This section of the book is from the "Canadian Banking Practice" book, by John T. P. Knight.
Question 82.— (1) Can a bank legally pay a demand draft, payable in sterling, drawn upon it by an English bank, at a less rate than that provided in section 71 (d) of the Bills of Exchange Act?
(2) At what rate should a cheque be paid when drawn in sterling though otherwise upon an ordinary cheque form, dated, say, Toronto, and sent for collection by an English bank?
Answer.— (1) The rate at which a bank should pay a sterling demand draft, drawn on it by an English correspondent, is fixed by section 71 (d) of the Bills of Exchange Act. If the bill is drawn simply for so much sterling money without any reference to a rate of exchange, it should be paid at the rate for sight drafts at the place of payment on the day the bill is payable. If, however, it is payable at "the current rate of exchange," this does not necessarily mean the demand rate. Sixty days' sight has always been the "usance" between England and this country, and we think the 60-day rate would probably be accepted by the courts as " the current rate of exchange." If there seems to be any conflict because of the bill being payable on demand, it will disappear if the bill is read in this way: " On demand pay to --------- pounds sterling, calculated at the 60-day rate of exchange."
(2) It would be unusual for a cheque to be drawn in Canada, upon a Canadian bank, payable in pounds, shillings and pence. If such a cheque were drawn we think the bank would have the right to refuse payment, but it would probably be justified in regarding it as an order to pay the currency value of a similar amount of British gold, i.e., to convert the sterling money at $4.86 2/3. In remitting to an English correspondent for such a cheque it would have to be treated as drawn for the amount in Canadian currency computed as above, and the exchange calculated accordingly.