J. HERBERT HODGINS November 15 1925


J. HERBERT HODGINS November 15 1925




THE Canadian dollar has scored another triumph,” is the enthusiastic and not unnatural reaction of the Brantford Expositor to the announcement of a fresh inflow of New York gold into Canada. The Expositor thus reflects the popular mind. Bankers and business men accept the development as one of the natural courses of progressive economics, but the man on the street, to whom the intricacies of foreign exchange are continually mystifying, has experienced a distinct “kick” from the news that gold is flowing once again into the Dominion from the United States money markets.

It must be admitted that the average Canadian feels somewhat disposed to pat himself upon the back for what has happened. Apropos of which we have the observation of the financial editor of the Toronto Daily Star: “It is rather interesting to note that while the United States is exporting gold to Canada, a colony of Great Britain, Britain herself is in the act of shipping her gold to the United States. Coincident with the news that Britain was making a record gold shipment of $15,000,000 to New York on a single steamer comes the information of the acceleration of gold shipments from New York to Montreal.” The Commercial and Financial Chronicle (New York) gives out the information that some of the gold coming to Canada at this time is for British credit.

Political Interpretations

THE New York Trust Company’s first $1,000,000 gold shipment from the Federal Reserve Bank in New York City to Montreal, coming in the midst of the federal election campaign, was variously interpreted by the politicians. E. Blake Winter, Liberal candidate for Essex West, for instance, declared the gold shipment “proved just one thing” which is, according to Mr. Winter, “the wise policy of the Liberal government in fostering trade with other nations and particularly with the republic to the south.”

The Financial Post, however, very properly reminds that the current gold inflow is not immediately, and certainly not wholly, traceable to our international trading. As a matter of fact, no single episode in our financial performance is directly responsible at this time for the incoming yellow metal. Rather the causes are accumulative and embrace Canada’s national economics.

A New York despatch to the Montreal Daily Star says: “The heavy transactions of late in Canadian wheat and the increased demand from tourists for the Dominion’s currency are given by officials here as accountable for the high premium for the Canadian dollar which is necessitating gold shipments across the border. In the present situation it is more profitable to export gold from the United States than to buy Canadian remittances for transfer.”

Proportions of the Movement

THE Wall Street Journal holds that the heaviness of export trade in Canada, which is always manifest at this time of year when navigation on the St. Lawrence is soon to close, is partially responsible for the strength of Canadian currency. The Journal of Commerce (New York) agrees with this argument, but points out that following the wheat shipments will ensue “the accumulation of foreign

currencies for payment of Canadian year-end foreign obligations.”

The possible proportions of the movement have been variously estimated. The Toronto Daily Star guesses that it “might gradually reach a total of nearly $30,000,000.” The Financial Post s^-s that the current premium is the largest on the Canadian dollar since the fall of 1922, when a shipment of more than $15,000,000 was made from New York to correct the situation, and suggests as a logical happening that “the present shipments may easily reach a total in excess of $25,000,000.” The Wall Street Journal on the other hand surmises that “the transfer of gold to Canada will not reach very large proportions, as trade will fall off with the advent of cold weather.”

The Toronto Globe is disposed to accept the present “tide of gold shipments” as a “temporary affair incidental to an extraordinary movement of funds to this country for various purposes.”

What may these purposes be?

Beyond the more immediate factors, there is, of course, the question of the continuance of American participation in this Dominion’s investments. As the Globe elaborates: “Capital is being diverted to this country for the development of pulp and paper, mineral and hydro-electric power resources. In addition, Canadian securities are proving attractive to United States investors.”

This vast American investment in Canada is not always to Canadian liking, however, as witness the remarks of the French-Canadian newspaper, L'Evenement (Quebec):

“Canada has increased her debt to the United States by $200,000,000 a year for the last ten years, or $2,000,000,000 since 1914. This sum would never have been handed over to the United States if we had not brought it about by receiving their goods; that is to say by the excess of our imports over exports. This is all our own doing, and in doing it we have injured our manufactures, cast our workmen out on the street, lost hundreds of millions of dollars of our purchasing power which should have been at the disposal of our farmers, and increased the mortgage on our country by an amount which necessitates annual additional payment by us of $120,000,000 interest and which brings up the total of our annual interest to $312,000,000.”

The Toronto Globe's argument regarding the development of the pulp and paper industry’s progress and its progressive attraction for American capital is significant. Speakers at the recent eighth annual convention in Montreal of the Canadian Paper Trade Association emphasized this very point; stressed that Canada's enormous exports of pulp and paper to the United States more than any other reason have been the main factor in bringing the Canadian dollar back to par and maintaining it at its proper value. In other words, Canada’s economic recovery may be traced back as far as the adoption of a policy of partial embargo upon our natural resources for the full development of national industry, which has been a consistent contention of MacLean's Magazine.

A Contrast in Exchange

IT IS a far cry,” as the Toronto Globe reminds, “from the days when Canadian currency was at a discount of 1934 per cent, on December, 1920.” It is this Continued on page 7 Continued from page ¿ very contrast which widens the popular satisfaction in this gold flow. Before the war the movements in Canadian exchange abroad went unnoticed, so far as the general public concerned itself. But the abnormal discount which the Canadian dollar suffered, as a result of extreme war financing and the pressure of the international and economic upset, brought the subject of foreign exchange forcibly to the attention of every Canadian, for the reason that they were invariably compelled to pay premiums for American dollars.

The problem became one for the individual pocket-book: the result upon the average person was obvious.

While clearly a reflection of Canada’s healthier economic position, the current gold movement is scarcely a matter of major importance to Canadian bankers. The premium which the Canadian dollar commands to-day, in the final analysis, is a small affair. It represents the fractional advantage in shipping the actual metal between money markets, rather than entering into the technics of banking by the purchase of bills of exchange on the open market.

The first $1,000,000 crossed our border when the Canadian dollar went to a premium of 11-64 of one per cent. The cost of shipping gold between New York and Montreal is estimated at Tl'V to of one per cent. “It is therefore almost an even matter,” observes the Globe, which further explains, “The shipment of American gold will tend to maintain the premium on Canadian funds at or below its present level.”

United States Plethora of Gold

A MERICA’S plethora of gold metal is fy. another consideration. A saving of as little as A of one per cent, upon bank remittances is worth while from the profit side, in the course of a banker’s daily operations.

Meanwhile, there is a chance for Canadian bankers and financiers to purchase United States dollars at a discount. This is probably the most interesting element in the present situation. It will assist Canadians in their financing for the remainder of 1925, and particularly for year-end commitments. This is no inconsiderable item, considering that Canada’s accumulated debt to the United States approximates $2,500,000,000.

“Canadians will undoubtedly take advantage of the cheap dollar to fill requirements for year-end payments,” forecasts the Wall Street Journal. Of course Canadians will; it is distinctly in the course of good business to do so.