The History of the Canadian Dollar and the Canadian Monetary System

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history of Canadian dollar/currency

Canada’s currency, the Canadian Dollar (CAD), is the sixth most traded currency worldwide – but how did it get to where it is now?

When you consider the extensive, complex history of Canada, it comes as no surprise to learn that the story of its currency is no different.

We’re here to outline the fascinating history of currency in Canada, from pre-European contact right up to the modern day Canada and the Canadian dollar. 

The First Nations 

Prior to European contact, the aboriginal 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, which continued when trade with Europeans began. 

Wampum was highly valued because of the difficulty in making shell beads – even after European tools became available in the seventeenth century. 

History of Canadian dollar/Currency

New France 

With the foundation of Quebec in 1608, French settlement and trade began. 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, 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. These were known as the monnoye du pays. These coins had an assigned value, higher than coins used in France.  They were not successful because they had no value outside the colony. 

In 1685, a military expedition against the Iroquois (allies of the English) went badly. As a result, colonial authorities in New France found themselves short of funds.

History of Canadian Dollar/currency

Typically, when short on funds, the government delayed paying merchants until a fresh supply arrived from France. But, the payment of soldiers could not be postponed.  

The coin shortage had grown so severe that colonial authorities resorted to using playing cards as currency. It was Jacques de Meulles, Intendant of Justice, Police, and Finance who came up with this incredibly innovative solution. 

The cards were readily accepted by merchants and the general public and circulated freely at face value. They were marked with the amount on the back and were given to soldiers as compensation. 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. 

One of the major effects was a wide variety of foreign coinage and bills. This included French coins and American colonial treasury bills. 

Colonial governments were quite 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 of the two pieces being used as coins with seperate values. 

History of Canadian dollar/currency

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. 

Canadian Banks

As the level of commercial sophistication rose in the colonies, Canadian banks began to be founded. As a result, The Montreal Bank (now Bank of Montreal or BMO) issued the first bank notes in Canada after its establishment in 1817. No wonder the bank institution number for BMO is 001, representing the first bank ever to be formed in Canada.

(Note: REMITR is proud to be associated with BMO as its partner bank for payment processing).

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, both in the east and British Columbia, increasingly favoured linking their currencies to the US dollar, given the strong local trade links. 

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 U.S. 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 U.S. dollar, in 1853 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 U.S. currency. Both U.S. 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 on the obverse.  

Bank Failures

By 1859, there were several bank failures, including the Colonial Bank and the International Bank. This 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 bank regulation.

The Provincial Notes Act authorized the Province to issue notes up to the value of $8 million. They were backed partly by gold and partly by government debentures. They were redeemable in either Toronto or Montreal.

Private banks were not required to give up their power to issue bank 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. 

History of Canadian dollar/currency

Confederation 

Canada as a nation was created in 1867 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 in the new country. Control over coinage and bank notes was centralised in Ottawa. 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 coins did not actually enter circulation until they arrived from the Royal Mint in London in 1870. 

Canadian Governance and Minting 

One issue the Canadian government faced was the large amount of U.S. and, to a lesser extent, British silver coins which were circulating in Ontario and Quebec.

The coins were over-rated: their face values were greater than their bullion value. Banks would only accept them at a discount, farmers and merchants found they had to take them at par value.

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. 

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. 

The Canadian Parliament passed an act in 1901 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 at Ottawa. It was to be operated at the expense of the Canadian government.

In 1931, the Canadian government took over 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. 

History of Canadian dollar/currency

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 monetary policy.

The government passed the Bank of Canada Act in 1934, which came into force on March 11, 1935. The Bank was given an array of powers. These included 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 current coinage dates to 1937, when the Mint introduced new designs for the coins, replacing the old designs which dated back to 1858, when the Province of Canada introduced its first coinage. 

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. 

Coinage Breakdown

  • One cent (penny): two maple leaves
  • Five cents (nickel): a beaver
  • Ten cents (dime): the schooner Bluenose
  • Twenty five cents (quarter): a caribou
  • Fifty cents (half-dollar): Canadian coat of arms

Apart from the withdrawal of the penny, these designs continue to be the basic features of Canadian coinage today.

This 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, the toonie. 

The current series of notes is known as the Frontier Series. It is the seventh series of notes 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. 

history of Canadian Dollar/Currency

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 planned on being released, and started in late 2018 with the release of the $10 polymer, vertical bank note, featuring Viola Desmond.

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