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122   DAYS OF PREPARATION

cent. cover only was required was raised from thirty to fifty millions, thus releasing fifteen millions of gold. This was intended as a permanent measure and not merely as a war expedient (although its introduction at that particular moment was of course due to war conditions), being based upon the theory that the population and currency-employing power of the Dominion were now increased to a point where fifty millions of Dominion notes would at all times be required for current circulation in the hands of the public, without regard to the holdings of the banks. The issue of notes against deposited securities, under the Finance Act of 1914, was additional to this normal gold-based circulation, and was limited only by the discretion of the Minister of Finance. In practice, however, the total circulation uncovered by gold never rose above seventy-five millions, of which the first half was the amount allowed under the new Dominion Notes Act as a normal figure, while the remainder was secured by the securities deposited by the banks as indicated below. This fresh supply of Dominion notes passed immediately into, and remained in, the hands of the banks, providing them with a greatly enlarged store of ready cash, a commodity of which they felt themselves obliged to carry an unprecedented supply owing to the uncertainties of the times.

There was still some question as to the legality of twenty-six millions of this excess note issue, for it was not issued against approved securities deposited as collateral by a bank, as required by the Finance Act of 1914, but consisted of ten millions advanced to the Canadian Northern Railway and six millions to the Grand Trunk Pacific, both upon the security of larger amounts of the bonds of those railways, guaranteed by the Dominion of Canada but unsaleable under existing conditions, and ten millions expended for the general purposes of the Dominion at a time (November, 1914) when much work had to be done without delay and it was impossible to raise money in the ordinary way.


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