A CENTRAL BANK

Northern Advocate, 8 June 1933, Page 8

A CENTRAL BANK

What Benefits?

PROPOSED POP CANADA. WHY BANKS ARE AVERSE. EXISTING FACILITIES SUFFICE. Proposals for a contra! bank for •anada have made from time to time id late years, and the Prime -Minister (-Mr R. 13. Bennett) has suggested establishment of such an institution. But the great weight of banking opinion in Canada is against a central hank. The “Financial Times,'’ London, has devoted a leading article !o the subject. It observes that in the ordinary way the Dominion Bank Act of Canada was due for revision ihis year, but con.sideration of such revision lias been postponed until af'>‘r the World Economic Conference 0 be held this month. The “Financial limes thinks that the opposition diown by the leading Canadian Banka's to a central bank does not proceed from selfish motives, bur is because Biey do not think credit, currency, and exchange control call for the intervention of such an institution in < anada. On the other hand their views would appear to crystallise in ihe conviction that under the present oanking system of Canada a greater degree of elasticity is provided than he most modern central bank could irevide. Air Jackson Dodds, general manager of-the Bank of -Montreal, was recently interviewed on the central bank proposal for Canada, and his remarks form the subject of comment in the leading article above referred to. Air Dodds could hardly be expected to refrain from pointing to the 1 nit e d States, where the Federal, Reserve system was first hailed as marking the dawn of a new era in which bank failures would cease, credit would always be adequate, and price levels would never fall. Example Of United States. “Notwithstanding all such optimistic predictions,” he said, “the world depression inflicted probably more havoc in the United States than in any other country in the world. “Since 1{)21, allowing for banks reopened, the net suspensions in the I nited States were 0300 banks, involving total deposits of 4,271,000,000 dollars. During Atarch last the whole tianking system, including the Federal Reserve, suspended operations temperarilv.

‘‘ln ('finadn there has not boon a sino-i t . }>ank failure since 1023—in otlier words, ot one depositor had lost a single dollar." Mr Dodds referred to the suggestion that perhaps a central bank could improve conditions in Canada by affording the banks greater and more elastic rediscount facilities than were available under the Finance Act ol Canada; but he explained the great difference existing between conditions 11 London and Xew York and in Canada in regard to rediscount facilities. In London and Xew York —the greatest money markets of the world —the rediscount rate is used chiefly to control die flow of funds in and out of the country. But Canada, lacking a money market comparable in the smallest degree to that of London or of Xew 'i ork, could utilise a rediscount rate to a very limited extent.

Again, a not Ji or principal instrument of :i central hank was open market operations, i.e., the purchase or sale of sound securities and commercial paper to increase or decrease the volume of money in the money market. “Here, again (Mr Dodds remarked), as there is no money market in Canada there would be a very limited scope for such operations.” |le asked the question:—“Would complete control of the currency issue of Canada, by a central hank be of any ad vantage, ’ Fie answered his own question in the following terms: The whole purpose of central control ot currency is to charge it with the responsibility of furnishing suFfi■ient currency to meet the commercial and other demands of the country. Canada has what is perhaps the most elastic system of currency circulation in the world. It is a combined system of dominion and bank notes. “The Finance Act meets our needs in Canada, and the establishment of a central bank would be a needless expense and would weaken the banks, which would have to supply the capital and deposits free of interest. The Question Of Cost. ‘‘The cost of setting up a central bank - would be very considerable, and much of it would have to be furnished by the banks.” Would a central bank be able to control credit.' This question was briefly dealt with by Air Dodds, who remarked that “in spite of tlm strenuous efforts on the part of the federal Reserve system of the Fnited i States and the bringing into being of various finance corporations, demand for credit in the Fnited States continually shrank - , and wholesale commodity piices for the Fnited Stales showed a drop on the basis of 100 for 1011! from l.'iO.d in duly, 1020, to 50. .‘1 al the end of January, I Odd —a decline of -Id.tl per cent. “In 102(1-20, inclusive, while the quantity of currency in circulation in Canada increased 12 per cent, and rate of turnover of demand deposits increased by 22 per cent., the price index of wholesale commodities steadily dropped from 100 in 1020 to Ofi in 1029.