Prior to the Great Depression, Canada had gotten along without a central bank, and the Bank of Montreal acted as the government’s banker. They had a lot of competition from the Royal Bank of Canada, which was very focused on taking away government business from its archrival, but the system seemed to work pretty well. Suddenly, the economy was in shambles, and farmers were joined by manufacturing and other interests to push for a depreciating currency. Prime Minister R.B. Bennett instituted a Royal Commission on Banking and Currency, and this body came back with the strong recommendation that the country considers establishing a central bank, an idea that had already been pushed by many prominent Canadians such as John Edward Brownlee, the Premier of Alberta where agriculture was king…he, like so many others, was demanding government-cost-regulated credit. He had a lot of supporters for this idea across the entire country as a plummeting economy led economists to advocate government intervention into the monetary system and the nationalization of the credit system. And so it was that on March 11th, 1935, the Bank of Canada opened its doors with the granting of Royal Assent to the Bank of Canada Act. Initially operating as a private sector organization, under the premise that it would be able to be free from partisan political influence, it was later transformed under Prime Minister William Lyon Mackenzie King into a Crown corporation.
The Bank became a part of Canada’s war effort during World War II, and of course, later became very well known to every Canadian as it battled to keep inflation low. During its first twenty years, it was run by Graham Ford Towers, who had been lured away from the Royal Bank to be the first Governor of this new institution, and this iconic figure of Canadian financial history came to the Club sixty-five years ago, on November 9th, 1950, to deliver an important speech entitled “Expectations and Events”. He talked about the challenges of living beside the largest economy in the world, the incredible rebuilding efforts around the world after the War, and all in all, gave a pretty optimistic view of Canada’s financial health which ended with this declaration:
“The North American partners–one large, one relatively small–possess between them great resources and productive capacity. Their performance in the last war, and the record of growth and abounding vitality in the post-war years, support that statement. If to all these advantages there can be added an understanding of the price to be paid, and a determination to pay it now for the sake of the future, these countries should certainly be able to handle the job of defense production and finance in a workmanlike manner, and by so doing contribute greatly to world stability and peace.“
Graham Ford Towers’ tenure as the Bank of Canada’s first Governor ended the year I was born, in 1954, and he has since been followed by eight extraordinary men, some of them who have become household names like Gordon Thiessen, David Dodge, and Mark Carney. On June 3rd, 2013, the incumbent stepped into the role and has in the past two years already left his mark on the office. When he addresses the Empire Club this week, the hundreds in the room and the hundreds of thousands listening will be mindful to listen carefully to every word that comes out of his mouth, because his role has made him an important partner for every Canadian financial portfolio. If the Pope influences spiritual and religious beliefs and movie stars influence what we say, wear and do, the Governor of the Bank of Canada has a huge impact on our financial well-being, and that is why he will closely listen to this week just as Graham Ford Towers was closely listened to 65 years ago at the same podium.
This is the last installment of this weekly chronicle for 2015…we will resume early in the New Year. In the interim, Happy Holidays to everyone …may you enjoy the season and use it to pursue all that is dear to you.
