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FEDER L RESERVE BO RD
366
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-6295
Apri l 23, 1929.
SUBJ3CT: Canadian Currency .
Dear S i r :
Under date
of
September
14, 1928, the
Department
o f .
Commerce vzrote
th e Federrl Reserve Board calling attention to the spirited complaints
by
Canadians against
t h e
a t t i t u d e
of
Americans
i n
cer ta in sect ions
of
th e
United States when tendered Canadian currency
i n
payment
of
hotel
"bills a n d f o r supplies purchased, an d asking whether machinery could
n o t b e s e t u p t o p u t
Canadian "bank notes
a t o r
near
-oar in
this country.
With
t h e
l e t t e r f rom
th e
Department
of
Commerce
was
enclosed
a
memor-
andum from th e Chief of the Finance a n d Investment Division commenting
on the
charges made
o n
currency
by
"banks
a n d
merchants
i n
various
s e c -
t ions
of the
country.
A
copy
of the
l e t t e r
an d
memorandum
i s
enclosed.
'
Following th e r e c e i p t of t h i s l e t t e r , th e Board laid th e matter
"before
th e
Governors
a t
their Conference
i n
Washington
i n
October,
1928,
a n d i n
accordance with
t h e
agreement reached
a t t h e
Conference,
as you
were advised
on
December
10 , 1928 ,
appointed
a
committee consisting
of
th o
Managing Directors
of tho
Buffalo , Detroi t
a n d
Seattle Branches
and
Deputy Governor Eoore
of the
Federal Reserve Bank
of
Minneapolis
t o
study
t h e
problem.
At th e
same time
th e
Board stated that
t h e
matter
would be iiade t h e sub ject of special communications to t h e Governors of
those Federal reserve banks having representatives
on the
committee.
The
Board
h a s
continued
to
give this matter consideration since
t h e Governors' Conference with espe ci al ref er en ce to t h e service which
t h e
Federal reserve banks might render
i n
this connection;
b u t i t h a s
n o t y e t
requested
th e
Committee
to
b e j i n
a
study
of the
quest ion.
I t
i s c lear to t h e Board that th e Federal reserve banks should n o t absorb
any
material expense
i n
this undertaking,
as i t i s n o t a
matter over
which they have
an y
control
or one
that
i s
necessarily involved
in t h e
func t ion ing
of the
banks
i n
accordance with
th e
prov is ions
of the Fed-
eral Reserve A c t . T he Board i s inc l ined t o believe, however, that a
substant ial service would
b e
rendered
t o
American business
men i f
some
means were provided whereby Canadian currency spent i n this country
could be redeemed a t a minimum of expense and a t a cost which would b e
known
by the
merchants
i n
advance.
The
Board unde rst ands th at expendi-
tu res
i n
this country
b y
Canadian tourists amount
t o
about $75,000,000
a
year.
One
proposal
f o r
handling
th e
si tuat ion which
h a s
been suggested
to the
Board seems
t o
have considerable merit
and the
Board would like
t o have your advice as to whether this proposal, a s outlined below,
would work
o u t
s a t i s f a c t o r i l y
i n
you r d i s t r i c t
a n d
whether
y ou
would
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367
X-6295
- 2 -
be w i l l i n g t o cooperate by accepting Canadian currency under, th e condi-
t ions speci f ied .
The plan contemplates that th e Federal reserve banks shall accept
Canadian curren cy from member banks along with o th er cu rrency ship ments
a n d
that they shal l
p a y
member banks
a t p a r f o r
such currency, less
the
expense of e f f e c t i n g i t s redemption, i . e . , a f t e r deduction o f shipping
charges a n d l o s s of i n t e r e s t on t he currency i n t r a n s i t a n d making a l -
lowance
f o r t h e
discount
o r
premium
on
Canadian exchange. This p l an
also contemplates that t h e Federal reserve banks would notify member
banks of the i r w i l l ingness t o accept Canadian currency along with other
currency a n d t h a t t h e Federal reserve banks would assume shipping costs
t h e
sarao
a s
they
do on
United Sta te s currency,
b u t
that credit would
be
given f o r t h e Canadian currency a t p a r l e s s a speci f ied discount i n -
tended to cover solely t h e cost of redemption. I f t he Federal reserve
banks could render a service of th is k ind, i t i s the opinion of the
Department
of
Commerce
a n d
a l so
o f t he
Federal Reserve Board that they
would n o t only help t o remove t h e w i d e - s p r e a d i r r i t a t i o n a n d resentment
of Canadian tourists over th,e unreasonable dis count now sometimes charged
on
th e i r currency
b u t
would
b e
rendering
a
rea l service
to the
business
men in
t h e i r d i s t r i c t s .
I t w i l l be apprecia ted , ther efore , i f you wi l l advise t h e Board
whether you would b e w i l l i n g t o undertake thi s ser vice , an d i f so , how
you
would expect
t o
dispose
of the
currency
a n d
what discount
you
would
expect
t o
have
t o
charge member banks normally
i n
order
t o
cover your
e x -
penses i n connection therewith. I f this plan should b e adopted, would i t
b e b e t t e r t o determine t h e t ransportat ion expenses a n d then have a f l u c -
tu at in g r a t e dependent on t he Canadian exchange rate, or to have a f l a t
rate which would apply throughout
t h e
year
and be so
f i x e d
a s i n t h e
long
r u n t o
approximately offset your expense?
Whether i t w i l l b e necessary f o r t h e Board t o reques t t h e committee
t o st udy t h i s q ue st io n w i l l depend somewhat on t he repl ies rece ived t o
t h i s l e t t e r ,
bu t no
fu r the r ac t ion w i l l
b e
taken
b y t h e
Board
i n
th is
connect ion un t i l a f t e r t h e repl ies f rom a l l Federal reserve banks a r e r e -
ceived
a n d
analyzed.
Very truly yours,
Edmund P i a t t ,
Vice Governor*
LETTER TO ALL GOVERNORS
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COPY X-^295-a
DEPABTMSITT
OF
COMMERCE
i
3 6 8
Bureau o f Foreign a n d Domestic Commerce
WASHINGTON
September
14, 1928.
I n
rep ly re fe r
to 24
The
Honorable
Roy A
Young, Governor,
Federal Reserve Board,
Washington,
D. C.
My
dear Governor:
As the enclosed memorandum by our Finance Division
shows, there
i s
widespread i r r i t a t ion
an d
resentment
i n
Canada against t h e a t t i t u d e of Americans when tendered
Canadian currency
by ou r
Canadian vis i tors .
I n
many
cases Canadian banknotes a r e accepted i n this country
a t a
discount
o f
f i v e ,
t e n a n d
even twenty
p e r
cent;
a n d i n
other cases they
a r e
r e j ec t ed en t i r e ly
as i f
they were b a d money". Quite ap ar t from t h e embarrass-
ment, inconvenience
and
pecuniary loss
t o
which
our
Canadian vis i tors
a r e
thus
p u t , i t
appears that their
nat ional pr ide i s invo lved . Canadians a r e justly proud
of
th ei r high >nal ional t r ed i t
and of
thei r excel lent
bank ing syste m. They po in t
o u t
tha t
i n
Canada American
money i s nearly everywhere accepted a t p a r , a n d they
fee l tha t
our
discount upon their currency
i s
unfa i r
a n d inexcusable . The whole si tuation i s s ingular ly u n -
fo r t una t e .
In 1927 Canadian tourists spent about $51,000,000
i n t h e
United St at es , according
t o t he
es t imate
in our
"balance
o f
internat ional payments ."
The
o f f i c i a l
Can-
adian est imate
w as
considerably higher,
a n d t h e
t r a f f i c
i s
increas ing rapid ly .
I
feel that
o u r
na t ion
c a n
well
a f f o r d
t o
encourage this t raff ic
a n d
that nothing should
be overlooked t o make t h e stay of our Canadian visi tors
p l e a s a n t .
I n
t h a t s p i r i t
I am
asking your help
i n
solv-
i n g this extremely unpleasant exchange situation.
Several
of the
r ep re sen t a t i ves
o f
this Bureau
( i n
Canada
a nd i n ou r
d i s t r i c t o f f i c e s
i n
this country) have
suggested that
t h e
Reserve Banks might easily
s e t up
machinery that would p u t Canadian banknotes a t p a r i n
this country
a nd a t t he
same time speedily withdraw them
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X-6295-a
from circulat ion hero.
I
wonder
i f
somqthi%
of
this kind,
cannot
ho
arranged,
ho two on th e
northern Reserve hanks
and
their Canadian correspondents. As I understand i t , t h e
expenses of shipping currency between th e member hanks and
their Reserve Bank (both
to and
from)
i s
borne
b y t h e
l a t t e r ;
s o t h e member banks would be pu t to no expense — and to bu t
very l i t t l e inconvenience — i n accepting Canadian bil ls a t
p a r , i f t h e
Reserve Bank would accept them
a t p a r .
They
would simply include th e Canadian bil ls in t h e same packet
with
th e
Federal Reserve Motes they
are now
regu lar l y ship-
p ing to t h e Reserve Bank.
Perhaps this i s much less simple thkh i t appears to ah
outsider l ike .myself , b u t I should great ly appreciate hear-
i n g from yo u ifhether something of this kind cannot b e ac -
complished; 1 fa th er thit ik Wo can ignore Canadian coins,
a s
they would inVolve very much smaller amounts
and as the
machinery f o r handling them Would cost riidre.
Cordially yours,
Julius Klein,
Director ,
Enclosure;
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COPY X-6295-b
DEPARTLIETT
OF
COifi.3RCE
Bureau
of
Foraipn
an d
Domestic Commerce
PISHimsOE
September
11, 1928.
I n rep ly refer to 24
To: Sec re tar y Whiting,
From: Finance
a n d
Investment Division,
E e :
Heavy Exchange Charges
on
Canadian Currency.
On
August
2 ,
Commercial Attache Meekins, Ottawa,
r e -
por t ed to t h e e f fec t t ha t h e h a d received several sp ir i t ed
complaints
by
Canadians against
t h e
a t t i t u d e
of
Americans
when tendered Canadian currency by visitors from Canada.
The
Commercial Attache mentioned that
a
great deal
o f i r -
r i t a t i o n
a n d
f r i c t i o n r e s u l t s
and
t h a t
i n
many instances
t h e
expenditures
of
Canadian tourists
i n
this country
a r e
c u r t a i l e d .
He
urged act ion
t o
correct th i s s i tuat ion .
I n
order
t o g e t
information upon which
to
base
a c -
t ion ,
a
c i r c u l a r l e t t e r
was
sent
t o
several
o f t h e D i s -
t r i c t
a n d
Cooperative Offices
of
this Bureau located
neares t to t h e Canadian front ier , an d t o o u r fo re ign o f -
f i c e s
a t
Montreal, Toronto, Vancouver
an d
Winnipeg.
A
summary o f t h e information thus obtained follows:
THE
ATTITUDE
OF
CAM&DIAHS
Ottawa:
37
AS alderman a t Ottawa complained that after spend-
i n g
about
$150 of
American currency
i n a
department store
a t Ph i l ade lph ia , h e reques ted t h e s to re t o exchange a
r e l a t ive ly smal l
sum in
Canadian banknotes,
a t t h e
current
r a t e
of
exchange.
The
store re fus ed. Friends
o f t h e
a lde r -
man
have complained ag ai ns t s im il ar e xperie nces
a t
"Cleve-
land, Buffalo, Rochester,
New
York
a n d
other centers" .
What seems
t o
rankle
i s
that American currency (even
coins)
i s
f r ee ly accep ted
a t p a r
throughout Canada. Cana-
dians a r e jus t ly p roud of their excellent banking system
and of
t he ir h igh nat iona l cr ed i t . Their nat ional pri de
i s
involved.
I t i s n o t
wholly
a
question
of
personal
i n -
convenience
a n d
pecuniary loss.
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Winnipeg;
I t i s quite true that there i s Widespread i r r i ta t ion
i n
Canada
on
account
of the
r e f u s a l
by
merchants
a n d
others
i n t h e
United States
to
accept Caaa.div3.n currency
a t pa r o r
a t a reasonabl e fcatei" Canadian mo to ri st s complain th at
i n t h e
smgll^r American cit ies they have difficulty
i n e x -
changing Canadian banknotes, even
a t t he
"banks, which exact
a discount of 5 to 1 0 p er cent . I t i s shor t - s i gh t ed t o
take advantage
of the
ex t remi t ies
o f
v i s i t o r s
f o r t h e
sake
of a few do l l a r s o f immediate gain."
The
e f f e c t s
of t he
irritation among Canadians over
t h i s d i f f i c u l t y
a r e
larg ely inta ngib le . People
who
have
taken
a
t r i p
i n t h e
United States*
an d who
have been
charged t e n p e r cent discount on their Canadian currency,
come back
and,
t e l l
a l l
th ei r f r ien ds about
i t . The n a r -
r a t i o n
of
these incident s provokes i r r i t a t i o n agains t
the
Unite d St at es ge ne ra ll y. (Trade Conmissioner Ri cha rds ).
Montreal:
The fact that Canadians i n t h e United States a r e u n -
able
t o u s e
thei r currency freely
i s
without doubt
a
source
of i r r i t a t i o n . . . . The heavy exchange charged even by f i r s t -
c l a s s ho t e l s i s annoying to most C ana dian s.. . .Oft en t h e
manner
o f ou r
people
i n
rejecting Canadian money makes
the
Canadian feel that
h e i s
t ry ing
t o
pass
ba d
money
o f f on
them.. .Canadians a r e proud of their currency since there i s
no
quest ion
a s t o i t s
soundness.. . .Any losses
i n
exchange
would
b e
more than made
u p i n
p ro f i t s f rom sa les
t o
Cana-
di an s. (A ss is ta nt Trade Commissioner Fra nce ).
Vancouver:
The
fa ct th at Canadian currenc y
i s n o t
acceptable
to
American merchants probably hurts
th e
pr ide
of
some
of the
Canadian tour is ts but th e complaints come mostly from
t h e
lfess i n t e l l i g e n t c la ss . (As sis tan t Trade Commissioner
Proher t ) .
THE PRACTICES IN CERTAIN AMERICAN CITIES
Columbus. Ohio:
An
investigation shows that business houses
a n d
hotels
accept Canadian currency a t eighty cents on t he dol la r . "
(Columbus Chamber
o f
Commerce).
Keokuk, Iowa:
"Very l i t t l e Canadian money i s seen he re . . . I congratulate
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X-6295-1)
you upon having th e fo res igh t t o take this matter up ; fo r
we on th is s ide of the world's largest unprotected boundary
should do everything possible t o r e t a i n th e f r iendships ,
"business an d personal , of our Canadian friends." (Foreign
Trade Secretary Holmes, Keokuk Chamber
of
Commerce).
Chicago:
The
repor t tha t there
i s
widespread resentment
i n
Canada on this account is no doubt correct. I t i s u n -
fortunate that sufeh a s i tua t ion ex is t s , and I "believe i t
would be very much worthwhile trying t o solve t h e problem. •
The
discount charged
by
small banks ranges
a s
high
a s 1 0 p e r cent on account of the "bother" of handling the
currency.
I
bel ieve
i t i s
safe
to say
that
th e
larger
s to r e s and hotels accept Canadian currency a t a discount
of no t less than 5 p e r cent; t h e small shops a n d ho te l s
very often refuse t o accept i t a t a l l , a n d so f a r a s I
know, none »f the railway companies accept i t . The larger
banks charge from
1 t o 2 pe r
cent
f o r
b i l l s
a n d
from
3 to
5 p e r cent f o r si l ve r . " (D is tr ic t Offic e Manager Roberts) .
S t . Louis:
One of the banks here buys Canadian bills a t 90 cents
a n d , when a n amount h a s been accumulated, sends them by
messenger t o t he American Express office a n d r ece ives 96
cen t s . In t he case of good customers, however, the 96 cents
i s
paid outr ight
by t he
bank.
One
department s tor e ac cept s Canadian money
a t p a r ,
although sugh transactions a r e f e w . Another department
s to re r e fuses i t a n d advises customers tendering i t t o
have i t converted a t a bank. A th ir d store accepts i t a t
t h e prevail ing exchange rate. The railroads uniformly
reject Canadian money.
The
three
o r
four pr incipal hote ls
accept Canadian b i l l s do lla r f o r do l la r and take any ex -
change loss
a t t he
bank. ( D i s t r i c t Of fi ce Manager Gaukel).
Rochester,
N. Y.:
I t
seems
to be the
general pract ice
a f
department
s to res , r a i l roads a n d h o te l s t o accept Canadian currency
a t p a x . Some of the banks do likewise, while others
charge
a
discount
up t o 1 pe r
cen t .
A l l
those whom
I i n -
terviewed expressed t h e hope that every Rochester concern
would accept Canadian currency.
I
believe that best
r e -
sults would be obtained i f t h e Federal Reserve Board
could b e induced t o s e t up machinery f o r t h e free exchange
of Canadian currency between th e northern Reserve Banks
a n d t h e i r Canadian cor res pon den ts . (Rochest er Chamber of
Commerce).
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X-6295~b
Boston?
The loc al shaps, hot els , ra i lways, e t c . , e i th e r re jec t
Canadian currency entirely
o r
accept
i t a t t h e
rate quoted
by
t h e i r "banks, ac cor din g
t o t h e
pol icy
of the
individual
organization* The major i ty of the ra i l roads p re fe r not to
accept
i t . The
maximum discount charged
by the
tanks
i s
about l / 2 p e r cent .
Possibly some hotels
a n d
local shops could
b e
i n f l u -
enced
by the
Chamber
of
Commerce
t o
s tand
t h e
los s
i n e x -
change; since t h e charge by the banks would be of no material
consequence when compared wi th t h e i r p r o f i t s
a n d
would prob-
ably
be
more than offset
by
i ncr eas ed good-will from Canadians.
American tourists
who
tr avel through Canada wi th American
currency have exactly
th e
same trouble.
The
charges made
i n
that country often times r u n a s high a s 1 p e r cent . (Di s t r ic t
Office lianager Sweetzer).
P e s
Koines, Iowa:
The
Banks take
a l l
amounts from
th e
merchants subject
t o
t h e Canadian exchange quotations (usually a discount of about
2 p e r
cent); they accept coins
and
small amounts
o f
currency
a t
th e i r fa ce va lu e. Some
of t he
smaller merchants object
t o
Canadian quarters, in the %elief they contain less silver.
(District Office Manager Martin).
De t ro i t :
Most
o f us
here ordinarily have about
a s
much Canadian
currency, both paper a n d s i l v e r , in ou r pockets as we have
American;
ai^L i t i s
accepted
by
everybody without hesitation.
Most
of the
time
we do not
realize whether
we
have received
American
o r
Canadian money
i n
change. Large Canadian b i l l s ,
however, a r e accepted b y t h e banks only a t a discount rang-
i n g
from
20 to 50
cents
f o r $100 ,
A banker here with whom I discussed th e subject s tated
tha t
h e
thought
i t
would
be an
exce l lent th ing
t o
reach
a n
agreement between
e u r
northern banks
and the
banks
i n
Canada
tha t Canad ian money would b e accepted both here a n d i n Canada
a t p a r a n d
that Canadian banks would give
our
banks
100
Amer-
ican dol la rs
f o r 1 0 0
Canadian do ll ar s. ( Di st ri ct Of fi ce Mana-
g e r But le r ) .
flew torkx
We
be l ieve tha t ,
i f t he
Federal Reserve Board will
a r -
range
f o r t h e
free exchange
of
Canadian currency between
the
3 7 3
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Reserve "banks
an d
their Canadian cot*respondents, much
of the
cause of the prese nt c r i t i c is e wi l l cease. Most of the large
banks here a r e buying Canadian currency a t 9 9 ^ . Guttag
Brothers make a s p e c i a l t y of exchange i n small amounts and
a r e quo ting 99 -3 /4 . ( D i s t r i c t Of fi ce Manager fiodgson).
Bridgeport , C t . :
Our hotels accept Canadian money a t 2 p e r cent discount.
I be l ieve th e r a i l r o a d s do not accept i t a t t he i r t i cke t o f -
f i c e s and tha t a good many of the trad es people fe el t o o u n -
fami l ia r wi th i t t o accept i t . (Manufacturers ' Ass oci ati on) .
Minneapolis a n d S t . Paul:
Canadian si lver
i s n o t
welcomed
b y t h e
Twin City banks,
and we are informed that a t o n e time t h e discount was as much
a s 1 0 p e r
ce nt . There
i s now a
uniform pract ice
on
thei r
p a r t
t o
charge
2 p e r
cent
on
s i l v e r
a n d l / 4 p e r
cent
o n c u r -
ren cy. ( Di st ri c t Of fi ce Manager Zwickel)*
Portland. Oregon:
Local merchants generally accept Canadian currency
a t
p a r , i f a reasonable purchase i s made. Exchange di sc ou nt s
a x e charged f o r l arg e Canadian b i l l s . The local Chamber of
Commerce h a s h a d some discussion of the mat ter .
A system o f p a r currency would b e very quickly f e l t
by merchants, hotelkeepers an d o the r s . We a r e very g ra t e fu l
f<5r th e opportuni ty of a s s i s t i n g , i n any way we ca n, th e
f r ee r t r ave l i n th i s a rea by Canadian tour is ts .
One of th e banks, i n di sc ou nt ing Canadian money, is su es
t o t h e Canadian patron a smal l leaf le t explaining that the
charge fWuld no t be considered a s a discount (since Cana-
dian dol la r s a r e sometimes a t a premium) b u t r a the r as a
service charge t o cover actual expenses i n handl ing a n d sh ip-
pi ng Canadian money. This t a c t f u l n e s s do ub tle ss removes
much o f t h e "s t ing " . (Por t l and Di s t r i c t Off ice ) .
Dayton. Ohio:
We f i nd tha t in no case i s Canadian money rejected
e n t i r e l y . I n almost every case, Canadian b i l l s a n d coins
a r e accepted a t t h e same discount allowed by the banks, which
averages around 1 p e r cent f o r paper money a n d 2 p e r cent f o r
s i l v e r .
I t w as t h e
opinion
of
r ep re sen t a t i ves
of one of the
le ad in g banks th at s te ps should
b e
taken
t o
induce
th e
Federal
Reserve Board
t o
handle
th e
s i tua t ion , wi th
t h e
"belief that
this would create
a
better feeling among
th e
Canadians v i s i t i n g
t h e nor thern par t of the Un ited S ta t e s . (Chamber o f Commerce).
(Signed) G-rosvenor
M.
Jon es, Chief,
Finance a n d Investment Division.