The Online Library of Liberty

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• Banking In the Latin Nations.
• Part I.: Banking In France.
• Chapter I.: Its Status Before the Revolution.
• Chapter II.: The Bank and “system” of Law.
• Chapter III.: The Discount Bank—la Caisse D’escompte.
• Chapter IV.: Assignats—the Basis of Their Issue.
• Chapter V.: The Bank of France.
• Chapter VI.: Banks and Bankers After the Revolution.
• Chapter VII.: Banking In the French Colonies.
• Part II.: Banking In Italy.
• Chapter I.: Primitive Banks.
• Chapter II.: Banking Under the Unification of the Kingdom.
• Chapter III.: Italian Co-operative Banks.
• Chapter IV.: The Bankers of Florence.
• Chapter V.: Banks and Bankers In Sicily.
• Part III.: Banking In Spain.
• Chapter I.: The Earliest Banks.
• Chapter II.: The Bank of Spain.
• Part IV.: Banking In Belgium.
• Part V.: Banking In Switzerland.
• Part VI.: Banking In Portugal, 1750 to 1891.
• Chapter I.: The First Great Banks.
• Chapter II.: The Bank of Portugal.
• Part VII.: National Bank of Roumania.
• Part VIII.: The Latin Monetary Union.
• Part IX.: Dynamics of Circulation.
• Part X.: The Banks of Alsace-lorraine After the Annexation. *
• Banking In Canada.
• Author’s Preface.
• Chapter I.: Currency Expedients.
• Chapter II.: 1817-1841. Banking Under Joint-stock Charters.
• Chapter III.: 1841-1867. Banking In Old Canada.
• Chapter IV.: Banking Under the Dominion.
• Chapter V.: Scope of Existing Laws.
• Chapter VI.: Land Banks—loan Companies.

CHAPTER I.

CURRENCY EXPEDIENTS.

1608-1760, CARD MONEY OF NEW FRANCE; 1760-1812, RESORT TO FOREIGN COIN; 1812-1817, ARMY-BILL ISSUES.

NO theory supported the issue in 1685 of the first paper money in Canada. The little communities at Quebec, Three Rivers, and Montreal had existed for three-quarters of a century, presenting the strange contrast to their present industrial habits of a distinctly mediæval civilization, at war, externally, with the savage Indian and the primæval condition of nature, and when for a moment the Iroquois had disappeared, internally, about petty questions of political and social precedence; as to whether brandy should be sold to the friendly Indians who had furs to exchange; to what extent the unhappy colonist should be bled by the so-called Trading Company, to which an ignorant king had given a monopoly of both export and import trade, and by priests illegally trading in furs, etc. While religious zealots in France saw only the opportunity to convert Indians for the glory of God, civil and military servants in the colony and the Government in France actually exacted tribute from New France. But had there been before the colonists merely the problems of food and clothing and such public improvements as necessity demanded, they would doubtless have been unable, as all new countries now are, to export enough to pay for their imports. And so, such coined money as came to the colony, chiefly for military and civil expenditure by the Government, quickly returned, and for many years beaver-skins, the most important product, served as the chief money, other furs being also either recognized standards of value or readily exchangeable by barter, while a decree was not necessary to make brandy a most satisfactory medium of exchange with the Indians.

EARLIEST MONETARY EXPEDIENTS.

The difficulty was not always, however, with the trapper and agriculturist in finding a satisfactory exchange for the imported goods sold by the merchant. The colony was so poor that the products often had to be exported to France and sold before the necessary supplies could be sent in return. To enable trade to be carried on with some degree of comfort, the French West Indies Company, which had the control of the trade of Canada in 1670, brought about the issue of a coinage of subsidiary silver and copper for use in the French colonies; but even these change-making coins returned at once to France.

The next expedient was a decree, in 1672, for the avowed purpose of keeping coined money in Canada, according to which the coinage of the colonies and of France was to be taken at one-third more than the face value. This did no good whatever, and in addition to enabling the Trading Company to exact unfair profits, it created two species of money, the French standard (monnoye de france or livre tournois) and the colonial standard (monnoye du pays). In 1674 another decree annulled the action of 1672 regarding the difference between the face value and the value in trade of the coinage, but the custom of paying for furs and similar merchandise by giving twenty-five per cent. less in coined money remained until 1719.

All expedients having failed to retain the one satisfactory kind of currency, in 1679, the farmers, who were now evidently making themselves felt politically, were permitted, for a period of three months, to pay their debts in wheat at the fixed rate of four livres per minot (three French bushels). And, in like manner, about 1684 moose-skins were a legal tender in paying debts already incurred, at rates named by the authorities.

CARD MONEY.

For a few years previous to 1685, the Government of France had supplied in advance the money and goods necessary for the support of their civil and military establishments in Canada, but for this year these failed to arrive. The Intendant, Jacques de Meuilles, evidently more fertile in resource than his predecessors, after having spent all the money he had or could borrow, resorted to the following expedient: Instead of silver he paid soldiers by notes made of playing-cards cut in four pieces. The denominations of these were four francs, forty sols, and fifteen sols, with which three kinds he could pay a soldier’s monthly wages. He ordered the people to accept, and personally undertook to redeem them.* They are said to have borne simply the written amount of their value in monnoye du pays, the signatures of the Intendant and the Clerk of the Treasury, and the crowned fleur-de-lis impressed in wax. The new currency must have solved many of the difficulties of trade, and we are not surprised to learn that thereafter France made no effort to send supplies a year in advance, while resort to this monnoye de carte became the recognized means of carrying the debts of the Colonial Government over the year, or until the ships arrived in the autumn from France. Subsequent issues appear to have been very carefully guarded. The Governor and the Intendant, for their respective disbursements, might employ the aid of card money, and the notes, therefore, bore the signature of the Governor, the Intendant, and the Clerk of the Treasury. After the necessary decree establishing the legal-tender quality of each issue, the Clerk of the Treasury receipted for them in the same manner as for actual remittances from France. Until 1709 the cards for the year were redeemed in specie when the ships arrived, or, if preferred by the holder, drafts on the French Treasury could be obtained at any time during the year. The success of the expedient, thus far, was not unmerited, and the currency cannot be regarded as entirely unsound, since it was merely a series of issues limited to the amount of the annual remittance and redeemed in specie on arrival.

In 1709, however, in consequence of the bankrupt condition of France, owing to European wars, drafts already given in exchange for the cards were refused and the regular remittances discontinued. The legitimate basis of the card money was now gone, while the necessity for its issue was greatly increased. Instead of issues restricted to the amount of a year’s expenditure, the unredeemed cards of one year were succeeded by those of another until the volume increased fourfold, the total outstanding in 1714 being computed at 2,120,000 livres, while the population was only 19,000. At this time it was decided to redeem them gradually at one-half, and during the ensuing three years bills of exchange were drawn on the French Treasury for five-sevenths of the above amount. But the French Treasury did not resume remittances for current expenditures, and for this purpose new issues were necessary, so that by 1717 the total outstanding was 1,730,000 livres. In this year, however, arrangements were made not only for the redemption of all cards at one-half, but for the cessation of future issues, and the return to the currency standard of old France in exchange for the monnoye du pays.

RETURN TO COIN MONEY—THEN A RELAPSE TO CARDS.

By 1719 the redemption of the card money was accomplished, and for about ten years, during which period there were many unsuccessful efforts to interfere by decrees with the natural course of things, coined money was the only currency—always scarce, and with a persistent tendency to return to old France. By 1728, we find the Governor suggesting a new issue of card money as the only relief, and early in 1729 the King, by ordinance and in accordance with the wish of the colonists, created again for Canada a card currency. The new cards were limited to 400,000 livres, were issued in seven convenient denominations, were a legal tender, receivable for all goods sold by Government, and were redeemable by drafts on the French Treasury. This issue was thus surrounded by careful regulations, but was distinctly a fiat currency, to be reissued as soon as redeemed—a permanent loan to the Government. It was not actually redeemable in specie, although as long as the volume was restricted, redemption by drafts on the French Treasury was practically quite as satisfactory. But the population had increased to 30,000, and the volume of currency being deemed quite insufficient, the King, who now controlled the issue, was induced in 1733 to increase the limit to 600,000 livres. In 1742 it was again increased to 720,000 livres, and in 1749 to 1,000,000 livres. Thus far, the issues were promptly redeemed by drafts on the French Treasury, and from history we do not learn that anything but good arose from this reasonable use of paper money.

From this time until the capitulation in 1760, the colony was constantly increasing its expenditures in order to carry on its struggle with the English colonies. The annual expenditure, which in 1749 was less than 2,000,000 livres, by 1758 reached nearly 28,000,000 livres, and during the seven years 1749 to 1755 inclusive, the exports did not amount to thirty per cent. of the imports. The receipts of money from France were quite insufficient for such unusual expenditure, and, to the high prices attendant upon the over-issue of paper money to which we are about to refer, there was added the cost to the Public Treasury of the corrupt extravagance of the Intendant Bigot.

BIGOT’S DUE-BILL CURRENCY (ORDONNANCES).

The limit of 1,000,000 livres being too small and the issue of cards being illegal, unless sanctioned by the King, Bigot resorted to a new species of currency. He issued printed due-bills called ordonnances for even sums from 20 sols to 100 livres. The notes were signed by the Intendant only, and there was practically no limit except the ability of the community to absorb such issues. They were not redeemable in specie, but were redeemable in card money under certain circumstances. In the autumn the moneys and credits supplied by the French Treasury were available to redeem the authorized card money. This card money, being reissuable as long as the limit of 1,000,000 livres was not exceeded, was used to redeem as far as it would go the ordonnances of Bigot, and for such portion as could not be redeemed by card money a third species of obligation was issued in the shape of bonds of the Canadian Treasury, payable in one year in card money.

A disparity in value was thus created between the card money and the ordonnances, and in 1754 this was removed by taking away from the former any priority in the conversion into bills of exchange on the French Treasury, both cards and ordonnances being redeemed on the same level, as far as redemption was effected at all. Instead of raising the ordonnances to the level of the cards, this measure reduced the latter to the level of the former. In 1756 an attempt was made to fix at twenty-five per cent. the depreciation of the paper currency relatively to specie. But the pressure of war upon France in several parts of the world made financial reform impossible, and matters grew steadily worse, little restraint thereafter being attempted in the volume of paper money emitted. The drafts on the French Treasury for 1758 and 1759 were not paid, and cards and ordonnances fell to a discount of sixty to seventy per cent. At the capitulation in 1760, there were outstanding 34,000,000 livres of ordonnances and 7,000,000 livres of cards and Treasury bonds, while other evidences of debt brought the total liability of the Canadian colony up to 80,000,000 livres.

The new British rulers insisted upon a settlement by France of such evidences of debt as were held by the Canadian people, and notwithstanding the bankrupt condition of France, this was brought about by a convention, signed in 1766, under which bills of exchange and anything subject to redemption in them were paid at fifty per cent. of the face value, while ordonnances and other forms of debt were paid at twenty-five per cent., and there was added to this a bonus on the whole settlement of 3,000,000 livres. Payment was made, however, in French public securities, which in May, 1766, sold as low as 74, and which rapidly declined in a few years until they became almost completely worthless.*

CURRENCY UNDER BRITISH RULE.

One of the first acts of the new British Governor was to warn the people not to take the paper issues of the old régime, and as early as 1764 we find importations of Mexican dollars with which to pay the troops. At the same time gold and silver coins of England, Spain, Portugal, France, and Germany were in circulation, and these miscellaneous coins furnished the only currency. It was thought necessary that the money of account should now bear English names in addition to French, but with as little alteration in the actual significance as possible. It was therefore decided that from and after January 1, 1765, the livre should be estimated at the same value as a shilling of the new Canadian currency, and that six livres or shillings should be the equivalent of a dollar. Accounts were to be kept in pounds, shillings, and pence, Canada currency (not sterling), and the same law made legal tender, and settled the value in pounds, shillings and pence, Canada currency, of the various gold, silver, and copper coins already referred to, which formed the actual currency. In 1777, a new law was passed changing all these values on the basis of five Canadian shillings instead of six for the Spanish of Mexican silver dollar, and this established the Canadian currency which existed until the decimal system, expressed in dollars and cents, was adopted.

But the silver coins of the various countries were, because of their worn condition and for other reasons, unsuitable for shipment abroad, and therefore gold coins were sought for this purpose, and complaints as to the unsatisfactory state of the currency were still frequent. In 1791, constitutional government, instead of government by a Governor and Council of State, was conferred on Canada, the country being divided into Upper Canada (now Ontario) and Lower Canada (Quebec). The Parliament of Quebec in 1795 passed an act increasing the value of the gold coins which were a legal tender, hoping thereby to prevent their export, and requiring payments in excess of £50 to be made in gold. The new law also declared that the new American dollar should be counted like the Spanish and Mexican, at five shillings, and all other silver coins likewise remained unchanged. In 1796 Upper Canada passed a similar act. Another act was passed in 1808 still further enhancing the value of some of the foreign gold pieces; but, without a coined currency or a banking system, no satisfactory solution could be found.

Joint-stock banks of the modern type—that is, banks of issue, deposit, and discount—had been established in the United States, despite the bankruptcy of all legal-tender issues, colonial and “Continental.” In 1781, the Bank of North America of Philadelphia, still flourishing, was chartered. In 1784, Massachusetts chartered a bank. In 1791, the first United States Bank began its career, and thereafter many banks sprang into existence.

INTRODUCTION OF BANKING.

The merchants of Canada were not blind to what was going on elsewhere. Montreal had already become more important commercially than Quebec, and on October 18, 1792, the “Official Gazette” contained an announcement looking to the establishment in the former city of a bank under the name of the “Canada Banking Company.” It was proposed that the company should transact the business “usually done by similar establishments,” viz., to receive deposits, issue notes, discount bills, and keep cash accounts with customers. It was further proposed to open branches—“to extend the operations of the bank to every part of the two provinces where an agent may be judged necessary.” The scheme, although supported by the leading merchants, failed in its main purpose; the result being a private bank without the legislative authority to issue notes.* Canada was enjoying its first year of constitutional government, and although the author has seen no record of Parliamentary debate, we must suppose that such an important proposal was fully discussed in one way or another before it was abandoned. One able writer has attributed the lack of success to the disturbed state of Europe and political apprehension of trouble; but we must remember that in 1792 there were many living who had personally experienced loss by the repudiated paper currency of the old régime, while opponents of the plan might cite the universal bankruptcy at the time of the revolution of all paper issues in the United States. It was therefore only natural that the right of issue should have been withheld. The merchant of Canada at that time suffered greatly through the confusion arising from a currency consisting of the coins of other countries, but he hesitated to abandon this position of comparative safety for one which must have seemed to him to be full of known as well as unknown dangers. The effort to issue bank notes was not renewed until 1807, this time at Quebec, but again without success.

In 1808, citizens of both Montreal and Quebec asked Parliament to grant a charter for the “Canada Bank,” and after reference to a committee a bill was introduced. The capital of the bank was to be £250,000 currency ($1,000,000), divided in shares of £25 currency ($100). There were to be twenty-four directors elected by the shareholders, one half to attend to the affairs of the bank at Montreal, and the other half at Quebec, these being the two most important offices. The directors were to elect the president and vice-president. But the charter was refused. In the Legislature it was argued that the creation of a bank with power of issue would drive out all specie, would foster speculation founded on imaginary capital, that the people were too ignorant to understand the denominations of notes or guard against counterfeits, etc.

RESORT TO ARMY BILLS AS CURRENCY.

In 1812 Canada was suddenly plunged into war with the United States. War was declared on the 29th of June, and on July 16th the Parliament of Lower Canada met and remained in session until August 1st. During this time they passed an act to meet the financial requirements of the army. It was very elaborate in details and bore evidence of a strong desire to preserve the rights of the public as far as compatible with the object of the issue. The features important from our point of view are:

1. The Governor, as Commander of the Army, was authorized to issue bills in suitable denominations, to be called “Army Bills,” and to be limited in the aggregate to £250,000 currency. 2. Bills of $25 each and upwards to bear interest at four pence per hundred pounds per diem. 3. The principal of bills of $25 each and upwards to be payable, at the option of the Commander, in cash, or Government bills of exchange on London, at thirty days’ sight, at the current rate of exchange. Upon such payment of principal the interest to be payable, at the option of the holder, in cash or army bills. 4. Within the prescribed limit of £250,000 currency, the Commander was empowered also to issue bills of $4 each, to be payable to the holder in cash on demand, and therefore not to bear interest. 5. All army bills to be issued as cash, i. e., not sold at a discount or premium. 6. The current rate of exchange for bills on London to be established by a committee of five, named by the Governor, and to be advertised fortnightly. 7. No army bills to be re-issued except those of $4 each. 8. The revenues of the province were pledged, in preference to all other claims, for the interest on the army bills. 9. Army bills, with interest accrued, were receivable by all collectors of Government dues. 10. Various regulations referring to arrest for debt, attachment, capias, etc., had the effect of making the army bills practically a legal tender. 11. On fourteen days’ notice by authorities bills became redeemable and interest ceased. 12. At expiration of five years all notes became due and payable in cash out of moneys in the hands of the Receiver-General of the province. If such moneys were not sufficient, then out of first moneys received thereafter. Payment might be had at any time by bills of exchange on London, but this provision was made to enable the army bills to be held by Canadians as an investment. 13. During this period of five years no gold, silver, or copper coin, or “molten gold or silver in any shape or shapes whatever,” were to be exported under penalty of forfeiture of the whole, and also of a fine levied upon the exporter of £200 currency, and double the value of the coin or metal exported. Permission to carry on the person £10, or a larger amount if authorized by the Governor.

On the passage of the act and the opening of the Army-bill Office, bills were issued of the denominations of $25, $50, $100, and $400, and evidently of $4 also. These were readily accepted by the people, and the issue was not only successful as an expedient of war finance, but was a boon to the commerce of the country, which had been struggling along with the mixed currency of foreign coins already mentioned. After the manner of war expenditures, however, the amount was insufficient, and another bill was passed at the next session of Parliament and assented to February 15, 1813, under which the aggregate of the issue was raised to £500,000 currency. Denominations of 1, 2, 8, 10, 12, 16, and 20 dollars were added to those already authorized, to be non-interest-bearing, in accordance with the provision of the first act. The total of non-interest-bearing notes, i. e., notes of denominations smaller than $25, was, however, limited to £50,000 currency.

But the war did not come to an end, and in 1814 a third act was passed enlarging the limit to £1,500,000 currency. The only new provision of importance rearranged the issue of small notes in denominations of 1, 2, 3, 5, and 10 dollars, non-interest-bearing, but payable, like the larger denominations, by exchange on London, and required that as much as £200,000 currency and not more than £500,000 currency of the entire issue should be in these denominations. Holders of these smaller denominations could exchange them for interest-bearing issues. In the second and third acts the provisions cited in paragraphs 9 and 13 of the abstract of the first act were not extended to any issues beyond the first £250,000 currency. In February, 1815, the Parliament was about to pass another bill increasing the limit to £2,000,000 currency, when news arrived announcing the treaty of peace between Great Britain and the United States signed at Ghent December 24, 1814.

The public accounts show that on March 27, 1815, the entire amount of army bills outstanding was £1,249,996 currency. By December 4, 1815, this had been reduced to £396,778 currency, and by April 22, 1816, to £197,974 currency. The time originally set for the retirement of all army bills was August, 1817, but by various orders this was extended until December 24, 1820, at which time the Army-bill Office was closed, the entire issue of notes having been practically redeemed. Of the £1,300,000, or thereabouts, outstanding in 1815, only about £800,000 was in interest-bearing notes, while as much as £500,000 was in notes of change-making denominations not bearing interest. In view of this fact much credit was taken by the army officials for the low rate of interest which the issue, as a whole, cost the Home Government.

The elaborate nature of the various Army-bill Acts, the intelligent discussion at the time they were passed, and the criticisms in the press regarding the effect of the issues on the trade of the country, all show that the Canadian people held sound views on currency questions and were very much more intelligent than fifty years previously when the French card money was being redeemed. The provision by which the public could exchange notes of large denominations bearing interest for notes of small denominations not bearing interest, ensured a sufficient amount of currency for the trade of the country; while on the other hand, the reverse condition, under which non-interest-bearing notes could be exchanged for interest-bearing notes, ensured the redemption of all currency not required for trade purposes, by its conversion into what was practically an investment security. This quality of elasticity in the currency is very distinctly referred to in the contemporaneous discussions.*

[* ] The historical statement is true.

[* ] The first monograph on the card money in England with which I am acquainted is that of the late James Stevenson, “Currency, with Reference to Card Money in Canada During the French Domination,” Transactions Literary and Historical Society of Quebec, 1875. To it is subjoined a copy of the convention of 1766 for the liquidation of the Canada paper money. A much more exhaustive monograph appeared in 1893, by Mr. R. M. Breckenridge, entitled “The Paper Currencies of New France,” Journal of Political Economy, Chicago. In it references are made to all French and English sources of information.

[* ] As a matter of fact it did issue notes, specimens of which the writer has seen, but they doubtless had a very limited use.

[* ] Readers desirous of studying more exhaustively the period during which the country was without paper money and the coins of several foreign countries were a legal tender should consult the second monograph by the late James Stevenson, entitled “The Currency of Canada after the Capitulation,” Transactions of the Literary and Historical Society of Quebec, 1877; and for the army-bill issues the third historical monograph by the same gentleman, entitled “The War of 1812 in Connection with the Army-bill Act,” published by W. Foster Brown & Co., Montreal, 1892.