Rise and Fall of the Canadian Movement for Monetary Sovereignty

* Article: The Canadian Movement for Monetary Sovereignty: Rise and Fall. By Ellen Brown. COMER, THE JOURNAL OF THE COMMITTEE ON MONETARY AND ECONOMIC REFORM, Vol. 25, No. 6 • June 2013

URL = http://comer.org/archives/2013/COMER_June2013.pdf

Chapter 17 of a new book by Ellen H. Brown, The Public Bank Solution

Excerpt

Ellen Brown: ? "T?he government of Canada devised its innovative system of state-bank-created credit in the 1930s, and drew freely from it for nearly four decades of unusual prosperity, growth and development. Then in the 1970s, Canada joined the Basel Committee of G10 countries at the BIS. A change in economic policy followed that cut the government off from its own state bank funding, subjecting it instead to the skyrocketing interest rates of private international credit markets. Canada is now struggling with debt and deficits along with most of the rest of the Western world. While Australia’s innovative central bank was being reined in by the City of London in the 1930s, Canada’s was just getting started. Before 1935, the Canadian government did not have a central bank. It had to borrow from private banks that issued their own banknotes, with the country’s largest private bank, the Bank of Montreal, serving as the government’s de facto banker.

But in the throes of the Great Depression, this private system had failed. The money supply had collapsed, forcing businesses to close and unemployment to soar. The banks were blamed for making conditions worse by failing to extend loans; while for the government, a national debt to private banks meant a mounting interest burden.

By the eve of the depression, interest on Canada’s public debt had reached an alarming one-third of government expenditures; and many officials believed that the government needed a central bank to generate its own money. In 1933, a Royal Commission was put together to look into creating such a bank. A major debate then ensued over whether it should be public or private. William Lyon Mackenzie King, elected prime minister in 1935, thought the bank should be public.

He admonished:

- “Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of democracy is idle and futile.”

...

The Bank of Canada opened in 1935 under private ownership; but in 1938, the Bank Act was amended to make it a publicly-owned institution. According to William Krehm in A Power Unto Itself: The Bank of Canada, the 1938 nationalization allowed the central bank to create the money to finance federal projects on a nearly interestfree basis. The bank could also lend to the provinces. The interest it collected went back to the federal treasury.

In creating the credit to finance federal, provincial, and municipal projects, the Bank of Canada was doing what private banks do every day; but it was doing this in the public interest. In parliamentary hearings in 1939, Graham Towers, the first governor of the Bank of Canada, confirmed that banks routinely create credit with accounting entries."