Figure 3 shows the amount of notes in circulation at the end of each month from January, 1901, to January, 1913, inclusive; and the average circulation in millions for each year of the twelve years is as follows:

An examination of the average circulation shows a more or less steady annual increase from $50,000,000 in 1901 to $100,000,000 in 1912, and there is only one break in the upward tendency. In 1907 the average had reached $76,000,000, but in 1908 dropped to $71,-000,000, a loss of $5,000,000, which was not fully covered even in 1909 with its banner crops, the average for that year being $74,000,000. Any departure from the normal in the monthly course of the circulation can be traced to seasonal or temporary reasons, which do not, as a rule, affect the year as a whole, and can generally be ascribed to purely Canadian causes; but the check in the annual increase and the decrease in the volume of the circulation tell a different and more serious tale, generally that of unwise speculation and its inevitable finale. At all events, the reason is international and not national in character and, as a rule, arises out of the financial ills of our neighbor. The panic of 1907 in the United States and the consequent depression in business during the following years seriously affected the circulation, and the following year, 1909, shows a curtailment of all expansion and enterprise thruout the country. A similar condition will be found to follow all such panics. A reference to the years 1892, 1893, and 1894 shows the average circulation for these years as $32,000,000, $34,000,000, and $31,000,000 respectively, the latter figures showing the reaction from the panic of 1893.

A study of the monthly fluctuations shows that from 1868 to 1891 the lowest point in the circulation was generally reached about the middle of the year instead of in January, which is now the lowest month. About 1889 evidences of a change began to appear, until by 1895 the readjustment was completed, and January became the largest redemption month, the circulation then reached its lowest point, and it has held that position ever since. Such a radical change must mark an epoch-making event in the history of the Dominion, and this was no less an occasion than the opening up of the great Northwest and the entering of Canada into the arena of the world's wheat growers.

Circulation Of Canadian Banks Volume in Millions as reported in the Government Statement at the End of Each Month. 1901 - 1913

Difference in Millions over Previous Month. 1901 - 1913 Decrease shown thus: -2 (minus two)

Figure 3 61

Previous to 1906 the circulation returns in the government statement formed a very reliable barometer of the outstanding circulation in the hands of the public, but in 1907 the banks began to realize that the moving of the crops and the opening up of the Northwest was beginning to test the efficiency and volume of the available circulation. A number of the banks increased their capital. For the requirements of the average circulation this would have sufficed amply, but it was impossible to increase capital at a sufficiently rapid rate to cover the "soaring peak" of the October and November demand for currency. In 1908 an amendment to the Bank Act was passed permitting banks to issue emergency currency during the crop-moving months, based on a percentage of their combined capital and reserve. This, tho useful, proved of only temporary and limited advantage. Another expedient was tried by the government in permitting banks to deposit gold with the Receiver-General and obtain Dominion notes in exchange. This was not taken advantage of to any great extent, as it was found to be not only slow and clumsy in operation, but lacked the essential feature of elasticity. As might be surmised, during the past few years the banks have frequently found themselves uncomfortably near the limit of their circulation, and at these times they do not present the notes of other banks for redemption in the usual way, but retain them for their own use over the counter. For instance, in June, 1912, the banks evidently held each other's notes until the June demand was satisfied, and in consequence the July redemption was abnormally large. In studying the circulation returns for the years 1908 to 1912 these peculiar conditions, and the expedients resorted to for supplying the extra circulation required, must be taken into account.