By the Bank Act, Canadian banks are empowered to issue notes of $5 and multiples thereof up to the amount of their unimpaired paid-up capital against the general security of their total assets on which the notes form a first lien. All the banks are required to insure the circulation of their notes at par in every part of Canada. This is effected by requiring each bank to provide known redemption agents in the cities of chief commercial importance, namely, Halifax, St. John, Charlottetown, Montreal, Toronto, Winnipeg, Regina, Calgary and Victoria. Every bank accepts the bills of every other bank at par and forwards them to the nearest branch or redemption agent of the bank of issue; hence every day all over Canada the banks undergo a severe test of their ability to redeem their circulation no matter how freely it is offered for redemption. This is one of the strongest advantages of the system, and makes the circulation perfect and free from stagnation. The circulation thus varies in velocity and volume as the activity and requirements of the country demand, revealing to the experienced banker the conditions of trade and finance thruout the country.
It is important to remember in considering the note issue that, in the tills of its own bank, a note has absolutely no value except as so much stationery. This enables the banks to carry a good supply of bills at each branch, as they do not become a liability of the bank until they are paid over the counter. This is a very valuable feature, as it not only allows a bank to keep a good supply of till money on hand without loss, but it enables a small branch to meet an usually large demand for cash either in the way of repaying a heavy deposit or of making a large loan.