CHAP. V.

REMARKS ON THE CURRENCY OF THE BRITISH COLONIES, AND ON THE STATE OF THE BANKS.

THE Old British colonies always kept their accounts in pounds, shillings, and pence, until after the war of independence, when dollars and cents were introduced. The present colonies of British America still continue the practice of the mother country; and the standard of exchange is considered to be what is termed Halifax currency, that is, 9l. English money to be considered equal to 10l. of this currency. A guinea to be valued at 23s. 4d.; and the Spanish dollar at 5s. This currency may, however, be considered fictitious, for there has always been either a premium given over, or a discount allowed, under the par of Halifax currency. During the war, bills were so plentiful, and money so scarce, that bills on England were bought in the colonies at from 20 to 333 per cent. discount; and since the war, government bills, and bills drawn on account of exports to England, have been sold generally at a premium of from 5 to 10 per cent. over the rate of exchange, which is of itself 114 per cent. The paper money issued by the provincial treasuries, and by the colonial banks, and the demands for bills to remit to England, where nearly all the riches produced by the industry of the colonists centre, are the causes of the high premiums of exchange.

An issue of paper money, subjected to prudent limits, with efficient securities, may be expedient and productive of great improvement in new countries; but experience has proved, in the old colonies, that the issuing of paper money, when not payable on demand in specie, and not limited to an extent that would prevent great speculations, has greatly weakened public credit, and has been ruinous to vast numbers of individuals.

In the United States, what may be very properly called the American System of Banking, is carried on by joint stock companies; the stockholders are authorised to issue notes to a great extent beyond the capital stock of the company, while they are only liable, in the event of bank failure, for the amount of their respective shares.

This pernicious system has been introduced into British America; and if measures are not adopted to prevent the dangerous tendency of its fictitious currency, a crisis must occur, which will involve, not only the unsuspecting inhabitants, but those who may undertake wild speculations in consequence of the temporary facilities of making payments with a false representative of the value of money and commodities.

According to the statements published in the records of the legislature for 1831, it appears that the Quebec bank has an actual capital stock of 74,2121. 10s. being instalments paid in upon 3000 shares of 50l. each; that the ten directors held 358 shares, equal to 7,792l.; and that their liability to the bank, individually, and as partners in mercantile houses, amounted to 67,1331. The greatest sum of money at any one time, during the five

previous years, in the vaults of the bank, was only 29,618l., the average sum about 15,000l., and the least sum at any time 5,275l., to meet all demands. The stability of the bank, therefore, has depended on the currency of the notes issued. This bank issues notes for a sum as low as one dollar.

The bank of Montreal has capital stock of 250,000l., paid in on 5000 shares. Of this stock the eleven directors held, on the 5th of February, 1831, 385 shares, equal to 19,250l., and their liability to the bank as individuals and as partners in mercantile houses, amounted, on the 14th of February, 1831, to 148,5041. The amount of notes in circulation, from one dollar each to one hundred, on the 1st of January, 1831, was 223,9131. 5s. The notes in the bank, ready for circulation, amounted to 112,259l. 10s. - equal to 336,1731. 5s. This bank has a branch at Quebec, and another at Kingston. The quantity of cash in all its banking houses was, on the same date, 98,513l. 11s. 11d.

The Upper Canada bank, which is also on the American system, has been in operation ten years, has branches at Kingston, at Niagara, Dundas, &c. The capital stock, agreeably to the first charter, to expire in 1848, was 100,000l. By a late charter, this nominal capital has been doubled. The directors having refused to give any satisfactory statement to the legislative assembly, it is impossible to ascertain how the affairs of this bank stand. Its advantages are stated by the legislative assembly to be monopolised by a few persons; that a great part of stock belongs to the provincial government; that, by the only explanations given, the directors appear to have speculated to an alarming extent beyond

the actual capital; that, in 1830, the notes in circulation amounted to 156,296l. 5s.; the capital paid in to 77,4621. 10s., the specie (not known of what kind) on hand 33,134l. 4s. 5d.; the liabilities of the directors and others to the bank, amounted for accommodations to 214,045l. 7s. 1d.; and that the directors refused to give the names of the shareholders, the amount of coined metals in the bank, or any information that would explain its actual condition..

From these statements it appears evident, that, in order to prevent fatal bankruptcies, similar to those which have prevailed wherever banks have not been limited to an issue of paper equal to the security given, banks on a different foundation, with sufficient securities to the public, should be established by legislative enactment. It will also appear from the above statements, that banks in similar circumstances to those at Montreal, Quebec, and Upper Canada, could not support their credit for one week in the United Kingdom. The bank of Kingston failed some time ago, and the numerous failure of banks, with fictitious capitals, in the United States, prove the insecurity of the American banking system. The stability of the Scottish banks, secured by the liability of all the personal and real estates of the stockholders, probably adapts the Scotch plan of banking to British America, in preference to any other.*

One of the banks in Nova Scotia, that of the Halifax Banking Company, resembles those on the Scotch system, as the partners are personally, with all their property, liable for the debts of the bank, and the notes are made payable, on demand, in specie or in the notes of the Colonial Treasury. The other, called "Bank of Nova Scotia," is incorporated by legislative enactment, under restrictions and regulations, which in a great measure secures the public against its failure. The directors are compelled to pay the bank notes with specie. The incorporated banks at St. John and St. Andrew's, New Brunswick, are also so far restricted, as to prevent a dangerous issue of paper currency. There are no banks at St. John's, Newfoundland; the great fishing banks have always answered the purposes of the inhabitants. But it is considered that one or two banks, with proper securities, would remedy many inconveniencies which are experienced in the colony.

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