St. Paul daily globe., 1892-03-13
CANADIAN CURRENCY SYSTEM

UOV. MERRIAM has COllITlDuUcu lO liIt
Chicago Inter Ocean an interesting
article, which it prints as part of a
series on the currency question. He calls
it 1.-The Currency of the Future" and,
in brief, its purpose is to present the
merits of the banking system now in
use in Canada, and to suggest how a
similar system might with advantage be
adopted i'll our own country.
The Canadian plan has been much
discussed of late. At the bankers con-
vention of last fall. WILLIAM g. CORN
WALL, of the Bank of Buffalo. read
paper on the subject which attracted
wide attention. He claimed that our
neighbors had solved the great 'circu
lation" problem and had invented a
currency which accurately and auto
matically adjusted itself to the needs of
business, expanding when this was de-
sirable and contracting during the sea-
sons when trade Slackened. This was
so important. if true, that the scheme
has since been subjected to close eXami-
nation by any number of specialists in
this kind of science.
AS operated by its inventors, its char
acteriStic features are as follows:
Every bank of issue obtains its charter
from the Dominion parliament, and
must have capital of at least S500,000,
One-half of which is required to be paid
up. Stockholders in addition are sub
iect to adoubIe liability, so that assum-
ing that they will be all solvent, each
institution represents wealth to the
amount of at least S1,O00,OO0. These
banks are permitted to issue notes for
general circulation up to the face of
their paid-up capital The notes are
not secured, as are our bank notes, by
bonds or other obligations, but the as
sets of the bank in case it becomes in
vOlved are applied first Of all for their
redemption. They take precedence in
this respect of all other claims. and
must first be met before any other class
of creditors can receive dividend.
Besides this each bank annually de-
poSits with the government sum equal
to per cent of Its circulation for the
year preceding each 1st of July. These
contributions make up fund which is
available also for the purpose of re-
deeming the notes in case of need, with
out regard to the bank which issued
them. That is, each bank is made an
insurer to this extent of the circulation
of every other bank. If bank sus-
pends It's notes begin to draw per cent
interest, and continue so to do until
oI0Eo ho, oEf
Each bank maintains agencies for the
retirement of its notes, on demaud, in
all the principal cities of the dominion,
and is exempted from all taxes On Its
circulation.
The theory is that these devices pro-
vide currency which is entirely safe.
1t is secured by the capital of the bank
which issues it,by the statutory liability
of its stockholders, and by an insurance
fund equal TO per cent of the aggre-
gate amount of notes in circulation. 1t
is further contended that these devices
provide an elastic currency. Each
bank is under the incentive to get its
own notes into circulation, because it
gets profit in so doing in the interest
which is paid for discounts. When a
man wants to borrow thousand dol
lars, the cashier hands him not coin, but
the notes of his own bank, and as long
as these are out the bank is making the
interest his paper carries. On the
other hand, this incentive will also in
duce bank to send back forredemption
all the notes of other banks as fast as it
receives them. 1t will not pay them
out again, as under our system, because
1t will be more to its advantage to use
its own. There are thus two forces
constantly at work-an expanding
force, by which there is constant tend
ency for each bank to increase the
amount 1t has in circulation, and a con-
tracing force. which consists of the in
ducement each bank has to cause the
retirement of the bills of its fellow in
stitutionS. The resultant of these two
is circulation exactly responsive to
the demands of business, neither too
great nor too small.