A bank during crop-moving season (from March to August, inclusive) may issue notes in excess of paid-up capital to an amount equal to 15 per cent of its combined paid-up capital and surplus. This emergency issue is subject to a tax of 5 per cent or less per annum, the rate being fixed by the governor in council. These emergency notes are of the same quality, style, and de nominations as the ordinary notes.
By an Act of 1913 provision was made for what are called "reserve" notes. Beyond the limits set forth above the bank may issue any amount of notes it desires, provided it deposits with the board of trustees at Montreal gold or Dominion notes to the full amount of notes issued in excess of the limits. These notes and the ordinary bank notes are identical in form, and on the issue thus covered by gold and Dominion notes there is no tax. The banks send their idle reserve gold to Montreal to cover such new notes, and this gold may be recalled when it is no longer needed for that purpose.
The smallest denomination of bank note is $5, and all the notes are multiples of $5. The Dominion notes are $i and $2 notes issued by the government to an amount of $30,000,000, against which it keeps a 25 per cent gold reserve; any amount in excess of these $30,000,000 may be issued upon deposit of gold for the full amount. The Dominion notes are therefore some what like our greenbacks and gold certificates, but it is obvious that bank notes, because of their larger denominations, cannot displace the Dominion notes in circulation, nor vice versa; they are not competitive.
The law of Canada does not require any specific per cent reserve against the bank notes, but does require that at least 40 per cent of the reserve consist of Dominion notes. An opinion has grown up in Canada that a reserve of not less than 15 per cent of demand liabilities should be held in gold and Dominion notes, and if a bank falls below this percentage it is admonished by the Canadian Bankers' Association. By law bank notes are redeemable in specie, but banks in making ordinary payments are required to pay amounts up to $1 oo in Dominion notes if the payee requests it.
In order to effect uniformity and to prevent fraudulent issue, in 1900 the Canadian Bankers' Association was by law given power to regulate the making and issue of bank notes, to report to the government all overissues, to care for the destruction of worn and mutilated notes, and to take charge of suspended banks.
Its main office, in charge of a Secretary, is at Ottawa. The worn and mutilated notes are sent to the Secretary and destroyed in the presence of witnesses, and new notes issued to replace them. The bank note printing companies report to the Secretary monthly the amounts of notes issued to the respective banks, and the Secretary compares these with similar statements from the banks as to notes received. The system is not so highly cen tralized as our national bank note issue is in the hands of the Comptroller of the Currency.
It remains to add that in Canada bank notes are not legal tender, nor are banks obliged to receive the notes of other banks.
A unique feature in the Canadian bank note system is the bank circulation redemption fund, or safety fund. Started in 189o, the fund was raised by contributions from the banks to an amount equal to 5 per cent of the average circulation of each contributing bank. The fund consists of gold and Dominion notes, lodged in the hands of the Minister of Finance, and bears interest at 3 per cent per annum. The sole object of the fund is to make payment of the notes of banks that have failed; the notes of such a bank are redeemed from the fund without regard to the amount which that bank may have paid into the fund. If the amount of redemptions plus interest on redeemed notes exceeds the sum it contributed, the other banks are required to make good the excess; the Minister of Finance assesses this excess upon the other banks, but the assessments in any year may not exceed r per cent of their circulation. All such assess ments are reimbursed to the banks when they are recovered from the assets of the failed bank, on which assets the notes are a prior claim. The fund serves the purpose of a compulsory mutual insurance of bank note issues, in which the banks have an intense interest as to the right conduct of their sister banks.