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Local businesses responded after American president proclaimed ‘banking holiday’ that impacted trade
“U.S. MONEY VALUELESS IN GUELPH TODAY” declared the city page headline of the Mercury on March 6, 1933.
I came across that stunning announcement while doing some research in the microfilm archives of the Mercury at Guelph Public Library. It immediately reminded me of an incident a few years ago at a book convention in Toronto where I wanted to purchase a book and was told, when I presented a Canadian $20 bill, that payment had to be by credit card or with American currency. After a brief verbal exchange, the bookseller relented when he was reminded that we were in Canada and the bill in my hand was legal tender across the Great White North.
Of course, American dollars have been the go-to foreign currency in countries around the world for a long time. Professional athletes have their paydays in those lucrative contracts made out for US dollars. Americans even have a history of joking about the “funny money” of other countries, including Canada. But what had happened back in 1933 to turn the tables and temporarily make the Yankee greenback seemingly not worth the paper it was printed on in Guelph?
The “banking holiday,” as it came to be known, was one of the measures taken by newly-elected American President Franklin D. Roosevelt to deal with the economic havoc of the Great Depression – the financial disaster that made the Dirty Thirties dirty. Just 36 hours after taking office, Roosevelt issued Proclamation 2039 which was intended to halt the epidemic of bank failures and closures that had plagued America since the massive stock market crash of 1929.
He did so under the Trading with the Enemy Act of 1917, and was in fact accused by political opponents of assuming wartime dictatorial powers. Supporters said the measure was long overdue, because people were losing faith in paper currency and were demanding large withdrawals from banks in gold.
The decisive action taken by Roosevelt to get the banks back on track meant that for a week no banking institution in the United States would carry out any transaction in gold or silver coin, bullion or currency. Among the many other restrictions, they could not “deal in foreign exchange, transfer credits from the United States to any place abroad, or transact any other banking business whatsoever.”
The American situation was certainly going to affect international trade – particularly with Canada, where trainloads of products were waiting to cross the border. Some import and export companies considered doing business by barter or through the use of scrip (certificates that entitled the holder to a specified sum of money). The directors of the stock exchanges in Toronto and Montreal held emergency meetings to head off any panic among investors. They made it clear that if there was a surge of selling from the United States, they would close. But what did it all mean for ordinary folks like the working people of Guelph?
The newspapers said everything depended on the gold standard. According to the Mercury, “In barber shops, in corner groceries, on sheltered street corners, in the privacy of the home, Guelphites are discussing that weird and highly involved mystery, the gold standard. Amateur economists outline their panaceas for world difficulties. ‘Now,’ they say, ‘regarding the gold standard …’
“And some unenlightened individual breaks in with, ‘But what is the gold standard?’ And the economist collapses.”
The Mercury asked a local bank branch manager that question and he replied, “There are 14 different explanations, and none of them satisfies anybody.”
Then he added, “It is really a fetish. It’s a yardstick by which values are measured between countries.”
At that time, the Canadian dollar was fluctuating at between 80 and 83 cents on the American dollar. That rate was suspended due to the “banking holiday,” but the Mercury reported that bank branches in Guelph were accepting American currency at par. So, if you’d just returned from a trip to the US and you still had a lot of American dollars, it wasn’t a good time to cash it in for Canadian money. Nor could you expect any breaks from Guelph merchants. All the stores in town were falling in line with the banks and accepting American dollars at par. It was the same with gas stations and garages.
Guelph bank branches were willing to accept deposits of US dollars and hold them, “subject to adjustment when the financial situation across the border becomes more stabilized.”
If you were planning a trip to the US, you couldn’t purchase American currency at the bank. In fact, you couldn’t buy any foreign currency at all, including pounds sterling (allegedly because of that gold standard that nobody understood). American students at the Ontario Agricultural College found Guelph banks wouldn’t cash cheques from American banks that their parents had sent them.
The post office was not issuing money orders payable to American recipients, and it was not paying the exchange rate on American money orders brought in by Canadian customers. The same applied to Canadian Pacific Express and Canadian National Express money transfers.
The “banking holiday” didn’t last as long as everyone had feared. Although many of the closed American banks would never re-open, within four days others were resuming regular services as the national bank crisis eased. In Guelph, on March 7 bank branches resumed conducting transactions in American dollars, buying them at the exchange rate of 15 per cent and selling at 18 per cent. Customers could once again get the full exchange rate in Guelph stores, and American students could finally cash their cheques from home.
It would take the rest of the decade for the world economy to recover, but the “banking holiday” had at least helped put the brakes on the slide into financial chaos. And for one day in Guelph the mighty American dollar had known a touch of humility.
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