A Look At The History Of The Canadian Dollar

The History of the Canadian Dollar

The history of The Canadian dollar is long and extensive. Here is an overview of the history of The Canadian Dollar.

The Beginning

The earliest inhabitants of Canada traded goods. They traded items such as copper, beaver pelts, and wampum. Indigenous people traded furs for goods such as food, tobacco, and weapons. Once Quebec was established, French Colonists started using coins as currency. The coins had a higher value than the coins used in France.

The French Rule

Due to a coin shortage in 1685, The French started using playing cards as currency. The playing cards were used to help pay soldiers for their service. Soldiers could trade the playing cards for coins once they became available. The French government did not like the playing cards, as they felt it was too easy for the cards to be counterfeited. However, the cards continued to be used, even as more coins arrived from France. In 1717, Governor Louis de Buade de Frontenanc withdrew all card money from being circulated. However, there was still a coin shortage.

In 1729, card money was reintroduced, and served as bills of exchange. The French brought back card money to avoid having to transport coins across the Atlantic. Heading into the 18th Century, The French government continued to ship coins. The coins were supposed to pay soldiers and servants. After the conquest of Quebec, the value of the currency deteriorated.

The Start of The British Rule

During this time period, multiple currencies were used including colonial treasury bills and notes from merchants. To help maintain structure, the government created a unit of account and ratings systems. Most of the colonies used The British System of Pounds. The two most powerful ratings systems were The York rating and The Halifax rating. The Halifax rating was used throughout Lower Canada and The York rating was used throughout Upper Canada.

Some colonial governments started creating paper treasury bills. The bills were issued throughout Nova Scotia, New Brunswick, and Prince Edward Island. The Colony of British Columbia started issuing paper money in the 1850s. Around this time, several bills were established to issue notes. Banks opened in Upper Canada, Nova Scotia, Prince Edward Island, and New Brunswick. The bank notes were issued in both dollars and pounds. Some merchants started to trade tokens that were imported from England. Lower Canadian banks started producing tokens. The Hudson Bay and North West companies started issuing trade tokens as well.

Following a disagreement between the Canadian and British government, Canadian colonies started creating currency similar to the American dollar. Each colony had their own currency. The Province of Canada created a new system. The new system set exchange rates for a new Canadian pound. During the 1850s, the government introduced a pound sterling unit.

The Gold Standard Arrives

In 1853, The Parliament of The Province of Canada built a statue to help introduce The Gold Standard into the Province. The Gold Standard was based on a combination of The American Gold Eagle coins and The British Gold Sovereign. The Province also mandated that all public records were recorded in dollars and cents. The first Canadian decimal coins were released in denominations of one cent to fifty cents. Over the next few years, Nova Scotia, British Columbia, and New Brunswick developed financial systems built around The Gold Standard.

Creating A Central Bank

Around 1841, Governor General Lord Sydenham proposed creating a central bank. However, the committee rejected the proposal. During the 1850s, there were several bank failures that damaged the Canadian economy. As a result of the crisis, The Province of Canada created new notes. They created a one dollar note, two dollar note, five dollar note, and a ten dollar note.

Receiving Independence

Canada was officially recognized as a country as a result of The British North America Act. Soon after, Parliament created the first Currency Act. There was some talk that the value of the Canadian dollar would become equal to the American dollar. Parliament also passed The Dominion Notes Act, which authorized the issue of government bank notes. In 1871, Parliament created a universally recognized banking system. The federal government issued notes for five hundred dollars and one thousand dollars. A few years later, the federal government started issuing large denomination notes. The notes helped assist banks in settling their cash balances with each other.

The Bank Of Canada

During the 1930s, Canada was in the midst of a Great Depression. In 1934, the federal government passed The Bank Of Canada Act. The Bank of Canada issued notes starting at one dollar up to a thousand dollars. The notes were issued in both English and French. The Bank of Canada planned to issue new series every decade to prevent counterfeiting.

Since Canada eliminated The Gold Standard, The Canadian dollar varies between having a fixed rate and a floating exchange rate. In 1944, The Bretton Woods System established the rules for financial relations between Canada and The United States, Australia, and Japan. The Bretton Woods System required each company to adopt a monetary policy that kept its exchange rates around 1 percent. Due to the risk of inflation, Canada used a floating exchange rate. After 8 years, the government went back to a fixed rate due to high unemployment numbers and low inflation.

Sticking With The Floating Rate

During the 1970s, an influx of foreign exchange combined with rising inflation rates lead to Canada going back to a floating rate. Around this time, US President Richard Nixon imposed The Nixon Shock. The Nixon Shock canceled the direct international conversion of The US dollar to gold. The Nixon Shock took away a lot of the power from The Bretton Woods System. The Canadian dollar has had a floating exchange rate ever since The Nixon Shock.