View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

BANK OF CANADA
ANNUAL

REPORT

TO

MINISTER

OF F I N A N C E
AND

STATEMENT OF ACCOUNTS
F O R

T

H

E

Y E A R

1

9

4

6

CANADA

"WHEREAS

it is desirable to establish a

central bank in Canada to regulate credit and currency in the best interests of the economic life of the
nation, to control and protect the external value of
the national monetary unit and to mitigate by its
influence fluctuations in the general level of production, trade, prices and employment, so far as may
be possible within the scope of monetary action, and
generally to promote the economic and financial
welfare of the Dominion: Therefore, His Majesty,
by and with the advice and consent of the Senate
and House of Commons of Canada, enacts as
follows: . . ."




—Preamble to the Bank of Canada Act




o

BANK OF CANADA

Ottawa, February 11th, 1947
THE HON. D. C. ABBOTT, K . C ,

Minister of Finance,
Ottawa.
Dear Sir,
In accordance with the provisions of the Bank of Canada Act
Amendment Act, I am enclosing herewith in duplicate a statement of the Bank's accounts for the fiscal year 1946, signed by the
Governor and the Chief Accountant, and certified by the Auditors,
in the form prescribed by the by-laws of the Bank.
The major changes which took place in our various asset and
liability accounts during the course of the year are indicated in
the following table, which shows the effect of these changes on
the cash reserves of the chartered banks.

Effect on Chartered Banks' Cash Reserves
(Millions of Dollars)
CALENDAR YEAR 1946

Decrease

Increase in Holdings of Dominion a n d Provincial
Government Securities
.
.
.
.
Increase in Holdings of Other Securities
Increase in Notes held b y the Public
Decrease in Dominion Government Deposits
Increase in Other Deposits .
.
.
.
Decrease in Liabilities payable in Sterling, U.S.A.
and Foreign Gold Currencies
Decrease in Holdings of Sterling and U.S.A. Dollars .
Increase in Other Assets, less Other Liabilities

60.0
5.0
43.1
94.4
64.0

155.9
155.9
6.0
263.0

Deduct
Increase in Chartered Banks' Cash Reserves




Increase

321.3
263.0
58.3




TOTAL NOTES HELD BY THE PUBLIC
[As at December 31st, in Millions of Dollars)

NOTES IN CIRCULATION • The Bank of Canada note issue
at the end of December, 1946 was $1,186,201,681, up $57,102,433
from the same date a year before. Of the total amount of our notes
outstanding, $1,009.3 millions were held by the public, and $176.9
millions by the chartered banks. As will be seen from the table in
Appendix A, the increase in notes held by the public was less in
1946 than in any year since 1938.

RESERVE • The asset account in our statement entitled "Sterling and U.S.A. Dollars" stood at $960,131 on December 31st,
1946. This represented foreign exchange held for the account of
foreign clients, and was balanced by a contra item "Liabilities
Payable in Sterling, U.S.A. and Foreign Gold Currencies" of the
same amount. The change during the year in this item did not,
therefore, involve any variation in the cash reserves of the chartered
banks.
INVESTMENTS • The Bank's holdings of Dominion and Provincial
Government securities were $1,905,601,009 at December 31st,
1946, having increased by $60,018,372 during the year. Our government security purchases somewhat more than offset the effect
on the chartered banks' cash reserves of increased public holdings
of Bank of Canada notes and, taken in conjunction with the net
decrease of $30.4 millions in Dominion Government and Other
Deposits, were mainly responsible for the rise of $58.3 millions
in bank cash shown in the table on page 3. Since the chartered
banks' Canadian deposits increased by $346 millions over the
same period, their year-end ratio of cash to deposits was slightly
higher than in 1945. However, this ratio, on a daily average basis,
was 11.2 per cent for the year 1946 and for the month of December, 1946, as compared with 11.4 per cent for the year 1945 and
11.5 per cent for the month of December, 1945.
Other securities held by the Bank of Canada at December 31st,
1946, amounted to $15,000,000, and consisted of one hundred and




rv,

1
A1

1000

750

500

250

1

1936

1938




1940

1942

BANK OF CANADA STAFF
[As at December

31st)

1

1944

1946

fifty thousand shares of the capital stock of the Industrial Development Bank. One hundred thousand shares were purchased in 1944
in accordance with the terms of Section 12, Sub-section (2) of the
Industrial Development Bank Act. In 1946 we purchased a
further fifty thousand shares under the same authority, in order
to meet the Industrial Development Bank's increased capital
requirements.
On the basis of the Wednesday figures published in our weekly
statements, the Bank of Canada's total investments averaged
$209 millions more in 1946 than in 1945.
PROFIT AND LOSS • The net profit from our operations in 1946,
after providing for contingencies and reserves, was $21,236,194.96.
Payment of a dividend of $225,000 on capital stock held by the
Minister of Finance left $21,011,194.96 available as compared
with $22,541,920.92 in 1945. A decline in the average rate of
interest earned on our investments more than offset the increase
in average holdings referred to in the preceding paragraph.
Under Section 31 (c) of the Bank of Canada Act, the whole
of the surplus available from our operations was paid to the Receiver General and placed to the credit of the Consolidated Revenue
Fund.
BANK RATE • Bank Rate remained unchanged during 1946 at
per cent. As in previous years banks had little occasion to borrow
from us.
STAFF • The staff of the Bank numbered 1,021 at December 31st,
1946, a decline on the year of 145. This reduction is due to a
lessening of the work of the Public Debt Division now that the
issue of War Savings Certificates has been discontinued.
Members of the staff have carried out their duties energetically and loyally during the year, and I wish to record my appreciation of their co-operation.




2.2%

S

*

—
2.4%

2.6%

* ^ ^

UK
..
2.8%

3-0%

DEC

FEB.
1946

1945

LONG TERM GOVERNMENT BOND YIELDS
[Monthly Averages)

Canada: 3 % issue due February 1st, 1959—62
United States: 2>6% issue due December 15th, 1963—68
United Kingdom: 3 % issue due April 15th, 1959—69

3000

2000

1000

1936

1938

1940

1942

1944

NET NEW BOND ISSUES, LESS RETIREMENTS




(Calendar Years in Millions of Dollars)

1946

• Medium and long term government bond
prices rose sharply in Canada during the first two months of 1946,
and yields fell to a new low, while a similar movement was taking
place in New York and London. The Canadian market remained
relatively stable over the rest of the year with the longest dated
Dominion government issue selling at prices to yield approximately 2.60 per cent as compared with about 2.90 per centat the end
of 1945. The London market showed further strength in the last
quarter, and at the end of December the yield on the longest U.K.
government issue with a fixed maturity was slightly less than 2.40
per cent as compared with about 2.95 per cent a year before. In the
United States, government bonds retained only part of their early
rise, but yields remain lower in that country than in the United
Kingdom or Canada.
SECURITY MARKETS

Provincial, municipal and corporate bond prices rose to record
levels in Canada during 1946 and created a situation very favourable to refinancing. In addition, the return of the Canadian dollar
to par at mid-year removed the exchange deterrent to calling issues
with a New York payment feature. As a result, the volume of
bonds refunded to lower rates in the Canadian market during 1946
was more than twice as large as in any previous year.
A sharp break from the wartime years is evident in the table
of net new Canadian bond issues, less retirements, which is given
in Appendix B. Dominion government domestic bond issues outstanding, which showed annual increases ranging from $440 millions
to $3,550 millions in the preceding six years, rose by only $208
millions in 1946. The amount of Deposit Certificates held by
banks was again reduced, as in 1945. The net sum borrowed by
the Dominion government in any year differs, of course, from the
amount of borrowed money it actually uses during that year by
the increase or decrease in its cash balance; and in 1946 there was
a substantial use of funds which had been raised in the final
Victory Loan campaign late in 1945. However, even on the basis




5000

4000

3000

2000

1000

1942

1943

1944

1945

1946

D O M I N I O N GOVERNMENT DOMESTIC CASH REQUIREMENTS
[Calendar Years in Millions of Dollars)

• Domestic Cash Requirements
• Amount Provided from Revenue
• Amount Provided from Borrowed Funds




of the Dominion's net utilization of money borrowed in Canada
there was a drop from $2,600 millions in 1945 to $625 millions in
1946.
In the Dominion government's first post-war public financing
a new security was offered — namely, Canada Savings Bonds.
These 10-year registered bonds are issued in denominations from
$50 to $1,000 and bear an annual coupon of 1^/i per cent, which is
somewhat above the current market rate. However, they are sold
only to individuals, and holdings are limited to $2,000 per person.
The bonds are redeemable on demand at any branch bank in Canada at par plus interest.
The Canada Savings Bond was designed to incorporate those
features of both Victory Bonds and War Savings Certificates most
desired by individual savers. The chief purpose of its issue is to
facilitate the continuance of regular personal saving habits developed in wartime. During the initial selling period from October
15th to November 15th, about 1,100,000 individuals subscribed
for a total of $467 millions. About 600,000 employed persons
subscribed through the payroll savings plan, some 200,000 persons
entered into a programme of regular saving under the monthly
savings plan, and about 300,000 made cash purchases. The books
will remain open until further notice to accommodate people who
were not able to subscribe during the initial campaign.
During 1946 the totals of provincial, municipal and corporate bonds outstanding were again reduced. New issues of common
and preferred stock reached the largest volume for many years,
but were exceeded in amount by redemptions of preferred stock.
Although stock market buying in recent years is said to have
been largely on a cash basis, at the end of January, 1946, brokers'
loans were up by one-half from their level of four months before.
In the circumstances the Stock Exchanges considered it wise to
increase their minimum margin requirements to 50 per cent, with
100 per cent required on low-priced issues. At the end of 1946,
brokers' loans were $49 millions as compared with the peak of $69




•77-

A

6000

/
4000

yS
—

—
2000

i

1936

1938




1940

1942

TOTAL VOLUME OF MONEY
(As at December 31st, in Millions of Dollars)

1944

1946

o

millions in January, and a level of $40-45 millions in the middle of
1945.
MONETARY CONDITIONS • In 1946 there was no monetary expansion arising out of direct bank financing of government requirements. However, the volume of money continued to rise, though
at a greatly reduced rate, as the public converted some of its liquid
assets from government securities into savings deposits.
During the course of the year the Dominion government
reduced the amount of Deposit Certificates held by the chartered
banks by $250 millions. In addition, $177 millions of Victory Bonds
held temporarily at the end of 1945 in connection with customers'
purchases under the official instalment plans, were eliminated from
bank portfolios during 1946. Bank loans made to enable subscribers
to purchase Victory (or Canada Savings) Bonds at the time of
issue declined by $136 millions during the year, and call loans
to brokers and dealers were reduced by $116 millions. On the other
hand, the chartered banks increased their Canadian loans,
excluding the categories mentioned above, by $359 millions
during 1946, bought $473 millions of Dominion government
securities (other than Deposit Certificates which have been mentioned above) and increased their non-governmental security
holdings by $113 millions.
The net effect of the changes mentioned in the preceding paragraph, and the $58 millions increase in their cash reserves referred
to on page 3, was to increase chartered bank assets by some $324
millions during the year. This roughly accounts for the increase
of $346 millions in total Canadian deposits with the chartered
banks which took place over the same period. Public savings
deposits alone increased by $604 millions during 1946, and public
demand deposits increased by $228 millions, while government
deposits declined by $511 millions.
In Canada, as in most other countries, people have in recent
years chosen to hold an increasing amount of their accumulated
savings in the form of interest-bearing savings deposits. The char-




•73-

tered banks' scope for employing such funds in making commercial
loans has been relatively limited; and in order to be able to pay
interest on their savings deposits they have found it necessary to
invest in Dominion government securities of a longer term and
higher return than the Treasury Bills, Deposit Certificates or
other special short term issues sold directly to them by the government.
The relationship between savings deposits and holdings of
market issues of government bonds is, of course, largely automatic in countries where savings bank business is handled mainly by
special non-commercial banking institutions. In the case of Canada
where the chartered banks carry on both savings and commercial
banking under one roof, an agreement was made with the government early in 1946 recognizing the link between savings deposits
and holdings of market issues of government securities. The banks
agreed that their investments in Dominion government direct
and guaranteed issues (other than Treasury Bills, Deposit Certificates and Treasury Notes) would not average more than 90 per
cent of the amount of their Canadian personal savings deposits.
The banks also agreed that their earnings on such bonds should
not exceed the cost of operating their savings business by more
than a moderate profit margin.
The agreement places the chartered banks, in respect of their
savings business, in approximately the same position as if they
were separate savings institutions carrying 10 per cent of their
deposits in the form of cash and other non-earning assets. It
follows also that any Dominion government securities held by
the chartered banks as the counterpart of current account deposits
are necessarily limited to Treasury Bills, Deposit Certificates, and
short term Treasury Notes which are currently bearing interest
at % per cent per annum.
The agreement became effective on March 31st, 1946. Since
then the chartered banks as a whole have bought a little less in
the way of Dominion government market issues than would

.74.




bring their portfolios up to 90 per cent of the rising level of personal savings deposits. This reflects the opportunities which the
banks have had in recent months to increase their "commercial"
loans.
Excluding loans in connection with Victory (and Canada
Savings) Bond purchases, we estimate that loans to merchandisers
increased by nearly three-quarters during the year and to manufacturers as a group by more than one-third. Loans to individuals
against securities, and "other" loans (mainly personal) increased
by more than one-half. Taking into account both personal loans
and loans to individuals to carry securities, the banks probably
have a higher proportion of loans to individuals, as distinct from
loans for business and other purposes, than at any previous time.
RECONVERSION • In many ways the transition from war to
peace has taken place more successfully than could have been
expected two years ago. Since VE Day, 700,000 men and women
have been demobilized from the armed services, and with the plant,
equipment, and 900,000 workers engaged in war production,
have very largely been absorbed into peace-time work. This
process of reconversion has required innumerable adjustments
from an industrial and particularly a human point of view, and
there have been serious localized stoppages of production in both
Canada and the United States which have limited the expansion
of civilian output over a wide area. But in general the shifts and
adjustments of this transition period have taken place with a relatively small reduction in total output, and without substantial or
prolonged unemployment.
As the following table from Dominion Bureau of Statistics
data shows, the reductions in war expenditure and in exports
(partly government financed) have largely been made up by increased private investment and increased expenditure for consumers' goods and services. This in turn has served to maintain production and income at a high level, as shown in the second of the
following tables.




•75*

1938




1940

1942

1944

ESTIMATED NATIONAL PRODUCTION
[Calendar Years, in Billions of Dollars)

1946

Estimated National Expenditure*
{Calendar Years, in Billions of Dollars)

1945

Prelim.
1946

1938
Gross Private Investment (incl. investment in inventories) .
Personal Expenditure on Consumers'
Goods and Services
Government Expenditure on Goods and
Services*
.
.
.
.
Exports of Goods and Services .
Total

.

.

.

.

Less — Expenditures Abroad
Above f

.

1944

.5

.6

.6

1.4

3 .7

6.2

6.8

7.4

.8
1 .4

4.0
4.5

2.4
4.6

1.7
3.4

6 .4

15.3

14.4

13.9

Included
1 .3

3.5

2.9

2.8

5 .1

Gross National Expenditure

11.8

11.5

11.1

Estimated National Production*
{Calendar Years, in Billions of Dollars)
1938

1944

1945

Prelim.
1946

Salaries and Wages
Military Pay and Allowances
Investment Income (before Corporate
Taxes)
.
.
.
.
Net Income from Farms and Other Individual Enterprises

2.5

5.1
1.1

5.0
1.1

5.1
.3

1.8

2.0

1.8

8

1 .9

1.7

2.0

NET NATIONAL, PRODUCT AT FACTOR COST .

4. 0

9 .9
1 .1

9.8
1.0

9.2

.8

.7

1.2
.7

11 .8

11.5

11.1

Indirect T a x e s

.

.

.

.

D e p r e c i a t i o n

.

.

.

.

6
5

Gross National Product at Market Prices
( • Gross National Expenditure)

5. 1

+ Based on National Accounts; Income and Expenditure; 1938-1946, and
Balance of International Payments statements published by the Dominion
Bureau of Statistics. Minor adjustments have been made in the Bureau
figures in the process of rounding off, in order to eliminate the residuals arising
from errors and omissions.
•"Including the change in Wheat Board inventories.
+ Including the import content of expenditures shown in the table.




77-

5000

4000

3000

2000

1000

JUNE
1939




JUNE
1941

JUNE
1943

JUNE
1944

ESTIMATED NUMBER AT WORK
{Thousands)

APRIL
1945

NOV.
1946

Insofar as prices have risen, the above table tends to understate the slight shrinkage in the over-all physical volume of output which has taken place. As shown below, the number of people
at work declined by about 7 per cent from the war-stretched total
at April, 1945, to November, 1946, which is the latest month for
which full labour force data is available. This reduction in the
volume of employment was, however, almost entirely accounted
for by voluntary withdrawals from the working force, since total
unemployment in November was only slightly above its record
low wartime level. It is true that there have been serious shortages of labour in some areas and occupations, while surpluses of
labour existed in certain other cases, but in general the large redistribution of manpower involved in reconversion has taken
place relatively smoothly.
Estimated Distribution of Population

14 Years and Over

{Thousands)

June
1939
Armed Services

.

.

10

Wage and Salary Earners in War I n d u s t r y .
Wage and Salary Earners in Civilian Industry
.
.
.
.
.
Employers and Workers on Own Account .
Agriculture — Male Workers Only

April
1945

Nov.
1946

740

50

900
3,150
510

1,210

1,910
440
1,010

3,700
650
630

5,000
80
460

4,670

.
.

Homemakers, Women in Agriculture and
All Others
.
.
.
.

3,280

3,410

3,780

Total Population —14 Years and Over.

8,260

8,950

9,160

Total Number at Work —as Above

Unemployed
Students

.
.

.

.
.

.
.

1,990
490

960 (2)

120
590(3)

(1) Based on data from the Dominion Bureau of Statistics and
the Department of Labour.
(2) Reflects seasonally low employment in agriculture.
( l ) Approximately 65,000 students who were also at work were
excluded from this heading and included with the employed
groups above.




79

GENERAL WHOLESALE PRICES

140

COST OF

LIVING

120

DEC.
1944

APRIL
1945




AUG.

DEC

APR.
1946

CANADIAN PRICE INDEXES
[August 1939 = 100)

UNITED STATES PRICE INDEXES
[August 1939 = 700)

AUG.

DEC

PRICES • One of the principal dangers of the reconversion
period has been that prices and costs would be distorted by postwar inflation resulting from temporary shortages of goods on one
side and a great accumulation of demand, backed by war-time
savings, on the other. Any excessive run-up of prices and costs
would set the stage for a subsequent deflation. It would affect
different economic groups very unequally, and the resulting
distortions would necessitate fresh adjustments before the basis
would exist for a balanced and stable prosperity.
Price increases in Canada since the end of the war have been
moderate. Despite a reduction in government subsidy payments,
the general wholesale price index on the latest available calculation, for December, 1946, was only 8 per cent higher than on VJ
Day, and the cost of living index was only 5 per cent higher.
In the United States, early removal of controls was accompanied by much larger price increases than in Canada. By December, the general wholesale price index was 33 per cent higher
than on VJ Day, as compared with a 41 per cent increase in the
index over the preceding six years. The foods component of this
index increased by 42 per cent between last June and December.
The cost of living index increased by 15 per cent during the same
period.
Canadian Price Indexes *
Aug.
1939

Aug.
1945

Dec.
1946

100

144

155

100

151

158

100

120

126

General Wholesale Prices
Wholesale Food Prices .
Cost of Living .

Indexes*
Aug.
1939

General Wholesale Prices
Wholesale Food Prices
Cost of Living .

Aug.
1945

June
1946

100

141

151

188

100

158

168

238

135
100
131
* Dominion Bureau of Statistics and U. S. Department of Labor
indexes converted to the base Aug. 1939 = 100




•27-

Dec.
1946

156

Although it would appear that United States prices of some
commodities have reached or passed their peak, many primary
commodity price increases have not yet worked their way through
to the prices of end-products.
For various technical reasons the Canadian and United States
indexes shown above are only roughly comparable. Nevertheless,
it is clear that United States prices are substantially higher than
Canadian ones at the present time. Obviously this spread could
not be maintained indefinitely, even if controls were retained in
Canada. The return of the Canadian dollar to parity with the
U.S. dollar last July reduced but did not remove the upward
pressure on Canadian prices arising out of the rapid increase in
the United States price level.
However, many observers in the United States are expecting
a considerable reduction in the case of some of the more extravagant price increases which took place during 1946. If this occurs,
and Canadian and United States prices in general come together
at a less inflated level, Canada's efforts to make an orderly transition from war to peace will have borne fruit. It is particularly
important that Canada should try to come through the transition
period with a price and cost structure which will not be a drag on
her post-war development, either externally through hampering
her exports, or internally by creating a lack of balance among the
various sectors of her economy.
FOREIGN TRADE AND EXCHANGE • One of the principal factors
in our present prosperity is the high level of our exports, which in
1946 were nearly two and a half times the total for 1938. About
one-third of our 1946 exports were financed under Canada's
export credit programme.
Out of total credits authorized of
some $1,845 millions, about $1,000 millions remained unspent
at the end of 1946.
This export credit programme was designed as a transitional
measure to help relieve appalling shortages of food and essential
supplies in Allied countries, and to assist our traditional cash

•22*




customers to re-establish themselves as such. It was also designed
to assure markets for our surplus products during the transition
period. In the absence of the credits, only a part, perhaps only a
relatively moderate part, of the goods whose export is so financed
could be exported for cash, or could be utilized in Canada.
Our export credits are part of a broad international programme
involving the International Monetary Fund, the International
Bank for Reconstruction and Development, United States foreign
loans and the proposed International Trade Organization. The
purpose of this programme is to rebuild and revitalize the multilateral trading system, on which Canada's employment and standard
of living so greatly depend. Canada's part represents an investment which it is in her own self-interest to make. But her export
credits are obviously a transition measure. Canada cannot
continue indefinitely to sell on credit in overseas markets while
she is incurring a substantial cash deficit in her balance of payments
with the United States.
Canada has had a deficit in her current account transactions
with the United States in every year from 1926 to 1943. In
1944 and 1945 there were small surpluses caused by special wartime factors. The average deficit over this twenty year period
was $165 millions a year and the largest deficits (for example $437
millions in 1929) occurred in years of peace-time prosperity.
The only peace-time years in which there was an approach towards
balance were years of unemployment, stagnation and low imports,
such as 1933-6.
Unless some developments occur which would produce a
major change in the character of our trading relationships with
the United States, it will be normal for Canada to have a deficit
in its current account balance of payments with the United States,
and this deficit is likely to average higher in the future than it
has in the past. Other things being equal, the rise in world prices
from the pre-war level will increase the absolute size of the deficit.
Moreover, the more successful we are in maintaining a high level




'23'

of employment and income, the greater our tendency to import
from the United States is likely to be. The trade figures of recent
months are a tangible reminder of this tendency. Our imports from
the United States in the fourth quarter of 1946 were about $430
millions as compared with less than $500 millions in the whole
year 1937 and less than $900 millions in the whole year 1929.
To a considerable extent this upsurge of imports represents a
process of filling up pipe lines and accumulating minimum stocks
of goods which are just now becoming available in quantity in
the United States market and are not yet available elsewhere.
I believe it is a matter of availability of goods, rather than price
considerations related to a lower exchange rate, which has prompted
this movement, and there are already indications that the peak has
been passed. Nevertheless it seems clear that we must contemplate
a much higher level of imports from the United States than in any
previous peace-time period. The prospects for a substantially higher
level of exports to the United States depend on the outcome of the
forthcoming trade negotiations, as well as on business conditions in
the United States.
During the transition period, while our overseas customers
are being financed largely on credit, we shall have to meet most
of our balance of payments deficit with the United States out of
our own resources. Fortunately we reached the end of the war
with large U.S. dollar reserves. This gives us the opportunity to
follow now the kind of multilateral non-restrictive trading policy
which it is so greatly in our interest that other countries should
adopt. It is obvious, however, that the successful functioning
of this policy depends on our being able to realize, in due course,
sufficient cash (i.e. freely convertible currency) from our overseas
trade to meet our requirements in the United States.
The extent to which overseas countries can pay cash for their
net imports from Canada will depend in turn on how soon they
can restore their capacity to produce and to export to cash markets.
In January, 1947, the United Kingdom took the welcome step of

•24-




making current sterling spent in certain countries, including
Canada, convertible into U.S. dollars. It is to be hoped that as
time goes on other countries will be able to undertake similar
obligations, but we should not conclude that this alone would
solve all our exchange problems. Unless such countries are able
to produce and sell enough in other cash markets, their undertaking might have to be maintained through limitation of imports.
It is a commonplace that all countries have a tremendous
stake in the maintenance of prosperity in the United States and
the adoption of a liberal trade policy by that country. Further
than this, contemporary events vividly illustrate the high degree
of inter-dependence among all the important trading countries
of the world. For example, the United Kingdom anxiously awaits
the recovery of its important customers in Western Europe, so
that it can obtain from them either the imports upon which its
standard of living and export capacity depend, or convertible
currency with which it can purchase those imports elsewhere.
Canada, like other countries, has a vital interest in the United
States situation but it is clear that the early restoration of a high
level of production in the United Kingdom and Western Europe
is also of primary concern to us.




I am, Dear Sir,
Yours faithfully,
G. F. TOWERS, Governor

25




PROFIT AND LOSS ACCOUNT
for the year ended December 31st, 1946

PROFIT FOR THE YEAR ENDED DECEMBER 31ST,

1946, after making provision for contingencies
and reserves

.

.

.

.

.

APPROPRIATED AS FOLLOWS: Dividends

$ 21,236,194.96

for the

year ended December 31st, 1946, at the rate of
4 ^ % per annum —
No. 24 paid July 2nd, 1946. . .
No. 25 payable January

BALANCE,

2nd, 1947.

TRANSFERRED

solidated Revenue F u n d

112,500.00

225,000.00

TO T H E R E C E I V E R

G E N E R A L O F C A N A D A for credit




$ 112,500.00

.

to the

.

Con-

.

.

% 21,011,194.96

27

BANK

OFCANADA

•

S T A T E M E N T

LIABILITIES

Capital: Authorized—100,000 shares, par value
of $50.00 each

.

.

$ 5,000,000.00

Issued and paid up

.

.

$

Rest F u n d

5,000,000.00
10,050,366.82

Notes i n Circulation

.

.

.

.

1,186,201,680.50

Deposits:
Dominion Government . . $ 81,468,166.79
Chartered Banks

.

.

.

565,469,559.72

Other
Liabilities

93,800,974.87
payable

740,738,701.38

in Sterling, U.S.A., and

Foreign Gold Currencies: Deposits

.

.

960,131.02

Dividends Declared: payable January 2nd, 1947
All Other Liabilities

.

.

.

112,500.00

.

5,552,900.98
$

1,948,616,280.70

AUDITORS' REPORT • We have examined the above statement of assets and liabilities of the Bank of Canada as at December 31st, 1946, and have received all
the information and explanations we have required. We report that, in our
opinion, it is properly drawn up so as to exhibit a true and correct view of the
state of the Bank's affairs as at that date, according to the best of our information, the explanations given to us and as shown by the books of the Bank.
E. J. HOWSON, F.C.A.,

MAURICE SAMSON, C.A.,

of the firm of Thorne, Mulholland,
Howson & McPherson.

of the firm of Chartre, Samson,
Beauvais, Gauthier & Cie.

•28*




O F

A S S E T S

• A S AT DECEMBER

A N D

L I A B I L I T I E S

31st, 1 9 4 6

A S S E T S

Reserve: Sterling and U.S.A. dollars, at market
value
Subsidiary Coin

$

960,131.02
345,464.80

Investments: Dominion, Dominion-guaranteed,
and Provincial Government short-term securities—at values not exceeding
market
$1,197,436,208.00
Other Dominion, Dominion
guaranteed, and Provincial
Government securities — at
values not exceeding market

708,164,800.50

Other securities — at cost

15,000,000.00

1,920,601,008.50

Bank Premises: Land, Buildings and Equipment—at cost, less amounts written off .
.

2,438,215.06

All Other Assets

24,271,461.32

$ 1,948,616,280.70

NOTE: In accordance with Section 12 of the Industrial Development Bank Act,
the Bank of Canada has subscribed for 250,000 shares of the par value of $100
each of the Industrial Development Bank of which 150,000 shares had been purchased as at December 31st, 1946.
G. F. TOWERS, Governor
Ottawa, Canada, January 31st, 1947.




H. R. EXTENCE, Chief Accountant

.29*

APPENDIX A
VOLUME OF MONEY

• Volume of Money and

1935

.

Public Demand Deposits with Chartered
Banks
Public Notice Deposits with Chartered
Banks
Volume of Monkey held by the Public .
Dominion Government and
with Chartered Banks (*)
Dominion Government and
with Bank of Canada (2)

Other Deposits
.
Other Deposits
.

Total Volume of Money .

59
111

88
103

111

118

96

88

191

207

206

641

682

699

734

1,486

1,548

1,583

1,660

2,297

2,421

2,489

2,600

82

93

105

104

19

22

16

21

2,536

2,610

181

Total Notes held by the Public

1938

2,398

Chartered Bank Notes held by the Public .

1937

170

Bank of Canada Notes held by the Public .

1936

179

180

186

4
114

9
160

15
186

186

...
956
153

...
1,116
221

...
1,111
242

...
1,162
228

...
1,028

...
905

...
938

...
1,005

2,436

2,590

2,672

2,795

RELATED BANK ASSETS
BANK OF CANADA:

Gold (3)
Foreign Exchange (3) (4)

.

.

.

Securities

28

CHARTERED BANKS:

Victory Bonds held re Public Purchases on
official installment plans .
.
.
.
Other Dominion and Provincial Securities .
Other Securities (6)
Loans re Public purchases of Victory or
Canada Savings Bonds at Time of Issue
Other Canadian Loans
Total

(*) Variations in this item are accounted for mainly by Dominion Government
deposits.
(2) Excluding deposits of chartered banks, and deposits in foreign currencies shown
under item 5 of Liabilities on Bank of Canada Statement. See also footnote (4).
(3) In May 1940, under the Exchange Fund Order and the Foreign Exchange Acquisition Order, the Bank of Canada sold gold and exchange amounting to $253.5 millions

30




R e l a t e d B a n k Assets

•

(Millions of Dollars as at December 31si)

1939

1940

1941

1942

1943

1944

1945

1946

162
85

262
80

380
71

573
60

752
42

897
33

966
25

1,009
21

247

342

451

633

794

930

991

1,030

853

1,031

1,269

1,499

1,697

1,862

2,063

2,291

1,741

1,641

1,669

1,673

1,948

2,423

2,865

3,469

2,841

3,014

3,389

3,805

4,439

5,215

5,919

6,790

256

133

171

435

711

860

1,021

535

65

23

84

79

52

59

206

175

3,170

3,644

4,319

5,202

6,134

7,146

7,500

226
64
232

38
576

201
608

1,016

1
1,260

1,491

1,856

1,921

1,353
221

1,288
191

1,516
168

51
1,950
152

72
2,555
135

86
3,143
172

177
3,410
210

3,634
323

...
1,141

1,148

1,201

115
1,084

189
1,015

185
1,118

234
1,292

98
1,545

3,237

3,241

3,694

4,368

5,227

6,195

7,179

7,521

4

to the Foreign Exchange Control Board and acquired additional government securities. Since that date the Bank's minimum gold reserve requirement has been
suspended.
(4) Excluding foreign exchange equal to the amount of deposits in foreign currencies
shown under item 5 of Liabilities on Bank of Canada Statement. See also footnote (2).
(5) Excluding foreign government securities.




37

APPENDIX

B

Estimated Net New Bond Issues or Retirements
(Par Values in Millions of Canadian Dollars)
Calendar
Year

Dominion
& C.N.R.*

170
170

Payable 1936
in Canada 1937
Only

Provinces

66
82
59
51
75

S5
!

91
74

Munici-

palitiesf
. 13

9

Private
Corporations

TOTAL

182
75
31
96
22
33
12
27
19
51
108

405
173
172
197
483
665
1,778
2,546
2,617
3,557
374

1939
1940
1941
1942
1943
1944
1945
1946

1,830
2,606
2,692
3,551
208

7
7
39
15
17

9
24
14
32
47
40
17
30
41

Payable 1936
Abroad,
Only or
Optionally

39
14
21
96

1941
1942
1943
1944
1945
1946

193
292
148

27
24
11
29
15
18
41
25
27
14
34

14
16
21
15
16
14
14
13
10
9
47

141
87
42
129
35
31
64
35
20
52
133

221
141
95
211
210
256
411
221
125
122
368

Total 1936

131

1937
1938
1939
1940
1941
1942
1943
1944
1945
1946

11
70
22
300
537
1,538
2,458
2,624
3,504
54

39
58
48
80
60
18
34
18
66
29
17

27
25
30
39
30
46
61
53
27
39
6

41
12
11
33
57
64
76
62
39
1
25

184
32
77
14
273
409
1,367
2,325
2,492
3,435
6

7

444
730

68
47

154

* Excludes Treasury Bills, Deposit Certificates and short-term notes sold
directly to the Bank of Canada and the chartered banks, of which the amount
outstanding increased by 12, nil, 5, 200, 315, 290, 633, 535, 248, 695 and
250 in the calendar years 1936 to 1946 respectively.
• The division of net municipal retirements between the domestic and the
foreign category is a rough approximation only.

32







DIRECTORS •

OFFICERS • AGENCIES

•

BOARD OF DIRECTORS

G. F. TOWERS, C.M.G., Governor

D. GORDON, C.M.G., Deputy Governor

E. G. BAKER, Toronto, Ont.
W. D. BLACK, Member of the Executive Committee, Hamilton, Ont.
G. G. COOTE, Nanton, Alta.
F. MAGEE, Port Elgin, N.B.

J. L. HOLMAN, Summerside, P.E.I.
W. K. MCKEAN, Halifax, N.S.

A. STEWART MCNICHOLS, Montreal, Que.
R. H. MILLIKEN, K.c, Regina, Sask.

A. C. PICARD, Quebec, Que.

E. J. TARR, K.C, Winnipeg, Man. A. C. TAYLOR, C.B.E., Vancouver, B.C.

EX-OFFICIO MEMBER OF THE BOARD

W. G. CLARK, C.M.G., Deputy Minister of Finance, Ottawa, Ont.




OFFICERS

G. F. TOWERS, C.M.C, Governor

D. GORDON, C.M.G., Deputy Governor

L. P. SAINT-AMOUR, Assistant Deputy Governor
D. G. MARBLE, C.B.E., Secretary

D. A. SKELTON, Research Advisor

L. RASMINSKY, C.B.E., Executive Assistant to the Governors

J. E. COYNE, Securities Advisor and Executive Assistant to the Governors
SECRETARY'S DEPARTMENT
D. G. MARBLE, C.B.E., Secretary

L. F. MUNDY, Deputy Secretary

L. P. J. ROY, Deputy Secretary

P. D. SMITH, Assistant Deputy Secretary

Foreign Exchange Division: S. TURK, Chief; W. A. CAMERON, Deputy Chief
Currency Division: C. E. CAMPBELL, Chief; J. P. MELVIN, Deputy Chief
Public Debt Division: M. G. ANDERSON, Chief
F. M. PETERS, Deputy Chief; H. W. THOMPSON, Deputy Chief

RESEARCH DEPARTMENT
J. R. BEATTIE, Chief

W. E. SCOTT, Banking Assistant

SECURITIES DEPARTMENT
H. G. GAMMELL, Chief

R. B. MCKIBBIN, Deputy Chief

C. H. RICHARDSON, Assistant to the Securities Advisor
J. W. GRANT, Toronto, Ont.

C. DEV. WELSFORD, Montreal, Que.

CHIEF ACCOUNTANT'S DEPARTMENT

AUDIT DEPARTMENT

H. R. EXTENCE, Chief Accountant

E. FRICKER, Auditor




AGENCIES

Calgary, Alta. . . . J. PARRY, Agent
Charlottetown, P.E.I. . . . H. T. CURRIE, Agent
Halifax, N.S. . . . P. B. WOOSTER, Agent
Montreal, Que. . . . J. H. C. DESMARAIS, Agent
Ottawa, Ont. . . . E. METCALFE, Agent
Regina, Sask. . . . F. J. WILKS, Agent
Saint John, N.B. . . . E. H. CAMERON, Agent
Toronto, Ont. . . . K. FREDERICKSON, Agent
Vancouver, B.C. . . . W. MORTON, Agent
Winnipeg, Man. . . . G. A. IVEY, Agent