In the facility which widely scattered branches offer a bank in the way of getting its notes into circulation is found another incentive for their establishment. For where, as in Canada, each banker daily presents for redemption all other bank notes which may reach him, if the notes of a bank are put in circulation only at a single point, not only will the average period of circulation be brief, but the field of their employment must also necessarily be limited. But by the establishment of ten, twenty or thirty branches, it becomes an easy matter for a bank, by continually paying out its own notes in so many different places, not only to enlarge its field of circulation, but to increase the average life of the notes, thus contributing in two directions to increased profits.

The Head Office keeps each branch constantly supplied with notes signed ready for issue, which, except for the purpose of small change or occasional matters of accommodation, answer all the purposes of the teller. Whenever payments are made over the counter, these notes are the medium. This use of a bank's own notes as the ordinary till money throughout the whole system of branches has the very great advantage of costing no interest, the only expense being that of printing and preparing the notes for circulation. When it is noted that in some of the larger banks it requires some $2,000,000 to keep the tills of the Head Office and the various branches supplied with cash the importance of this saving can easily be appreciated. The matter has been so admirably summed up by one of the officers of a prominent Canadian bank that I quote his statement:

66

"In the United States it probably does not occur to the banker to make any distinction between the money in the teller's drawers or tills and the money kept in reserve in the safes, or, as we call them, "treasuries. In this country there is the greatest possible difference. All of the cash used by a bank in the "United States is really money to the bank-that is, it costs the loss of interest to carry it idle. So far 66 as this idle cash is necessary as a reserve the loss of interest should be borne, but to the extent that it ❝is necessary only as machinery for paying checks or other change making purposes it is, in our opinion, a wasteful and unscientific system. If you look at the figures of cash held by the Canadian banks the amount appears wretchedly small in proportion to the liabilities. But, as a matter of fact, the cash there "shown is only the gold and legal-tender reserves in the treasuries and the trifling amount of gold and "legal-tenders kept in the tills for the convenience of customers. The main business of making payments "in money is done by the note issues of the bank."

66

66

This advantage, however, is one that arises not so much from the system of branches as from the fact that the issues are secured by the general assets of the bank rather than by deposit of bonds or other special security-an arrangement which would require that capital should first have been invested in securities sufficient to cover not only the notes in actual circulation, from which a profit is being obtained, but also those in the tills of the bank and its branches, which are earning nothing.

SECURITY.

In addition to the business facilities especially increased by the system of branch banking, as contrasted with our present United States system of independent banks, each confined to a single locality, there is involved another equally important question-that of comparative security.

On the one hand it is evident that the system of branch banking involves an extraordinary amount of discretion and power in the hands of a single man-not on account of the enormous interests involved-for these are perhaps not larger than might be centered in the business of a single locality-but in the extent to which, as a necessity of the system, the administrative head must be left unguided and untrammeled by directorates or committees of stockholders. So long as interests, however great, are massed in a business concentrated at one point, a board of local directors is more or less familiar with the conditions, and can properly undertake the responsibility of correcting a too venturesome management. But when the business of a bank must be handled from a single center through numerous branches in every part of the country, it is absolutely impracticable either for the central board of directors to keep in touch with the conditions at each branch, or for numerous local boards to be so co-ordinated as to be relied upon to influence the central management. As a result, a great bank having numerous branches must of necessity be a great financial army, conducting its campaigns at once in the several quarters of the country, handled arbitrarily and summarily by a single head whose responsibility cannot be lightened or shared.

There results, therefore, on the one hand, an extraordinary administrative facility which may be of the utmost advantage to the institution-especially in enabling it promptly to adapt itself to rapidly changing conditions, whether general or local. On the other hand, the opportunities for malfeasance or, more often perhaps, imaginative finance, are greatly increased. It is perhaps hard to tell to which extreme the balance would tend-whether toward the advantage of giving

the greatest scope possible to the comparatively few born financiers that are ever available in any country, or in giving greater opportunity for evil to the "Napoleons of finance" with which any country is likely to be cursed.

In another direction, however-that of increased mutual support and insurance -the argument seems all on one side and highly favorable to the branch banking system. Under our United States system, which leaves each bank so largely dependent upon the fortunes of its locality, and the business of each locality so entirely dependent upon its local banks, nothing is more common than to see mutual ruin of banks and business in numerous widely scattered localities, while the business of the country has been as a whole sound. Such results are inconceivable in Canada. The widely extended system of each of the great banks, with its branches in every part of the country, constitutes a practical financial Lloyd's insurance, by which each helps to guarantee the soundness of all; while the congeries of the several systems interlocking at every town in the Dominion leave it simply impossible that any local point of the least importance should for a moment be lacking in the most complete discount, currency, and other banking facilities, so long as the whole business of the Dominion is not involved in common ruin.

ELASTICITY.

The great importance of elasticity in any currency system needs no emphasis here; its special significance in relation to the business requirements of a country largely devoted to agricultural pursuits is admirably expressed by Secretary of the Treasury Windom, in his report for 1890, who says:

"In my judgment the gravest defect in our present financial system is its lack of elasticity. * ** * The demand for money in this country is so irregular, that an amount of circulation which will be ample during ten months of the year, will frequently prove so deficient during the other two months as to cause stringency and commercial disaster. The crops of the country have reached proportions so immense that their movement to market, in August and September, annually causes a dangerous absorption of money. The lack of a sufficient supply to meet the increased demands during those months may entail heavy losses upon the agricultural as well as upon other business interests."

It is especially in this connection that the experience of Canada is likely to prove most interesting to our own financiers.

The table which follows shows the extent of the regularly recurring expansion and contraction of the Canadian bank currency in recent years:

The following table gives, in column I, the aggregate circulation of all the banks of Canada at the end of each month, from January, 1891, to the present time; in column II, for the purpose of comparison, the corresponding data as to the National Banks of the United States are given; while the accompanying chart presents the details of the past four years' experience in graphic form, the scale being such that the relative proportions are maintained:

130

35

400

February..

March..

April

May.

June

January....$31,662,099 $32,705,400 $32,831,747 $30,571,375 $175,721,739 $173,205,496 $174,391,253 $207,862,107 31,925,749 32,711,015 32,978,840 30,603,267 173,663,374 172,621,875 17,422,388 207,479,520 33,020,661 32,483,965 33,430,883 30,702,607 30,904,096 31,496,369 32,633,073 29,996,472 30,917,215 31,383,218 31,927,342 28.467,718 31,379,968 32,614.699 33,483,414 30,254,159 July. 30,579,968 32,488,718 33,573,468 29,801,772 August.. 32,012,196 32,646,187 33,308,967 30,270,366 September.. 34,083,051 34,927,615 35,128,926 33,355,156 October... 37,182,768 38,688.429 36,906,941 34,516,651 November.. 387,430,690 37.124,505 35,120,561 33,076,868 December.. 35,634,129 36,194,023 34,418,936 32,375,620 173,078,585 174,404,424 208,538,844 206,605,710

[Millions of Dollars.] CANADIAN BANK

CIRC.

1891

171,805,064 172,529,451 176,094,544 207,875,695 170,419,376 172,476,575 176,865,614 207.833,032 169,237,459 172,499,349 177,164,255 207,245,019 167,927,574 172,683,850 178.713,692 207,353,244 168,543 059 172,527,713 183,755,148 207,539,066 171,334,339 172,656,429 128,980,368 207,592,215 171,935,706 172,786,760 208,690,580 207,564,458 172,184,558 172,432,146 209,311,993 207,565,090 172,993,607 173,614,871 208,948,105 206,686,837

AUG

SEPT

OCT

ΛΟΝ

DEC

JAN

FEB

MAR

APR

MAY

JUNE

JULY

AUG

SEPT

OCT

NOV

DEC

JAN

MAR

CANADIAN BANK CIRCULATION

US NATIONAL BANK CIRCULA

-TION.

A comparison of the courses of the lines representing on the diagram the elasticity of the Canadian and United States National bank currency for the years 1891 to 1894, inclusive, is really a condensed historic statement, of which the story of delicate and constant adjustment of Canadian currency to Canadian wants is the most commonplace chapter. The record of real interest to us, that we read on the same page, is the story of speculative periods in the United States arising from superabundance of currency at low rates of interest which so accurately coincide with the periods during which, as noted on the diagram, the line indicating the sensitive course of Canadian currency falls below that representing the stolid persistence of nearly uniform volume with us; while our annual period of late summer and early autumn stringency, toward which every merchant and banker looks with concern, and which we have so long learned to describe as the time when so much currency is needed to "move the crops "—as though the Providence that gives us harvests was responsible for it, coincides in its turn with the period during which in each year the line representing the promptly responsive currency of Canada rises above the dead level which our own currency maintains. Looking back over the panic year, the current chapter adds a climax to the comparison. In both countries business has of late been depressed, though subject to the normal tendencies to increase or decrease with the seasons. In Canada the result has been, as is seen from the diagram, a practical repetition of the contraction and expansion of former years, except that the lines which indicate contraction have grown longer in proportion to those which indicate expansion, as the currency system of Canada has

adjusted itself to the lessened requirements; while in the United States the extraordinary increase of our circulating medium conjured up by the stringency of 1893, but coming too late to avoid its worst consequences, has continued to the present date, giving the country, just at the time when it needed least currency, by far the largest supply it has ever had, and leaving the banks, in default of even ordinary business demands, to become gorged with such an unheard of surplus of currency as has never before taxed the wits of financiers or disgraced the currency system of a civilized country.

Whatever else it may or may not be, the Canadian system certainly is elastic. As surely and as regularly as the autumn months come around and the inevitable accompanying demand for additional currency begins to manifest itself, loes the circulation of the banks automatically respond; the expansion ordinarily continues until about November, when a maximum, some twenty per cent. in excess of the normal circulation during the summer months is reached. In consequence of this prompt and adequate response to every legitimate demand of commerce for more of the media of exchange the conditions in Canada are quite different from those to which we, in this country, are accustomed. As a prominent banker has recently stated it, "Panics for fear of stringency are thus unknown. The Canadians never know what it is to go through an American money squeeze in the autumn."

REDEMPTION FACILITIES.

But to secure real elasticity, it is not enough that the circulation should promptly expand when the necessities of commerce require more currency. It is just as essential that the circulation should automatically contract as soon as the necessity for its existence shall cease. Here, again, the experience of the Canadian banks seems all that could be desired. Beginning with November each year, the circulation is steadily withdrawn with no more of apparent effort or concern on the part of the bankers or financiers than attended its issue, and by the first of February the normal volume has been once more restored.

The business depression through which both Canada and the United States have continued to struggle through the present year has naturally been attended by a lessened demand for money. The circulation of our National banks shows no evidence of, or sympathetic connection with, the change that has thus taken place in the requirements of trade. On the contrary, though the recent unprecedented surplus reserves of the New York City banks most strongly attest the facts, the National bank circulation has remained practically stationary for more than a year. In Canada, however, the decreased demand for money was met by such a reduction of the outstanding circulation of the banks that on May 31st last their aggregate circulation was the least reported in ten years.

The questions that most naturally arise on noting the prompt and automatic withdrawal of notes from circulation the moment they become redundant, are as to the methods of redemption through which that result is brought about.

In enumerating the provisions of the present Act, attention has already been called to the fact that each bank is not only obliged to redeem its notes in coin or Dominion notes, when presented at its principal office or at any other places at which they may be specially designated as payable, but is compelled to receive them at par in payments to any of its branches, and in addition to maintain at least one agency for their redemption and payment in each of the cities of Halifax, St. John, Charlottetown, Montreal, Toronto, Winnipeg and Victoria :—i. e., in the principal city of each Province.

These provisions are sufficient to insure a banker in any part of Canada-without going to unusual trouble, and in general without being obliged to venture beyond the limits of his normal business methods or operations-to present for redemption the notes of such other banks as may come into his possession. It only remains to note that, as the only means by which the field can be kept clear for his own circulation, each banker follows just that course, and day by day sends in for settlement the notes of his neighbors, precisely as he does their checks. For, except in those rare cases where the legal limit of circulation has been reached, the paying out by a banker of the note of another bank where a note of his own might have been used would be the grossest disregard for business principles. The result of this universal attitude of the banks in seeking constant daily redemption of notes is that any issue beyond the current needs of commerce soon reaches the tills of a bank or one of its many branches, from which it is promptly presented for redemption retired.

The object sought in the establishment of the redemption agencies in each of

the principal cities of the Dominion was, not more elasticity, but a more National currency,-one that would circulate at par in every part of the country, yet be equally responsive to the requirements of commerce. Theretofore the notes of each bank had been accepted without hesitation by all other banks, but the universal laws of exchange prescribed that in certain cases such notes should be only accepted at a discount. For example, the movement of funds being in general from the Maritime Provinces toward Ontario and Quebec, the notes of the Nova Scotia and New Brunswick banks generally were at a slight discount in Toronto and Montreal, as drafts upon those banks would naturally be. Likewise, the notes of Toronto and Montreal banks were usually subject to some discount in the Northwest Provinces. But by the establishment of the redemption agencies provided for by the Act of 1890 a distinctly national character has been imparted to the notes of all banks, and discount, for geographical reasons, has been done away with.

That the prompt and automatic redemption which is the basis of the elasticity of the Canadian bank circulation is not due in any degree to the "redemption agencies" thus established, is shown by a glance at the table on page 12, from which it appears that, prior to the legislation of 1890, the adjustment of the supply of currency to the needs of commerce, through successive expansions and contractions, was no less perfect than it has since been.

This fact is significant in view of the tendency of United States financiers and statesmen to place extraordinary stress upon providing by legislation for elaborate redemption facilities. The experience of Canada has shown that legislation in this regard was delightfully immaterial-it having been as perfectly ineffective to secure special elasticity and prompt redemption as it was perfectly uncalled for on behalf of either, both of these aims having been perfectly subserved by the natural course of business before the law was passed.

Instructive, however, as is Canada's experience in this regard, our own is still more striking and valuable when we once catch a glimpse through the fog that thirty years' experience with the artificial redemption provided by our National Banking Act has spread about us. During the fiscal year ending June 30, 1894, on the basis of above $200,000,000 average circulation of National bank notes, some $100,000,000 in all passed through the elaborate redemption bureau so carefully provided by law. Of these $50,900,000 were cases of exchange of old or mutilated for new currency; $10,900,000 the final redemption of banks which had ceased to issue circulating notes; and only $39,900,000, or less than two-fifths, was normal current redemption through which alone elasticity could be assisted. Before the war, however, when commercial expedients were much less effective than now, upon a basis of less than $50,000,000 average circulation of the New England banks for which it acted, the redemptions of the Suffolk Bank during its later years amounted to $400,000,000 annually-of which but an insignificant fraction were the mutilated and dead currency redemptions which, the mere incidentals of an effective system, are about the only uses our Federal system subserves.

The experience of Canada has shown that no elaboration of legal require ments adds to the efficiency with which if commerce is let alone it can and will attend to current redemption. In this regard clearing houses are as omnipotent as Governmnt seems to be powerless. Our own experience has demonstrated how completely a thoroughly good system which had developed without the aid of law has been petrified by attempting to assist it.

GENERAL REVIEW OF CANADIAN CURRENCY.

The remaining elements in the general currency system of Canada, in addition to the notes of the chartered banks, already described at length, are but three: viz., gold coin, subsidiary silver and Dominion notes.

Canada has no gold coinage of her own; but the gold coins of the United States and the United Kingdom pass current and are legal tender. There is very little gold in actual circulation. The Dominion Government holds at present, as a reserve against the outstanding Dominion notes, some $10,000,000; the chartered banks hold perhaps $6,500,000 or $7,000,000 additional; while the remainder of the gold in Canada, including that held by private bankers and savings banks, may be sufficient to bring the total up to $20,000,000, in round numbers.

The silver coinage dates from 1870. It consists solely of subsidiary coins, which are legal tender to the extent of ten dollars. The total issue from 1870 to the close of the fiscal year 1893, was $6,339,585.

The Dominion note issues are the direct outgrowth of the Provincial notes authorized in the Province of Canada in 1866. The limit of the issue, fixed in 1868 at $8,000,000, was successfully increased to nine, twelve, twenty, and finally-by an act