April 14, 1926

LAB

James Shaver Woodsworth

Labour

Mr. WOODSWORTH:

It would be just as valuable, since -there would be the same security behind it as there is under the existing system. But I am not advocating that these producers' organizations should have the right to issue money. On the contrary I want to take away the right of issuing money from all except the government itself.

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Subtopic:   NATIONAL SYSTEM OF BANKING
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CON

Thomas Erlin Kaiser

Conservative (1867-1942)

Mr. KAISER:

Would not that be creating a monopoly? There are ten banks at the present time, -and you want to do away with their power to issue money and centralize the whole power of issue in the government. What is the difference between having the power in the government or in our banking institutions?

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LAB

James Shaver Woodsworth

Labour

Mr. WOODSWORTH:

The difference is

that the private institutions now receive their own profit, and if there is any money in the operation I think it should be secured by the government itself. I have no fear of a government monopoly.

National Banking System

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CON

Thomas Erlin Kaiser

Conservative (1867-1942)

Mr. KAISER:

The government must decide who is to receive credit.

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LAB
CON

Thomas Erlin Kaiser

Conservative (1867-1942)

Mr. KAISER:

You want it so that everybody will get credit. The great difficulty is to get credit.

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LAB

James Shaver Woodsworth

Labour

Mr. WOODSWORTH:

You have not got my meaning at all.

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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. GAHAN:

Presuming the government

had a monopoly of the issue of money, and the Conservative government were in office for instance, do you think the Liberals of this country would secure very much credit from them, or vice versa?

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LAB

James Shaver Woodsworth

Labour

Mr. WOODSWORTH:

As the hon. member knows, the government has a monopoly in issuing gold money. It has a monopoly in issuing certain classes of notes. I do not see why the issuance of bank notes of higher denomination should be turned over to the banks. I do not see why it should not be with the government. I do not see why politics enters into it, although some hon. gentlemen would like to drag it into the discussion.

Last of all, I should like to see the creation of a central bank board, something along the lines of the Federal Reserve Board in the United States. This central bank board would do the work now done by the Treasury board, but further than that it would act as a federal reserve board. It alone would issue currency and it alone would control discount, and if there is any financial value either in the issuance of currency, as I have said before, or in the control of discounts, that financial advantage should be in the hands of the government and not in the hands of private corporations.

Mr. CAHiAN: Is the Federal Reserve Board of the United States not in the control of private corporations?

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LAB
CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

Then why suggest an analogy with the Federal Reserve Board of the United States whose boards represent the directors of the individual banks who are members of it. They are controlled by the individual banks?

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LAB

James Shaver Woodsworth

Labour

Mr. WOODSWORTH:

If the hon. member had waited a moment I was going to suggest instead of that board being a bankers' board it should be distinctly responsible to the government of this country. That is the difference between the central bank I should like to have and the existing Federal Reserve Board of the United States.

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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

Something after the manner and method in which the board of the National Railways is responsible to the government, I suppose?

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LAB

James Shaver Woodsworth

Labour

Mr. WOODSWORTH:

That is a matter

for consideration. I should like to place on record one or two paragraphs from a memorandum on currency and central banks from 1913 to 1924, as published by the League of Nations. I think probably hon. gentlemen will regard this as sufficiently authoritative. It is a huge work comprised in two volumes and containing some five or six hundred pages Referring to the Canadian system this book says:

The chartered banks are commercial banks; but, owing to the absence of a special central bank in Canada, they have assumed certain functions which in other countries are mainly exercised by such banks.

In Canada our chartered banks have assumed certain functions which in other countries are mainly assumed by such banks.

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CON

Charles Hazlitt Cahan

Conservative (1867-1942)

Mr. CAHAN:

Like the Bank of England?

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LAB

James Shaver Woodsworth

Labour

Mr. WOODSWORTH:

Yes, that is a central bank. With regard to the Federal Reserve Bank in the United States, I should like to quote a statement in this memorandum:

By the Federal Reserve Act (approved December 23rd, 1913) a regional reserve bank system was established in the United States. There are twelve federal reserve banks located in various sections of the country. Each such bank acts as a central bank for the commercial banks of its sections, the latter being the sole shareholders of the reserve bank. Although the various reserve banks are formally independent of each other, they are under the direction of a common central authority, the Federal Reserve Board in Washington. This board consists of two ex-officio members: the Secretary of the Treasury (Minister of Finance), who acts as the chairman of the board, and the Controller of the Currency; and, in addition, five members appointed for a period of ten years by the President of the United States on the advice and with the consent of the Senate. At least two of these five members must be "experienced in banking and finance". The Federal Reserve Board appoints three of the nine directors of each federal reserve bank, the six remaining directors being in each case elected by the member banks. There of these directors are representatives of the member banks, whereas the remaining three must be men who are actively engaged in their respective districts in agriculture, commerce and industry. The three directors appointed by the Federal Reserve Board cannot be officers, directors or stockholders in any bank, one of them being chairman of the board of directors of the Federal Reserve Bank and at the same time "Federal Reserve Agent" of the Federal Reserve district, another of these three directors being his substitute. The chairman of the board of directors is required to be a person of "tested banking experience".

Besides the Federal Reserve Board, there is a Federal Advisory Council consisting oif twelve members appointed by the boards of directors of the twelve federal reserve banks. This council is convoked by the Federal Reserve Board at least four times a year. As indicated by the name, it has only an advisory vote.

National Banking System

The main function oif the Federal Reserve Board is to control the operations of the reserve banks and, in general, to see that the Federal Reserve Act is properly applied. It may "examine at its discretion the accounts, books and affairs of each federal reserve bank and of each member bank and require suchstatements and reports as it may deem necessary.'' The Federal Reserve Board does not interfere in the details as regards the discount operations of the federal reserve banks, but it lays down the rules to be

followed by them and is given large powers in masters of general policy. The power of issuing federal reserve notes under the act is thus entirely in the hands of the board. In view oif the unified working and the strict centralization in all essential matters, the federal reserve organization as a whole corresponds closely to the central banks in other countries.

And I should also like to place on record a statement in this memorandum with regard to the situation in Australia. I think this

suggests to us some of the lines along which we might well proceed:

The Commonwealth Bank was established under a special act dated December 22, 1911, as a state institution managed by a governor and a deputy-governor appointed by the Governor General of the Commonwealth. It had no basic capital, but the

Commonwealth government was and is still responsible for all moneys due by the bank. On the other hand, one-half of its net profits is credited to a special "redemption fund," which, though under the administration of the bank, could be used in paying off Commonwealth debts or state debts taken over by the Commonwealth.

The bank was not at first a bank of issue, the issue department of the treasury established under the Australian Notes Act of 1910 main taming the issue of Australian notes. In December, 1920, however, the. control of the Australian note issue was handed over to the Commonwealth Bank, a special issue department of the bank 'being established for this purpose. This department, to which the assets and liabilities of the note-issuing department of the treasury were transferred was under the management of a board appointed by the Governor General of the Commonwealth and included the governor and secretary of the bank, a leading treasury official, and two outside financial experts. It was provided that, in times of emergency, the note issue might be retransferred to the treasury by proclamation of the Governor General.

With a view to enabling the Commonwealth Bank to act as a proper central bank of note issue controlling the credit resources of the country and the economic policy of the other banks, the government proposed in July, 1924, an amendment to the Commonwealth Bank Act Which was passed on August 20 and came into force on October 10, 1924.

Under the new law the bank is to be managed by a board of directors consisting of the governor of the bank, the secretary to the Commonwealth treasury and six other persons, who are or have been actively engaged in agriculture, commerce, finance or industry. All the members of the board are to be appointed by the Governor General of the commonwealth for seven years. Reappointment at the end of the term is permitted. In addition there is a London board of advice consisting of three members appointed by the Governor General for four years and eligible for reappointment. A director or officer of any banking business may not be a member of either board. The special "Notes Board" is abolished and its functions are assumed by the board of directors.

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Subtopic:   NATIONAL SYSTEM OF BANKING
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CON

Peter McGibbon

Conservative (1867-1942)

Mr. McGIBBON:

What application has the Federal Reserve Bank to my hon. friend's argument?

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Subtopic:   NATIONAL SYSTEM OF BANKING
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LAB

James Shaver Woodsworth

Labour

Mr. WOODSWORTH:

I think I shall have to leave that for the moment. I should like to-

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CON

Thomas Erlin Kaiser

Conservative (1867-1942)

Mr. KAISER:

We are wondering where the hon. member sees a comparison between the United States federal banking system and what he has termed in this resolution a national banking system for Canada.

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LAB

James Shaver Woodsworth

Labour

Mr. WOODSWORTH:

I do not know that it is necessary for me to recapitulate what I have been trying to say for the last' hourt I am suggesting that we ought to have a central bank such as exists in most countries, the functions of which in this country are assumed largely by a small group of chartered banks-a bank that will be given the exclusive authority of note issue and of rediscounting. As an example of a central bank I have instanced the Federal Reserve Bank, which true does not comply exactly with what I think we should adopt to the best advantage, and I have also just been instancing the Commonwealth Bank of Australia.

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April 14, 1926