fact that the current loans in Canada declined steadily throughout 1908, and by the steady augmentation of the cash reserve, which throughout both 1908 and 1909 exceeded at all times the amount of notes in circulation.

In 1908, although the maximum circulation was only $85,000,000, being $11,000,000 under the legal limit, seven banks took advantage of the amendment to the bank act and issued notes in excess of their paid-up capital, paying a tax on the excess at the rate of 5 per cent per annum. In 1909 the maximum circulation in November touched the highest point ever reached and thirteen banks issued notes in excess of their paid-up capital, the largest excess on any one day being $2,373,000. In 1908 the largest amount of "emergency" notes outstanding on any day was only $775,000. As is pointed out in Chapter IX, if the banks since 1900 had properly increased the amount of their capital stock, instead of charging their undivided profits to the surplus or rest account, there would have been no necessity for "emergency" issues of notes

VARIATIONS IN THE CIRCULATION.

By referring to Chart II (see page 48) the reader will easily get an idea of the elasticity of the circulation. He will observe that the amount of notes outstanding invariably increases after September 1 and reaches its maxi

a In 1908 the total daily excess amounted to $9,299,000 in October, $9,105,000 in November, and $705,826 in December. The largest one-day excess issued by all the banks was $723,000 in October, $775,000 in November, and $144,000 in December.

In 1909 the total daily excess was $12,500,000 in October, $26,300,000 in November, and $15,612,000 in December. The largest one-day excess by all the banks, $1,448,000 in October, $2,373,000 in November, and $1,600,000 in December.

mum in November, then declining sharply during January and February. With respect to these changes in the circulation two facts should be borne in mind by anyone wishing to understand the Canadian system.

First, the autumnal increase is not brought about by any effort on the part of the banks; it is beyond their control, and they could not prevent it if they wished to. Indeed, the note circulation of the Canadian banks is one liability they can not reduce or enlarge at will. They can stop the growth of deposits by refusing new accounts or by declining to make additional loans, and the people would have to submit; but the public's need for currency, small in the summer, large in the autumn, the banks must satisfy the only alternative being suspension.

Second, the additional notes are not directly a source of profit to the banks. The notion that Canadian banks give notes to their borrowers and that the additional issues in the fall represent loans at 6 per cent, is a mistake. Canadian banks, like those in the United States, give deposit accounts to borrowers, and it is a matter of indifference to the Canadian banks whether their customers check out their accounts or call for notes. The fact that the banks can issue the notes as needed is directly an advantage to the public and hence indirectly beneficial to the banks, for it saves them from the necessity of calling loans in order to get the extra currency needed in the cropmoving season. By reference to Chart VII (page 96) the reader will see that the amount of legal-tender money in the banks, i. e., their cash reserve, tends to vary somewhat with the amount of notes in circulation, the two

being nearly equal; but he must not infer that the fluctuations in the cash reserve are due to changes in the volume of the circulation. The reserve is the protection for all the liabilities of the banks, and of these the deposits exceed the circulation nearly tenfold. The banks take pains to increase it in the fall, because then all their liabilities, deposits as well as notes, are certain to increase, and they wish to be fully prepared for the redemption of an unusually large amount of both checks and notes. As a rule, they add to the reserve in the fall by a slight reduction of their balances on deposit in foreign countries, especially in New York City, and thus are enabled to enlarge their current loans in Canada. If they were not permitted to issue notes, they would every fall have to import from New York a considerable amount of gold, and all the risk and expense involved in getting it would be borne by the Canadian people.

LARGE USE OF DEPOSIT CURRENCY.

It is sometimes assumed that a free and large use of bank notes tends to discourage the use of the check book and the growth of bank deposits. On the continent of Europe, for instance, where the notes of central banks supply all the currency the people need, the check book is comparatively little used. This fact is sometimes explained by the ease with which people can obtain bank notes for use in making all payments. Experience in Canada makes one doubt the validity of this explanation. The check book is almost as popular there as in the United States, and would probably be used still more than