History of Canadian Paper Money, Part 2
Posted on 10/16/2018
After the Dominion of Canada formed in 1865, there were still a variety of currency issuers and resulting problems with redemption. The newly consolidated country wanted a more stable system for its currency, and more importantly, a better source to pay its debts. As we mentioned in last month’s article, Canada still had more hurdles to overcome to establish the central banking system that we recognize today.
The first notes to not have Dominion of Canada overprints were issued in the 1870s and had a specific location of redemption. These specific locations were printed on the back with different cities such as Montreal, Halifax and a handful of other places around the country.
If a note was printed with Toronto, but used in Victoria, it traded at a lesser value—making these notes not ideal for use throughout the country. The lack of guaranteed value discouraged the locals from using these new notes over those issued by private local banks.
At the same time, trade between the US and Canada was on the rise. Some Canadians, wishing to promote better trade with America, advocated to adopt a decimal system, while the British wanted to use pounds, shillings and pence (Halifax currency). This problem, along with the problem of banknotes varying in value based on the issuing town, led to exchange rates being quite different across Canada. The Uniform Currency Act of 1871 hoped to address the exchange rates and required the use of the decimal system.
As the country grew, the government took steps toward shrinking the influence of private banks with moves toward a currency that held its value throughout the country. The Bank Act of 1871 prohibited chartered banks from issuing money lower than 4 dollars, making government issues the only source of small change currency.
Additionally, the act ordered banks to have nearly half of their reserves in dominion notes. These new provisions began to shift the financial means of the country to a central system and away from chartered banks.
As the Bank Act of 1871 took effect, chartered banks began issuing currency in odd denominations with the hope that locals wouldn’t use the small denominations of the Dominion. Their creative workaround was short lived as the Bank Act of 1880 raised the lowest denomination for charter banks to 5 dollars. At the time, 4 dollars was exchanged for one-pound Halifax, making the odd denomination the preferred means of trade.
The Bank Act of 1890 required chartered banks to open locations in major cities throughout the country. This gave people the ability to redeem their currency throughout the country regardless of how far they were from the original issuing town. The act finally solved the issue of Canadian notes losing their value throughout the country. While the Dominion passed multiple acts to safeguard currency, the beginning of the 20th century proved to be difficult for the nation.
World War I, along with the Great Depression, made Canada acutely aware of world Influences affecting its economy. These hard times ultimately pushed the government to establish the Bank of Canada in 1935.
The bank was created to have better control over the economy and inflation. After the bank was created, chartered banks were further restricted over the coming years until the Bank Act of 1944, which made the Bank of Canada the sole issuer of the country’s currency.
The modern day Canadian Dollar has quite a story, going from irredeemable in its early stages to a stable means of exchange and the fifth highest reserve currency. The rich history and stability of Canada’s currency are undoubtedly some of the reasons why these notes have become so collectible!
- Charlton Canadian Government Paper Money by R.J. Graham
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