History of the Canadian dollar facts for kids
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Canada has an extensive history with regard to its currencies. Prior to European contact, indigenous peoples in Canada used items such as wampum and furs for trading purposes, which continued when trade with Europeans began.
Wampum and beaver pelts were considered currency. During the period of French colonization, coins were introduced, as well as one of the first examples of paper currency by a western government. During the period of British colonization, additional coinage was introduced, as well as banknotes. The Canadian colonies gradually moved away from the British pound and adopted currencies linked to the United States dollar. With Confederation in 1867, the Canadian dollar was established. By the mid-20th century, the Bank of Canada was the sole issuer of paper currency, and banks ceased to issue banknotes.
Canada began issuing its own coins shortly after Confederation. In the 20th century, Canada has issued many commemorative coins into circulation, temporarily replacing current coinage designs. There also exists a long history of numismatic coin issues.
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Indigenous peoples and trade
The original inhabitants of Canada were the First Nations and Inuit who traded in goods on a bartering basis. Various items played the role of currency, such as copper, wampum and beaver pelts. Wampum belts, made of numerous tiny shells, were used by indigenous peoples in eastern Canada to measure wealth and as gifts. Wampum belts were also used as currency during the early colonial period, and were recognised as legal tender in the early Dutch and British colonies.
Indigenous peoples also traded furs with European traders for trade goods such as weapons, cloth, food, silver items, and tobacco. During the long period of the fur trade, the beaver pelt was universally accepted as a medium of exchange by indigenous peoples and European traders alike, to the point that beaver pelts, called "Made Beavers", were used as a unit of account by the Hudson's Bay Company, to establish consistent pricing of all its trade goods.
The Ojibwe in eastern Canada were noted for mining and trade in copper. Special objects, such as copper shields, had special economic and social value. The Haidas of the west coast used copper shields as a measure of status and wealth.
New France: 1608–1763
Chronic shortage of coins
With the foundation of Quebec in 1608, French settlement and trade began. The early French colonists bartered goods and also used French coins. The basic unit of currency was the denier or penny. Twelve deniers made a sol or sou, and twenty sols made a livre of New France. However, there was a recurring problem: there was never enough hard currency. Even though the French government sent silver coins from France, such as the "double tournois", the coins tended to be taken out of circulation by merchants, who used them to pay their taxes and buy European goods, as well as hoarding the coins for personal financial security. To deal with the shortage, the French government authorized the use of coins limited to New France, the monnoye du pays. These coins had an assigned value higher than coins used in France (the monnoye de France) but the New France coins were not successful because they had no value outside the colony. Spanish-American coins minted in Mexico, such as the piastre, would sometimes come in through secret trade. The colonial government adopted a practice of over-stamping these coins with a fleur-de-lys and a Roman numeral indicating the weight of silver, and thus value. The over-stamped coins were then permitted to circulate.
Playing card money
By 1685, the coin shortage had grown so severe that colonial authorities resorted to using playing cards as currency.
The first issue of playing card money was by Intendant Jacques de Meulles. In 1685, he needed to pay soldiers for their services in a recent campaign. His funds, both government and personal, were exhausted, and he did not want to borrow money at the rate offered by merchants. Instead, he issued three denominations of playing card money (15 sols, 40 sols, and 4 livres). Playing cards were marked with the amount on the back and were given to soldiers as compensation. They were redeemed three months later, when more coins became available.
Although in the form of a promissory note, namely a promise by the colonial government to pay the soldiers when more coinage was available, the playing cards began to circulate as a medium of exchange. This was the first issue of paper money by a Western government. The card money did not meet with the approval of the French government, which was concerned that the cards were too easily counterfeited, and discouraged the colonial authorities from issuing the card money. Nonetheless, even when more coins did arrive from France, the cards continued to be used. The Intendant issued more card money the next year, 1686, with further issues in later years. The Governor, Louis de Buade de Frontenac, gradually saw the value of the paper currency and agreed to the expanded use, but as time went by, the use of card money contributed to a rise of inflation. In 1717, the colonial government withdrew all card money from circulation, redeeming the cards at 50% of their face value, and burning the cards.
The withdrawal of card money did not solve the problem of a chronic shortage of coinage. In 1722, the government introduced copper coins, but they were not well received. The lack of coinage contributed to a recession.
In 1729, the continued shortage of coinage led to the reintroduction of card money, this time with the approval of the French government. The amount of new card money was initially strictly controlled and the card money was redeemable as bills of exchange in France. This approach reduced the need to transport coinage across the Atlantic. Although referred to as "card money", this issue did not actually use playing cards, but rather plain card stock. The colonial government also issued promissory notes payable by the treasury, termed ordonnances de paiement which also circulated as currency. However, given the state of the French finances, the government relied increasingly on treasury bills to finance the wars. By 1760, the treasury notes totalled 30 million livres, and the amount of paper money circulating in the colony was fifteen times greater than in 1750.
The new card money and the ordonnances de paiement were initially successful. However, the gradual deterioration of the finances of the French government over the first half of the 18th century and the expenses of the Seven Years' War with Britain triggered a rapid increase in the amount of paper money in circulation in the 1750s. That in turn meant that inflation became a problem, as noted by Governor Montcalm in a dispatch to the French government. The declining confidence in the paper money meant coinage was increasingly hoarded, an application of Gresham's law. The paper money issued by the colonial government continued to depreciate, especially once the French government suspended redemption of the card money until after the end of the war with Britain.
French coinage
The French government continued to ship coinage to the colonies in the 18th century, such as the gold Louis d'or.
Although in short supply, French coinage continued to circulate in the 18th century, such as the 15- and 30-deniers. These gold coins, known as the mousquetaire, were meant to pay soldiers and civil servants but did not stay in circulation very long. The name is believed to have come from the cross on the reverse of the coins, which resembled the crosses on the cloaks of the legendary musketeers.
Another coinage that was used was the sol (sou). The sol was equivalent to the size of a 20th-century one-cent coin and was produced between 1738 and 1756. The Sol was rated at 12 deniers. The double sol was produced until 1764, although large shipments to Quebec and Cape Breton ended in 1756. The double sol was rated at 24 deniers.
End of French rule
French rule came to an end with the conquest of Quebec by the British in 1760. The value of the card money and the ordonnances de paiement plummeted, since their value had come from the promise by the French government that they could be redeemed for coinage. Under the Treaty of Paris, 1763, the French government agreed to continue to redeem the paper money, and three years later introduced a series of government debentures to replace the paper money. However, the state of France's government finances was poor, and by 1771 the debentures were essentially worthless. After New France fell, the card money and ordonnances were redeemed at only one-quarter of their face value. As a result, the habitants of Quebec were left with a deep distrust of paper money which lasted for generations.
British colonial rule: 1760–1825
Shortage of currency
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The shortage of currency continued under British rule. Although historical economists disagree on the reasons for the shortage, the effect was that a wide variety of foreign coinage and paper instruments, such as colonial Treasury bills and notes from different merchants, were used in commercial transactions. One account from Nova Scotia in 1820 illustrates the confusion caused by the lack of unified currency: a customer in a market bought vegetables costing six pence, and paid with a £1 Nova Scotian Treasury note. His change back consisted of ninety-three separate items: eight paper notes from different merchants, ranging in value from 5 shillings to 7 1/2 pence; one silver coin; and eighty-four copper coins.
Colonial governments could be imaginative in domesticating foreign currencies. For example, in 1808, officials in Prince Edward Island punched out the centres of Spanish-American dollars, creating the "holey dollar". The two pieces were each used as coins, with values of one shilling and five shillings.
Units of account and rating systems
Because of the variety of currencies that were used, two measures were needed for order and consistency in financial accounting: units of account and "ratings" system. By general agreement, all accounts were usually kept in one currency, and coins and bills from other systems were notionally converted to that system for bookkeeping purposes. That step required a generally accepted conversion system, or "rating" of other currencies, typically based on their weight and the value of the precious metal they contained. The colonies all initially used the British system of "Pounds, shillings and pence" as the unit of account, but there was variation in the rating system. Each colonial government established rating systems to value the wide variety of foreign currencies that came into use.
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The two most important rating systems were the Halifax rating and the York rating. The Halifax rating set the value of a Spanish dollar at five shillings. This value was actually six pence higher than the value of the Spanish dollar at that time. The higher rating was chosen to encourage the continued circulation of the Spanish dollar and to discourage people from melting the dollars down for their bullion value. The Halifax rating came into use shortly after the colony of Nova Scotia was established in 1749, and was confirmed by a statute of the Legislature of Nova Scotia in 1758. Although the British government disallowed the Nova Scotia legislation, the Halifax rating continued to be widely used in the Maritime colonies and eventually in Lower Canada.
The York rating was named after New York, where it had been adopted during the colonial period. The York rating set the value of a Spanish dollar at eight shillings. The York rating was introduced in Upper Canada by United Empire Loyalists. Although Upper Canada formally adopted the Halifax rating by legislation in 1796, the York rating continued to be used, apparently up until the union of Upper and Lower Canada in the Province of Canada in 1841.
Government treasury bills
Colonial governments began to experiment in paper treasury bills, often when needed to finance government expenses. The first Canadian colony to do so was Prince Edward Island (at that time known as the Island of St. John). In 1790, the colonial government issued £500 in treasury notes, in values up to £2. New Brunswick, Nova Scotia, Newfoundland and Prince Edward Island all issued treasury bills in the early years of the 19th century.
During the War of 1812, the British Army issued a series of "Army bills", redeemable for government bills of exchange at London, with eventually £1.5 million issued. All of those bills were redeemed in currency by 1816, which helped build confidence in government paper money.
The Colony of British Columbia also issued paper money in the 1850s, denominated in pounds and later in dollars.
Tokens
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In addition to issuing bank notes, some banks as well as merchants began to issue trade tokens. Although they had no legal status, they were accepted as currency on a local basis. The tokens were mainly imported from England. The banks in Lower Canada cooperated in issuing tokens to improve their reliability. One of the tokens they produced had the arms of Montreal on one side, and an image of a habitant on the other. These tokens were nicknamed "Papineaus", named after Louis-Joseph Papineau, who was the leader of the 1837 rebellion in Lower Canada and who was well known for wearing habitant clothing almost as uniform. These tokens are more commonly known today as Habitant tokens.
The two major fur-trading companies, the Hudson's Bay Company and the North West Company also issued trade tokens, which were used in their extensive trading networks. The Hudson's Bay Company tokens were based on the "Made beaver" pelts which had been used as a medium of exchange.
From the British pound to the Canadian dollar: 1825–1867
During the mid-19th century, there was a policy disagreement between the British and the colonial governments. The British wanted all the colonies to continue to use sterling, to facilitate trade within the Empire. The Canadian colonies, both in the east and British Columbia, increasingly favoured linking their currencies to the US dollar, given the strong local trade links. Eventually, the local trade won out and the Canadian colonies migrated to currencies linked to the US dollar.
One feature of the regulation of coinage at this time was fixed exchange rates. The colonial and imperial legislation set fixed exchange rates for coins, often based on their weight as bullion.
British Order-in-council of 1825
The issue first arose in 1825, when the British government passed an imperial Order-in-council which was designed to encourage the circulation of sterling coinage throughout the British Empire, including the Canadian colonies. The Order-in-council actually had the reverse effect in the Canadas, driving out what little sterling specie coinage did actually circulate. This was because the rating of one Spanish dollar to four shillings and four pence sterling that was contained in the order-in-council did not represent a realistic comparison between the silver content in the Spanish dollar as compared to the gold content in the British gold sovereign. When Britain passed remedial legislation in 1838, the British North American colonies were excluded from its provisions due to recent rebellions in Upper and Lower Canada.
Colonial pounds
Each of the colonies had their own currencies. Although modelled on the British system of pounds-shillings-pence, the exact value of each currency could vary, depending on the legislation of each colony. There was the Canadian pound, used in Upper and Lower Canada, and then the Province of Canada; the New Brunswick pound; the Newfoundland pound; the Nova Scotian pound; and the Prince Edward Island pound. They were all gradually replaced with decimal systems of currency linked to the US and Spanish dollars.
Province of Canada pound, 1841
Following the union, the Province of Canada adopted a new system based on the Halifax rating. The provincial legislation set exchange rates for a new Canadian pound: one pound, four shillings and four pence Canadian was equal to one pound sterling. Described the other way, the new Canadian pound was worth sixteen shillings, five and three-tenths pence sterling. The legislation also set the rate for the new Canadian pound against the US dollar, setting the legal tender value of the American gold eagle at two pounds, ten shillings Canadian (i.e. the Canadian pound was worth four US dollars). The legislation also set the exchange rates for the Canadian pound against the French franc, the old Spanish, Mexican and Chilean doubloons, and other Latin American currencies. British currency, US gold and silver coins, and Spanish dollars were all considered legal tender.
Movement towards the dollar and decimal currency
Throughout the 1850s, the imperial and colonial governments debated the issue of colonial currency. The imperial government favoured a system where all colonies used currency based on sterling, which could be either British currency or local colonial currency tied to sterling, including a decimalised currency. The colonial governments increasingly favoured a decimal monetary system based on the United States dollar, because of the practical implications of the increasing trade with the neighbouring United States.
In June 1851, representatives of the Province of Canada, New Brunswick and Nova Scotia met in Toronto to discuss the introduction of a joint decimal currency. The Government in London agreed in principle to a decimal coinage but held out the hope that the colonies would adopt a sterling unit under the name 'Royal'.
Province of Canada
Following the 1851 conference, the government of the Province of Canada under the leadership of Co-Premier Francis Hincks began to move towards decimal currency. The provincial Parliament passed an act to introduce a pound sterling unit in conjunction with decimal fractional coinage. The idea was that the fractional values would correspond to exact values of fractions of the US dollar. The Preamble to the statute expressed the hope that the decimal currency could "...hereafter be advantageously made common to all the Provinces of British North America, as being simple and convenient in itself, and well calculated to facilitate their commercial intercourse with other parts of this continent". The authorities in London delayed implementation of the act on technical grounds. A related statute passed in the same session continued the statutory exchange rates for British and US currency used in Canada.
As a compromise between basing the currency on sterling or on the US dollar, in 1853 the Parliament of the Province of Canada enacted a statute to introduce the gold standard into the province, based on both the British gold sovereign and the American gold eagle coins. The gold sovereign was legal tender at a rating of £1 equal to $4.8666 Canadian, and the $10 eagle was rated at $10 Canadian. No coinage was provided for under the 1853 act. Sterling coinage was made legal tender, and all other silver coins were demonetized, although they continued to circulate. Dollar transactions were legalized. Since the New Brunswick and Canadian statutes had adopted the same conversion rates, their two currencies were now compatible, fixed at par with the US dollar.
The trend towards decimalization continued, and in 1857 the Province of Canada provided that all public accounts were to be kept in dollars and cents. The next year, 1858, the first Canadian decimal coins were released. Minted at the Royal Mint in London, they were issued in the name of "Canada", with an effigy of Queen Victoria on the obverse. The coins were in denominations of one-cent, five-cents, ten-cents, twenty-cents and fifty-cents.
New Brunswick
In 1852, the year following the Toronto conference, New Brunswick passed a similar statute as the Canadian statute, establishing "pounds, shillings and pence" as the government unit of account, but also setting both British coinage and US coinage as legal tender. The statute also authorized the provincial government to obtain a new supply of coins. New Brunswick ordered a supply of coins from the Royal Mint in London in 1860, but because of the demand faced by the Mint, the first shipment of New Brunswick coins did not arrive until 1862.
Nova Scotia
In 1860, Nova Scotia adopted a system of decimalization, and set the exchange rates for British currency as well as other coins. The provincial government was authorised to obtain coins in cents, and the unit of account for the government was to be in dollars and cents. All court judgments were to be issued in dollars and cents. However, since the Nova Scotia legislation set the exchange rate as £1 equal to $5, the Nova Scotia system was not compatible with the Canadian and New Brunswick systems, which gave a slightly lower value to the pound. Nova Scotia also ordered coins from the Royal Mint in 1860, but like New Brunswick, the first shipment of Nova Scotia coins did not arrive until 1862.
Newfoundland
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Prior to 1865, Newfoundland used the Newfoundland pound, equal in value to the pound sterling. In 1865, Newfoundland switched to a decimal system, the Newfoundland dollar, and started to release its own coinage, in denominations of one-cent, five-cent, ten-cent, twenty-cent and two-dollar coins. The Newfoundland decimal coinage represented fractions of the Spanish dollar that was used in British Guiana. This had the benefit of making one penny sterling exactly equal to two new Newfoundland cents, which was seen as a compromise between those who wanted Newfoundland to adopt the British system and those who wanted Newfoundland to adopt the United States system. However, it meant that the Newfoundland dollar was worth slightly more than the Canadian dollar (one Newfoundland dollar was worth 1.014 Canadian dollars), so the Newfoundland and Canadian currencies were not easily convertible.
Although the Newfoundland government issued coinage, it left the issue of bank notes to the two private banks in Newfoundland: the Union Bank and the Commercial Bank. By the late 19th century, both of those banks were badly managed and in very weak financial condition. When there was a downturn in the cod industry, the banks failed on Monday, December 10, 1894, known as Black Monday. Both banks closed their doors permanently that day and their notes became worthless, triggering a financial crisis on the island. The Government of Newfoundland passed legislation guaranteeing payment on the bank notes of the two insolvent banks, but at depreciated values. The Government also introduced legislation to set the value of the Newfoundland dollar the same as the Canadian dollar. Canadian banks moved in quickly following the crash, in 1894 and early 1895. The net effect was that the Newfoundland monetary system became integrated with the Canadian system.
British Columbia
In 1867, the Colony of British Columbia enacted a statute to implement decimal currency based on the United States dollar. The statute provided that all government accounts would be kept in dollars and cents and established rates of exchange for the various coins then in circulation, at the rate of £1 equal to $4.85. The legislation repealed similar legislation enacted a few years earlier by the former colonies of Vancouver Island and British Columbia prior to their union.
Prince Edward Island
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Prince Edward Island shifted to decimal currency in 1871, with the dollar replacing the Prince Edward Island pound. By statute, dollars and cents were adopted as the unit of account for the colonial government. The statute also set the exchange rate between sterling and the dollar at £1 equal to $4.8666. The colonial government was authorized to arrange for the printing of notes denominated in dollars, and the issuance of copper coins in cents.
Confederation, 1867
Canada was created in 1867 by the British North America Act, 1867 (now the Constitution Act, 1867). A federation, it originally had four provinces: Ontario, Quebec, New Brunswick, and Nova Scotia. The federal Parliament was assigned exclusive jurisdiction over "Coins and Currency", as well as "Banking, Incorporation of Banks, and the Issue of Paper Money". This resulted in major changes to the monetary system in the new country, with control over coinage and bank notes centralised in Ottawa.
Currency Acts
In 1868, the federal Parliament enacted the first Currency Act. It provided for the possibility that Canada might give its dollar exactly the same value as the United States dollar, but in the meantime, the pre-Confederation values for currency were maintained. The dollars circulating in Ontario, Quebec and New Brunswick continued to circulate at the same value, while the Nova Scotia dollars continued to circulate in Nova Scotia at their higher, pre-Confederation value. This situation continued for three more years, until Parliament passed the Uniform Currency Act. It provided that Nova Scotia would now use the same dollar as the rest of Canada, based on the pre-Confederation dollar. The value of the dollar continued to be set by reference to the British sovereign and the American eagle, at the rate of 4.8666 Canadian dollars equal to £1, and ten Canadian dollars equal to the ten-dollar American eagle, the same rates as set in the 1853 Province of Canada legislation.
The Uniform Currency Act applied automatically to Manitoba upon its admission to Confederation, but did not apply to British Columbia and Prince Edward Island when they joined. In 1881, Parliament passed an Act extending the Uniform Currency Act to those two provinces.
First Canadian coins
In 1867, the federal government planned to issue its own coinage, in denominations of one cent, five cents, ten cents, twenty-five cents, and fifty cents. The coins were similar to the coins of the Province of Canada, with the difference that the twenty-five cent coin replaced the twenty-cent coin of the provincial currency. The twenty-cent coin had never been popular, as Canadians were used to the US twenty-five cent coin, which circulated freely in the Province. The coins did not actually enter circulation until they arrived from the Royal Mint in London in 1870. The government did not issue the one-cent coin until 1876, given the amount of pre-Confederation pennies that were still in circulation.
One issue the government faced was the large amount of United States and, to a lesser extent, British silver coins which were circulating in Ontario and Quebec. The problem was that the coins were over-rated: their face values were greater than their bullion value. Banks would only accept them at a discount, while farmers and merchants found they had to take them at par value. The difference in values affected the farmers and merchants, and also had the effect of crowding the government one-dollar and two-dollars notes out of circulation. The solution was to collect the US and British coins and export them, while providing that in the future, their par value would be fixed by statute at only 80% of their face value. Francis Hincks, back in office as federal Minister of Finance, worked with bankers led by William Weir to successfully repatriate the silver coins to the United States and Britain.
There was a similar issue with copper coinage. Prior to Confederation, a large variety of copper coins had circulated: pennies issued by the provincial governments, US and British coppers, low-value tokens issued by private banks or merchants, even brass buttons in some cases. Working with the banks, the federal government gradually had all of the pre-Confederation and foreign pennies removed from circulation. In 1876, the Canadian one-cent coin finally was issued.
