History of Canadian currencies

Overview

The history of Canadian currencies began with Indigenous peoples in Canada prior to European contact, when they used items such as wampum and furs for trading purposes. The Indigenous peoples continued to use those items as currency when trade with Europeans began. 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.

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 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 Europeans for goods such as weapons, cloth, food, silver items, and tobacco. During the North American 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. 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.

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.

Shortage of currency

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.

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.

Banks and bank notes

As the level of commercial sophistication rose in the colonies, banks began to be founded. The banks then began to issue bank notes, with the first from the Montreal Bank (now the Bank of Montreal) in 1817, shortly after it was incorporated. Other banks, such as the Bank of Upper Canada, the Bank of New Brunswick, the Bank of Nova Scotia and the Bank of Prince Edward Island, followed suit, issuing their own bank notes. The right to issue bank notes was a valuable one. The notes amounted to an interest-free loan to the bank, which only became due if the holder of a note presented it to the bank to redeem it in coinage. The bank notes were only redeemable at the branches of the bank which issued them. Although the bank notes were generally well received by the populace, they could trade at a discount when they were far away from a bank branch where they could be redeemed. The notes issued by banks in Upper and Lower Canada tended to be denominated in both pounds and dollars, while the bank notes in the Atlantic provinces tended to be in pounds only. This difference reflected the greater commercial ties which Upper and Lower Canada had with the United States, while the Atlantic colonies mainly traded with Britain, less with the United States. Some merchants also issued paper notes which exchanged as currency. In Lower Canada, they were often referred to as "Bons", from the opening words "Bon pour", French for "Good for".

Tokens

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.