In Canada, bank notes, as we have seen, are secured by a first lien upon the entire assets of the bank, including the double liability, the security being general and not special - not by the deposit of Government bonds, for instance. Therefore it is clear that it will always pay Canadian banks to issue currency when trade demands it. Because bank notes in Canada are issued against the general estate of the bank, they are subject to daily actual redemption; and no bank dares to issue notes without reference to its power to redeem, any more than a solvent merchant dares to give promissory notes without reference to his ability to pay. The presentation for actual redemption of every note not required for purposes of trade, is assured by the fact that every bank seeks by the activity of its own business to keep out its own notes, and therefore sends back daily for redemption the notes of all other banks.

This great feature in our system as compared with the National Banking System,* is generally overlooked, but ward in the spring being so sudden that without the power in the banks to issue, in the autumn serious stringency must result, and without the force which brings about redemption in the spring there must be plethora. As a matter of fact it works automatically, and there is always enough and never too much.

* It may be well to explain that while the note issued by a United States National Bank is nominally redeemable at the counter of the bank issuing it, it is practically not so redeemed, nor does actual redemption by the Bank take place, unless by the accident of the note being paid in across its counter along with the issues of other National Banks.

If a National Bank wishes to recover from the Government the bonds deposited as security for its notes, it is not required to return the actual notes issued, but can withdraw its bonds on the deposit of the necessary amount in any lawful money.

The National Bank currency is issued by several thousand banks, and from the time when a note is first put in circulation it practically loses its specific character and becomes a mere part of the aggregate of such currency. It is true each bank keeps with the Government a fund amounting to five per cent. of its circulation, out of which the Government redeems any notes which may be presented, but the chief use of this fund is to rid the currency of mutilated, dirty, or worn out notes.

Although not actually a legal tender, each National Bank is required to accept them for all debts due, except duties on imports, and may pay it is because of this daily actual redemption that we have never had any serious inflation of our currency, if indeed there has ever been any inflation at all. Trade, of course, becomes inflated, and the currency will follow trade, but that is a very different thing from the existence in a country of a great volume of paper money not required by trade.

I will not discuss at length this quality of elasticity in our system, because it is generally admitted. But some critic may endeavor to show that similar quality might be given to a currency secured by Government bonds. In the older countries of the world it may be sufficient if the volume of currency rises and falls with the general course of trade over a series of years, and without reference to the fluctuations within the twelve months of the year. In North America it is not enough that the volume of currency should rise and fall from year to year.

In Canada we find that between the low average of the circulation during about eight months of each year and the maximum attained at the busiest period of the autumn and winter, there is a difference of twenty per cent., the movement upward in the autumn and downthem out for all Government expenditures except interest on the public debt. What follows from this is obvious. So long as there is no distrust regarding the ability of the United States Treasury to redeem, redemption is not sought by anyone. It is to be remembered that in the United States (as in Canada) gold practically does not circulate as money. Apart from distrust no bank would desire to encumber itself with gold as compared with United States notes or United States National Bank notes.

When gold is wanted for export it is obtained at the moment and almost invariably from the one source - the Government Treasury - in exchange for Treasury certificates representing gold previously lodged or for United States legal tender notes.