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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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- 2 - X-6295-b | 3 7 j [

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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- 3 -

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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X-6295-b

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.