The Canadian Dollar (CAD), is the world’s sixth most traded currency – but how did it get to where it is now?
When you consider the complex history of Canada, it comes as no surprise that the story of the Canadian currency is equally involved and complex.
In honour of Canada Day, we’re tracing Canadian currency from the time of the indigenous peoples (Canada’s original inhabitants), to European contact and colonization, and right up to the modern day Canadian dollar.
The First Nations, Métis and Inuit Peoples
The indigenous peoples of eastern North America used items such as wampum (strings and belts fashioned from beads of white/purple shells) and furs for trading purposes, This practice continued after contact and trade with Europeans began in the seventeenth century. Wampum was highly valued because of the difficulty in making the shell beads.
French settlement and trade in Canada began with the founding of Quebec in 1608. The early French colonists bartered goods, but also used French coins – the basic unit of currency was the Denier.
However, there was a major problem with using the French currency … there was never enough! Even though the French government sent silver coins from France, the coins tended to be taken out of circulation by merchants, who used them to pay their taxes and buy European goods, and hoard them for personal financial security.
To deal with the shortage, the French government authorized the use of coins limited to New France. These were known as the monnoye du pays. These coins had an assigned value that was higher than coins used in France. But they were not successful because they had no value outside the colony.
In 1685, due to a failed military expedition against the Iroquois (who were allied with the British), colonial authorities in New France found themselves short of funds. The coin shortage grew so severe that colonial authorities resorted to using playing cards as currency. The cards, which were marked with the amount on the back, were primarily used to pay soldiers. Playing-card money was accepted by merchants and the general public, and circulated freely at face value. They were redeemed later when more coins became available.
British Colonial Rule
French rule came to an end with the conquest of Quebec by the British in 1760. As a result, a wide variety of currency, including French coins and American colonial bills, came into circulation.
Colonial governments were imaginative in domesticating foreign currencies. For example, officials in Prince Edward Island punched out the centres of Spanish-American dollars, creating the “holey dollar“, with each piece being used as a coin with seperate values.
Until the middle of the nineteenth century, each British colony in North America regulated the use of currency in its own jurisdiction. Although pounds, shillings and pence (the currency system used in Great Britain) were used for bookkeeping, each colony decided for itself the value, or “rating,” of a wide variety of coins in relation to British Currency.
These coins included not only English and French coins, but also coins from Portugal, Spain, and the Spanish colonies in Latin America. Once rated, the coins became legal tender.
Eventually, Colonial governments began to experiment in paper bills. The first colony to do so was Prince Edward Island (at that time the Island of St. John) in 1790.
As the level of commercial sophistication rose in the colonies, Canadian banks began to emerge. As a result, The Montreal Bank (now BMO) issued the first bank notes in Canada after its establishment in 1817 … no wonder BMO’s bank institution number is 001!
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 linking their money to sterling. This was in order to facilitate trade within the British Empire.
The Canadian colonies, eastern settlements and British Columbia, increasingly favoured linking their currencies to the US dollar, given the strong local trade relationships.
The Province Of Canada
In 1840, the British Parliament merged the Colonies of Canada by abolishing their separate parliaments and replacing them with a single one.
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.
The colonial governments increasingly favoured a decimal monetary system based on the US dollar, because of the practical implications of the increasing trade with the neighbouring United States.
As a compromise between basing the currency on sterling or on the US dollar, the Parliament of the Province of Canada enacted a statute to introduce the gold standard into the province.
The value of the Canadian dollar was fixed in terms of gold and valued at par with the US currency. Both US and British gold coins were legal tender in Canada during that time.
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 a bust of Queen Victoria.
By 1859, several bank failures shook confidence in the security of banknotes in the Province of Canada. Bank failures made notes worthless, and the resulting scandal increased pressure on the government for greater regulation.
Under the Provincial Notes Act, private banks were not required to give up their power to issue notes, although they were offered financial inducements to do so.
Any bank which did so could act as the government’s banker and its notes were deemed to be government notes. Only the Bank of Montreal did so, enabling it to act as the government’s note issuer. It resumed issuing its own notes five years later. The initial issue was based on Bank of Montreal notes, over-printed with “Province of Canada”.
The first issue by the Province itself was on January 1, just half a year before Confederation. The Province of Canada notes served as the basis for the notes later issued by the new country.
Canada as a nation was created by the British North America Act, 1867. 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. Control over coinage and bank notes was centralised in Ottawa. In 1867, the federal government planned to issue its own coinage, but the coins didn’t enter circulation until they arrived from the Royal Mint in London in 1870.
Canadian Governance and Minting
One major issue the Canadian government faced was the amount of US and British silver coins which were circulating in Ontario and Quebec.
The solution was to collect the US and British coins and export them, while ensuring that in the future, their par value would be fixed by statute at only 80% of their face value.
The new Canadian government issued its first notes in 1870. The first issue was in denominations of twenty-five cents, one dollar and two dollars.
The next year they issued notes for five hundred dollars and one thousand dollars, featuring Queen Victoria on the five hundred-dollar note and an allegorical female figure with the arms of Canada on the one thousand-dollar note.
In 1872, the government issued a fifty dollar note, featuring Mercury, the Roman god of commerce, and a one hundred-dollar note, featuring the Centre Block of the Parliament buildings.
In 1901, the Canadian Parliament passed an act to pay for a local branch of the Royal Mint. This was so that coins would no longer have to be imported from London. In 1907, the British government established a branch of the Royal Mint in Ottawa. It was to be operated at the expense of the Canadian government.
In 1931, the Canadian government took full control of the Ottawa branch of the Royal Mint, renaming it the Royal Canadian Mint and bringing it under the authority of the Minister of Finance. The British government accordingly repealed the status of the Mint as a branch of the Royal Mint.
Bank of Canada and the Modern Day Canadian Dollar
During the Great Depression in Canada, pressure grew on the federal government to take greater control over the economy, including the monetary policy.
The government passed the Bank of Canada Act in 1934, which came into force in March 1935. The Bank was given an array of powers. These included being custodian of the government’s gold reserves and lender of last resort to chartered banks. The bank could also issue notes on behalf of the government.
On the first day of operation, the bank issued its first series of notes. There were ten notes in the 1935 series, primarily featuring members of the British Royal Family. The previous notes issued by the Minister of Finance were rapidly withdrawn from circulation.
Canada’s present coinage dates back to 1937, when the Mint introduced new designs for the coins. The new designs replaced those that the Province of Canada had introduced its first coinage back in 1858.
The 1937 re-design continued to feature the monarch on the obverse of all coins. But, it also introduced new patterns for the reverse of each coin, including a beaver on the five cent coin and the Canadian coat of arms on the 50 cent coin.
The current series of coins was augmented in 1987 by the introduction of a new one-dollar coin, featuring a loon on the reverse – which quickly became known as the loonie. The loonie was followed by the introduction of a two-dollar coin in 1996. It quickly acquired its own nickname as well – the toonie.
Apart from the withdrawal of the penny in 2012, these designs continue to be the basic features of Canadian coinage today.
The current series of notes is known as the Frontier Series. It’s the seventh series issued by the Bank of Canada. The notes are made of polymer, and contain a number of anti-counterfeiting measures, such as holographic features and transparent sections.
Current Note Breakdown
The current series consists of five notes:
- a five-dollar note, featuring Prime Minister Sir Wilfrid Laurier
- a ten-dollar note, featuring Prime Minister Sir John A. Macdonald
- a twenty-dollar note, featuring Queen Elizabeth II
- a fifty-dollar note, featuring Prime Minister William Lyon Mackenzie King
- a one hundred-dollar note, featuring Prime Minister Sir Robert Laird Borden
An eighth series of notes is currently in the works. The rollout began in late 2018 with the release of the $10 vertical banknote featuring Viola Desmond.
Check out our other history of currency blogs:
The History of Currency in the United States
The History of Currency in Germany
The History of Currency in Ireland