering the City Bank and containing no such objectionable features, he might give it his assent. Accord- mgly, m the session of ,832.3 the bill was again passed without the criminal clauses, and, receiving the Governor's assent became law on April 3rd, 1833. The bank was chartered till June ist, 1837. The capital stock was fixed at ^200,000, i„ shares of ^25 each. The sum of ^40,000 was to be paid in before iny notes could be issued and a further sum of ^36,000 to be paid in within three months' from the first issue of notes. The whole of the capital stock was to be paid up within four years from the passing of the Act but no .single payment to exceed ten per cent, on the shares ' «> THE HISTOKV OF CAXADlAy CURKENCr The books for subscription to the stock of the bank were opened on May 13th, and at once 1,000 shares were taken up. During the summer the organization of the bank was com- pleted, and on October J4th, 1833, the City Bank opened its doors for the transaction of public business. There appears to have been no lack of patronage, for it was reported that paper for discount to the extent of ^50,000 was oflered on the opening day, of which only ^9,600 was accepted. Before dealing with the inevitable reaction which followed the period of prosperity from 1829 'o 1833, we must see how banking and exchange fared in Upper Canada during the years of plenty. Adam Shortt Qdben's t-MivBRsiTV, Kingston