Finance Act

Finance Act

Finance Act, August 1914, emergency measure ending Canada's GOLD STANDARD and giving the Department of Finance new powers. The same name applied to a 1923 measure continuing these new powers while providing for the return to the gold standard on 1 July 1926, and for its suspension in certain emergencies. Before 1914 each bank had issued its own paper currency while the federal government issued Dominion notes in exchange for gold, or vice versa. Thus when gold flowed in, the Dominion would issue more paper money; chartered bank notes were convertible into gold or Dominion notes.

After 1914 the government could issue new Dominion notes without gold backing to finance the war effort and to lend to the chartered banks at their request. This arrangement continued until 1935, when the BANK OF CANADA was formed; it meant that the chartered banks could never be short of cash, because they could always borrow newly printed Dominion notes, whose quantity was no longer related to the amount of gold in Ottawa's vaults. Thus the note issue was unlikely to be proportionate to the gold, although from 1 July 1926 Dominion notes were convertible into gold, at a fixed price, as they were before 1914. In late 1928 gold did run short, and the emergency provisions of the 1923 Act were invoked. See also EXCHANGE RATES.