The Central Gold Reserves

The Bank Act of 1913 made an important change in the ordinary issue power of the banks. Section 61, Subsection 3, says:"Except as hereinafter provided,* the total amount "of the notes of a bank in circulation at any time shall "not exceed the aggregate of:"(a) The amount of the unimpaired paid-up capital " of the bank; and "(b) The amount of current gold coin and of Do-" minion notes held for the bank in the central gold " reserves hereinafter mentioned."

The Bankers' Association, with the approval of the Minister of Finance, appoints three trustees, and the Minister appoints a fourth trustee. These four trustees have the custody and control of the centralgold reserves. Any Canadian chartered bank wishing to issue its notes in excess of paid-up capital may at any time throughout the year deposit current gold coin and Dominion notes in the central reserves; and upon doing so the bank may issue its own notes in excess of paid-up capital up to the amount of its deposit in the central reserves. Such issues against gold or Dominion notes are not subject to tax and do not call for any deposit in the Bank Circulation Redemption Fund. So, when its note circulation approaches the paid-up capital, the bank can deposit gold or Dominion notes with the trustees, and issue against the deposit; or in the crop-moving season - from 1st September to the last day of February (both inclusive) -it may issue in excess of capital subject to tax. If it wishes to do so, the bank may use both of these methods of issuing in excess of capital during the crop-moving season.

The Bankers' Association examines the circulation books of every bank to make sure that none over-circulates. Heavy penalties are prescribed for over-circulation. If a bank puts into circulation an amount of notes exceeding that authorized it is liable to a fine ranging from the amount of the excess if that be not more than $1,000, up to $100,000. To facilitate the inspection and supervision of the note issues the Association has brought about a uniform method of keeping the circulation books.

* Refers to issues in excess of capital, subject to tax, during the crop-moving season.

Computing The Circulation

The following example is given as an illustration of how the banks arrive at the amount of notes in circulation. The Manufacturers Bank, a new bank, receives $1,000,000 in its own notes from the bank note printing company. In its books the entry is made, "Credit Bank Note Account $1,000,000." Balancing this credit will appear among the items of the cash, "Manufacturers Bank notes on hand, $1,000,000." The notes are signed and sent round to the branches for circulation. After a time a certain proportion is placed in the hands of the public.

The branches report, on statement days, the amount on hand. The difference between the amount on hand at all the branches and the balance shown in Bank Note Account represents the amount in circulation. When a "burning" takes place the amount of the notes destroyed is debited to Bank Note Account.