Thank you.
Evidence of meeting #154 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was bank.
A video is available from Parliament.
Evidence of meeting #154 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was bank.
A video is available from Parliament.
6:50 p.m.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
I have just a small question. You said that now in the law it's for one-way streets, and you want to clarify that it could be a two-way street or process. Do you mean it's already something you do or have done from the exchange fund to the consolidated revenue fund, or have you done it before, and it's just to clarify in the law that you can actually do it?
6:50 p.m.
Managing Director, Funds Management and Banking Department, Bank of Canada
We have done it before. It's normal practice in very small amounts, and that is because, as I said, the exchange fund account earns a little bit more in interest than it pays in expenses; so over time you build up a positive balance. We do try to manage it on hedged basis, so over time, as the amount of the unhedged builds up, we transfer that out into the consolidated revenue fund.
As well, if there were times when the size of the exchange fund account needed to increase, there was a commitment to keep it at a minimum of 3% of nominal GDP. When that was increasing, it would obviously have to be funded by money from the CRF. It does happen, then, and under the legislation it's permitted.
This is simply—as Mr. Marion said—a technical amendment to bring the Currency Act consistent with other legislation and policies that have been regular practice for some time now.
6:50 p.m.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
The law already provides you with the authority to do it, then. I'm just wondering why we are doing this amendment if it's already something that is happening.
6:50 p.m.
Chief, Capital Markets and International Affairs, Securities Policies Division, Department of Finance
The law currently provides that monies can be advanced to the exchange fund account from the consolidated revenue fund. Also, for those who look at the legal meaning of “advance”, some would say that there is an inherent concept of being able to pay back those funds. This is where we want it to be crystal clear with effect to the authorities in the legislation that this is in fact what is possible. The law currently provides the authority for net revenues from the EFA to flow back to the CRF, and that's already very crystal clear in the act.
6:50 p.m.
Liberal
The Chair Liberal Wayne Easter
Thank you very much, Mr. Marion and Mr. Johnson.
We'll turn to division 6, “Bank Notes”. From Finance, we have Marie-Josée Lambert, who has been here before, I believe; and from the Bank of Canada, Mr. Richard Wall.
Who will give us the short overview?
6:55 p.m.
Marie-Josée Lambert Director, Crown Corporations and Currency, Financial Sector Policy Branch, Department of Finance
Good evening.
Canadians need secure banknotes that they can use with confidence and pride.
Removing the legal tender status of banknote denominations that are no longer issued by the Bank of Canada and hardly ever used, such as the $1,000 banknote, would have no impact on most Canadians.
6:55 p.m.
Richard Wall Managing Director, Currency, Bank of Canada
Good evening, Mr. Chairman. Thanks for the invitation to discuss the proposed legislative changes to the Bank of Canada Act and the Currency Act.
These changes will allow the government to remove legal tender status from Canadian banknotes, and allow the Bank of Canada to more effectively manage the quality of notes in circulation. Notes issued by the Bank of Canada, together with coins issued by the Royal Canadian Mint, are what is known as legal tender, which means they are the money approved in the country for paying debts.
Removing legal tender status means that some banknotes can no longer be used for payment of debt.
Generally speaking, it will be more difficult to make purchases with banknotes that are no longer legal tender. They will be refused by retailers, who will not be able to use them to pay their debts. However, these banknotes will not lose their value. The Bank of Canada will continue to honour them.
The Bank of Canada supports this initiative because having the power to remove legal tender status from banknotes means that we can do a better job of keeping notes that are in circulation more secure. Newer banknotes have better security features that make them difficult to counterfeit, and they are in better condition overall. Keeping notes current means they work more efficiently for all of us.
To date, every note issued by the Bank of Canada since 1935 remains legal tender despite the fact that the security features on those older notes are either non-existent or easily simulated. Withdrawing older notes from circulation will contribute to the public's confidence in using banknotes and the systems in place to efficiently process them.
As stated in budget 2018, if the power to remove legal tender is granted by Parliament, the government's intention is to remove this status from the $1, $2, $25, $500, and $1,000 banknote bills. Legislative changes are required to both acts, because the powers for issuance of banknotes resides in the Bank of Canada Act, but the specifics of banknotes are in the Currency Act.
Many central banks have the authority to remove the legal tender status of older banknotes. At the Bank of England, for example, calling in legal tender is often part of the strategy for issuing banknotes. When a new banknote is issued, the old and new series circulate at the same time for a predetermined period of time. After that, the old notes must be redeemed by the central bank. For example, in September, the Bank of England issued a new 10-pound note, and in November it announced that the old note would cease to be legal tender four months later.
In Canada, however, the banknotes that will lose legal tender status are no longer in circulation. They are the $25 and $500 notes, which date back to the first issue of notes by the Bank of Canada in 1935; $1 and $2 notes, which stopped being issued in 1989 and 1996 respectively; and $1,000 notes, which have not been issued since 2000.
This decision should have no significant impact on Canadians. These banknotes have not been produced for decades and are rarely used in transactions.
If the government is granted this power, the bank will provide clear information to Canadians on how to redeem the affected banknotes. This will involve a period during which the notes can be redeemed through financial institutions, as Canadians can do today. After this period, the notes can be redeemed directly with the Bank of Canada.
I'm happy to answer any questions you may have.
6:55 p.m.
Liberal
The Chair Liberal Wayne Easter
I have a question before I turn to Mr. Albas.
How long would they be redeemable at the Bank of Canada? The reason I ask is that I know there are a lot of old cattle buyers out there who still who have $1,000 bills. I'll never forget going to one guy to borrow money one time. He pulled me out $18,000, and on a handshake, lent me the money. They were all $1,000 bills. He wasn't long getting paid back either, with not a word signed.
In, say, five years' time, will they still honour those $1,000 bills?
7 p.m.
Managing Director, Currency, Bank of Canada
The Bank of Canada will honour the face value of these notes forever.
7 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
I do recognize that there has to be a practical process. Obviously there will be loss due to damage and people burying them in their backyards and then forgetting them and they get lost, so I understand. As well, with printing being so sophisticated, there has to be a process. However, are we not concerned that, for example, we will be creating a grey or somewhat black market where, since the bank is the only vehicle that can accept them, there will be basically people who will pay someone $500 for their $1,000 bill because they can't utilize it somewhere else? Were any alternatives looked at? For example, if you put basically a 25-year limit on it, then it's not decided by politicians.
By the way, I do have some concerns when it's politicians who get to choose which bills are acceptable and which ones aren't. Keeping it somewhat independent is important.
Were there any other proposals, such as a 25-year span with a five-year redemption, just so it's not up to an individual government to decide suddenly which currency people can use anymore? I'm just struggling here, because again, I do think we're going to be making a situation where, for some people, perhaps successful entrepreneurs with personal safes where they have that, the only way they can actually get market value for the money is to sell at a discount.
7 p.m.
Managing Director, Currency, Bank of Canada
Let me break apart the question a bit.
There is a process at the Bank of Canada that deals with mutilated notes, which is separate. If you find notes that are buried and you're not able to determine what denomination they are, they can still be redeemed at the Bank of Canada. Whether they're buried or destroyed, or sometimes destroyed in a fire, we have a service that we provide to Canadians in order to make sure they retain their value.
With respect to legal tender status, we looked globally at what the best practice was internationally. Generally, it's a period of time after the announcement of the removal of legal tender status where in fact you do enact that. It's the first time in Canada, so we're going to be learning as we go along in terms of what the appropriate actions need to be in how we communicate that to Canadians. However, in response to your direct question about whether there are alternatives and whether there is an extended timeline that can be provided, you have to recognize that we have not issued a $1,000 note for 18 years now, since 2000. Understanding that there are still some that are out there, as I said, they will always be redeemed at the Bank of Canada. We have mechanisms in place today where we can accept and give credit and face value for those notes.
7 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
What do you say about the creation of alternative markets: for example, where someone has a pawn shop and says, “We'll buy your old bills”, and will give half value for it? For many people who cannot get to the Bank of Canada personally, that might be one of their only options if no one else will accept the bills.
7 p.m.
Managing Director, Currency, Bank of Canada
Most financial institutions now accept all series of bills. We see them come into our processing centres all the time. They work on a know-your-customer basis, so if you're a customer of the bank, they know who you are. If you're not a customer of the bank, you can communicate directly with the Bank of Canada through the mail.
7 p.m.
Conservative
Dan Albas Conservative Central Okanagan—Similkameen—Nicola, BC
Mr. Wall, as I mentioned earlier today, and this is not a question of whether I believe you, the problem is, for example, when people buy travellers' cheques. I met a constituent who had purchased them and tried to use them in the United States. People would not accept them in the United States, so she brought them back to her financial institution, and they said, “Sorry, we don't accept them anymore because of some security changes.” Again, that's something that she actually paid a premium for and now can't have that money returned by her own financial institution, where they know that client because she has banked there for well over 20 years.
I do see those cases quite frequently. So the system doesn't always work that way, and I'm afraid we're going to see where some people with an older note will end up going to a secondary purchaser, who will then, at a profit, bring it in to the Bank of Canada.
7:05 p.m.
Managing Director, Currency, Bank of Canada
I think that the situation you discussed does happen today. Older notes are brought into banks. They can't actually identify or authenticate the note because it is so old. There's a collection process they undertake where they send it to the Bank of Canada. We authenticate the note and then provide value to the bank, and then, they provide value to their customer.
7:05 p.m.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
I want to be sure that I understand correctly.
Are changes being made to the legislation to prevent what happened before? The one-cent coin, or the penny as we call it, was taken out of circulation.
With this bill, the government will no longer be required to introduce legislation to withdraw currency from circulation, as was the case with the penny. Is that the purpose of the bill?
7:05 p.m.
Director, Crown Corporations and Currency, Financial Sector Policy Branch, Department of Finance
These legislative amendments will provide the government with the power to declare certain denominations, certain banknotes, non-legal tender. It does not demonetize them in any way. They remain legal tender, and they're redeemable for their face value.
7:05 p.m.
Director, Crown Corporations and Currency, Financial Sector Policy Branch, Department of Finance
The penny still has a value. We continue to give a value to the penny and to redeem it.
7:05 p.m.
NDP
Pierre-Luc Dusseault NDP Sherbrooke, QC
Does the current legislation allow for the removal of currency from circulation. It is not a matter of withdrawing, but of—