In November, 1912, the emergency circulation had approached $10,000,000 at a time when the fifteen per cent limit was somewhat over $33,000,000. Appear ances indicated an even heavier demand during the fall months of 1913. The comparatively small mar gin alarmed the bankers and a movement was started to secure still greater elasticity.
4. Central gold meet the situation out lined above, the Bank Act of 1913 made provision for the establishment of a central gold reserve. A bank may now deposit any amount of gold or legal tender in the central reserve and issue an equal amount of notes over and above the amount allowed it by the regular limit and the fifteen per cent emergency pro vision. This gives additional elasticity as the banks are expected to keep a considerable part of their gold and legal tender reserve in the central reserve. This works no hardship as no special reserve, in the bank's own vaults, is required by law.
It is to be noted that the turning in of gold to the central reserve and the issue of notes against it weak ens the bank's own reserve against the remainder of its circulation and its other. liabilities. This is not serious, however, as the banks usually carry ample reserves. The old limit of issue to the capital stock was too low. It was made all the more severe by the custom of increasing surplus instead of capital which developed among Canadian bankers. The central re serve plan is designed to remove the old limit without opening the way for excessive issue.
Four trustees have charge of the central reserve. Three are appointed by the Canadian Bankers' Asso ciation with the approval of the minister of finance, and one by the minister himself. The Association also makes the by-laws and regulations for the custody and management of the reserve, which is in charge of the trustees at Montreal, Canada's financial center.
Canadian bank notes have now a rare degree of elasticity. The provision for contracting issue thru clearing house payments insures the retirement of every bank note as soon as its work is done. It acts as a continual test of the solvency of the issuing bank and it is perhaps the chief source of the high credit which Canadian bank notes enjoy.
5. Seasonal way in which bank circulation varies with the seasons is shown by the fol lowing table: For thirty years prior to 1896, the lowest point in the year had been reached regularly in May or June, but since that date it has been transferred to January with equal regularity. This month is usually marked
by a lull in business; the holiday trade is over; winter has set in steadily; some outdoor occupations are suspended for a time and the majority of business men, in both retail and wholesale trade, are taking stock. As winter wears on business becomes much more active and the note circulation rises for a time. A slight fall is experienced in the early spring when many factories shut down for repairs, lumber camps close and the men are discharged, and other winter employments come to an end. It resumes the upward course as summer occupations begin, navigation on the Great Lakes reopens, and general business gets into full swing. Midsummer brings a slight falling off, as might be expected, but soon the heavier move ment of farm produce begins and the note circulation responds at once. The rise is somewhat gradual at first, but as cattle buyers, owners of cheese factories, and finally grain buyers look to the banks for notes with which to pay the farmers, it increases vigorously. Now the volume of the circulation begins to mount by leaps and bounds. It reaches its height at the end of October or the middle of November, when every ef fort is being made to hurry as much as possible of the western crop to market and to the seaboard before navigation closes on the inland waterways. The period of rapid expansion covers August, September.
October and the first two weeks in November. Dur ing this period, in late years, the increase in volume has ranged from twenty to thirty-five per cent, ac cording to the size of the crop to be marketed. A period of contraction, even a little more rapid than the expansion, now follows and lasts until the end of January, when the lowest level of the year is reached.
6. Security of bank have already men tioned the factor of quick and easy redemption which gives Canadian bank notes their general acceptability. The ultimate security rests: first, on the double liabil ity of the shareholders; secondly, on the prior lien which note-holders have on the assets of a bank that fails ; thirdly, on the bank circulation redemption fund; and finally, on a provision for the payment of five per cent interest on the notes of failed banks from the date of refusal to redeem to the date when readi ness to redeem is announcd. The last provision ac tually makes the notes of a defunct bank much sought after by other banks, and one who is not a banker is rarely able to obtain them.