A History of D the


A History of the Canadian Dollar by James Powell

This publication is also available in French. La présente publication est aussi disponible en français.

December 2005

ISBN 0-660-19571-2 Cat. No. FB2-14/2005E

Printed in Canada on recycled paper.



The First Nations (ca. 1600–1850)

New France (ca. 1600–1770)

British Colonies in North America: The Early Years (pre–1841)

Currency Reforms (1841–71)

The Canadian Dollar under the Gold Standard (1854–1914)

Canada off the Gold Standard (1914–26)

Back on the Gold Standard—Temporarily (1926–31)

The Depression Years and the Creation of the Bank of Canada (1930–39)

Table of Contents

.............................. i

Canada under Fixed Exchange Rates and Exchange Controls (1939–50)

.............. 53 ................................... ii

A Floating Canadian Dollar (1950–62)

.......... 61 ............... 1

Return to a Fixed Exchange Rate .................... 3


..................................... 66

Return to a Floating Rate .................... 11

(June 1970–present)

............................ 71

................... 21

Concluding Remarks

........................... 85

Appendix A: Purchasing Power of ................... 33

the Canadian Dollar

........................... 88

....... 37

Appendix B: Alternative Money

............... 92

Appendix C: Charts

............................ 97 ..................................... 41


............ .....44


................................... 99

........................................ 105


Many persons helped to make this second edition possible. I would like to thank Mike Bordo, Pierre Duguay, Tiff Macklem, John Murray, and Larry Schembri for their helpful comments and suggestions. Special thanks go to Paul Berry, Chief Curator of the National Currency Collection, for his comments and assistance in choosing pieces to supplement the story and for providing captions. Additional thanks go to the museum staff, including David Bergeron, Rebecca Renner, Lisa Craig, and Gord Carter who worked with Paul to provide the excellent illustrations. Jennifer Devine and Debbie Brentnell from Library and Archives Canada were also extremely helpful in locating and processing some of the editorial cartoons used in this book. Lisette Lacroix, Joan Teske, Judy Jones,

and Taha Jamal provided invaluable research and technical assistance. The superb French translation was done by Lyse Brousseau, Sylvie Langlois, Shirley-Ann Dulmage, Denyse Simard-Ebert, and Andréa Pelletier, supported by René Lalonde and Sylvie Morin who proofread the French and English texts.

Lastly, I would like to thank Publishing Services for pulling the project together in an incredibly short period of time. Jill Moxley and Lea-Anne Solomonian, supported by Eddy Cavé and Glen Keenleyside, edited the manuscript. Michelle Beauchamp provided the very creative layout, and Maura Brown the comprehensive index, while Darlene Fougere kept us all on track.

James Powell

i A History of the Canadian Dollar

The history of Canada’s money provides a unique perspective from which to view the growth and development of the Canadian economy and Canada as a nation. Building on an earlier edition, this expanded History of the Canadian Dollar, traces the evolution of Canadian money from its pre-colonial origins to the present day. Highlighted on this journey are the currency chaos of the early French and British colonial period, the sweeping changes ushered in by Confederation in 1867, as well as the effects of two world wars and the Great Depression.

The book chronicles the ups and downs of the Canadian dollar through almost 150 years and describes our dollar’s relationship with its U.S. counterpart. It also examines the forces that led to the adoption of the dollar as our currency

ii A History of the Canadian Dollar


during the nineteenth century, instead of the pound, as well as the factors that led Canada to move from the gold standard in the 1920s, to the Bretton Woods system of fixed exchange rates in the 1940s and, ultimately, to a flexible exchange rate regime in 1970.

Finally, on the seventieth anniversary of the establishment of the Bank of Canada in 1935, at the height of the Great Depression, this book examines the formation of Canada’s central bank and its ensuing quest for a monetary order that best promotes the economic and financial welfare of Canada. While its tactics have changed over the years, the Bank’s enduring goal has been the preservation of confidence in the value of money through achieving and maintaining price stability.

The Wampum belt

(ca. Nations 1600-1850)1 First

As early as the seventeenth century, Native peoples in northeastern North America used wampum belts to record significant events. In the absence of coinage, colonists used individual pieces of wampum as money.

The word “Canada” is reputed to come from the Iroquois-Huron word kanata, meaning “village” or “settlement.” It is thus fitting to begin the story of the Canadian dollar with “money” used by Canada’s First Nations.2 The Aboriginal peoples of eastern North America placed a high value on strings and belts fashioned from beads of white or purple shells found on the eastern seaboard. Early English settlers called such articles “wampum,” an abbreviation of an Algonquin word sometimes spelled wampumpeague. French settlers called shell beads porcelaine.

Wampum was highly valued, partly because of the difficulty in making shell beads even after European tools became available in the seventeenth century. By one estimate, it took 119 days to make a 5,000-bead belt (Lainey 2004, 18). Strings and belts made from purple beads were roughly twice the value of those made from white beads, since the purple shell was much more difficult to work.

Wampum is particularly associated with the Iroquois nations and features prominently in the legends surrounding the formation of the Iroquois Confederacy. The use of shell beads by the Aboriginal peoples of the St. Lawrence River was described by Jacques Cartier in the sixteenth century and by Samuel de Champlain in the early seventeenth century.

Early Europeans viewed wampum as a type of money. A mid-seventeenth century observer writes,

Their money consists of certain little bones, made of shells or cockles, which are found on the sea-beach; a hole is drilled through the middle of the little bones, and these they string upon thread, or they make of them belts as broad as a hand, or broader, and hang them on their necks, or around their bodies. They have also several holes in their ears, and there they likewise hang some. They value these little bones

1. This section draws heavily on Lainey (2004) and Karklins (1992). 2. Anything that is typically used as a medium of exchange to buy goods and services can be considered to be money. Other functions of money include

serving as a store of value and a unit of account.

1 A History of the Canadian Dollar

are as highly as many Christians do gold, silver and

reports of its use in Iroquois funeral ceremonies pearls . . . (Reverend Johannes Megapolensis, Jr., 1644 in Karklins 1992, 67).

into the twentieth century (Lainey 2004, 82). The use of wampum for ceremonial purposes has been

Wampum became an essential part of the

revived in recent years.

fur trade as European settlers used shell beads to buy beaver pelts from the Iroquois and other inland peoples. Wampum had all the hallmarks of a useful currency. There was strong demand for it among the Native peoples, beads were difficult to make, and they were conveniently sized. Indeed, for a period during the mid-seventeenth century, wampum was legal tender in colonial New England, with a value of eight white beads or four purple beads to a penny (Beauchamp 1901, 351).3 In 1792, legislation was passed in Lower Canada to

While shell beads were also valued on the west coast, copper shields were the ultimate symbol of wealth among the Haida people. High-ranking chiefs could own many shields, which were often exchanged at increasing values at potlach ceremonies.4 Like wampum in the east, copper shields and other copper items were a key element in the culture of the peoples of the north- west coast. Haida symbols are featured on the 2004 $20 note, linking our heritage to the present.

permit the importation of wampum for trade with Native peoples.

While useful as a medium of exchange, the significance of wampum to the Aboriginal peoples of eastern North America far transcended its monetary role. Wampum had considerable symbolic and ritualistic value. In an oral society, the exchange of wampum helped convey messages and was used to cement treaties between Indian nations, as well as with Europeans. Wampum was also exchanged in marriages and funerals and used in spiritual ceremonies.

By the mid-nineteenth century, the exchange of wampum in diplomatic and other ceremonies had fallen into disuse, although there

3. Legal tender money describes money that has been approved for paying debts or settling commercial transactions. 4. Canadian Museum of Civilization (2005).

Haida shield, nineteenth century The copper shields used in the potlatch ceremonies of the west coast Native peoples represented wealth. Some of the largest pieces were highly valued and were even given names.

2 A History of the Canadian Dollar

New France (ca. 1600-1770)

Trade silver, beaver, eighteenth century Manufactured in Europe and North America for trade with the Native peoples, trade silver came in many forms, including ear bobs, rings, brooches, gorgets, pendants, and animal shapes.

According to Adam Shortt,5 the great Canadian economic historian, the first regular system of exchange in Canada involving Europeans occurred in Tadoussac in the early seventeenth century. Here, French traders bartered each year with the Montagnais people (also known as the Innu), trading weapons, cloth, food, silver items, and tobacco for animal pelts, especially those of the beaver.

In 1608, Samuel de Champlain founded the first colonial settlement at Quebec on the St. Lawrence River. The one universally accepted medium of exchange in the infant colony naturally became the beaver pelt, although wheat and moose skins were also employed as legal tender. As the colony expanded, and its economic and financial needs became more complex, coins from France came to be widely used.

5. This section draws heavily on Shortt (1925a, 1925b, 1986).

Because of the risks associated with transporting gold and silver (specie) across the Atlantic, and to attract and retain fresh supplies of coin, coins were given a higher value in the French colonies in Canada than in France. In 1664, this premium was set at one-eighth but was subsequently increased. In 1680, monnoye du pays was given a value one-third higher than monnoye de France, a valuation that held until 1717 when the distinction was abolished and all debts and contracts in Canada became payable in monnoye de France.

3 A History of the Canadian Dollar

France, double tournois, 1610 Originally valued at 2 deniers, the copper “double tournois” was shipped to New France in large quantities during the early 1600s to meet the colony’s need for low-denomination coins.

a An inability to keep coins in circulation in

Roman numeral I, II, III, and IIII, with the French colonies in the Americas led to the minting

lightest coin assigned a value of only 3 livres. in 1670 of silver and copper coins designed

Arguably, these overstamped Spanish dollars specially for the colonies.6 These coins could not

(and parts thereof) represent the first distinctive be circulated in France on pain of confiscation and

Canadian coins. They also foreshadowed the use of punishment. While apparently intended primarily

Spanish dollars in what was to become British for the West Indies, a small number of these

North America. coins are believed to have circulated in Canada (Shortt 1986, 118).

The introduction of card money Spanish dollars (piastres) also began to

In 1685, the colonial authorities in New circulate in the French colonies during the mid-

France found themselves short of funds. A military 1600s owing to illegal trading with English and

expedition against the Iroquois, allies of the Dutch settlers to the south, who used them

English, had gone badly, and tax revenues were extensively. Because these coins were of uncertain

down owing to the curtailment of the beaver trade quality, an “arrêt” of 1681 required that foreign

because of the war and illegal trading with the coins be weighed. In 1683, foreign coins had to be

English. Typically, when short of funds, the individually appraised. Full-weighted Spanish

government simply delayed paying merchants for dollars were stamped with a fleur-de-lys and were

their purchases until a fresh supply of specie valued at four livres, while light coins, depending on

arrived from France. But the payment of soldiers their weight, were stamped with a fleur-de-lys and

could not be postponed. Having exhausted other

6. The units of account in France at this time and in the French colonies in the Americas were livres, sols, and deniers. As was the case with English

pounds, shillings, and pence, there were 20 sols to the livre, and 12 deniers to the sol. There were no livre coins. Other coins in circulation included the louis d’or, the écu, the liard, and the double tournois. Their values varied widely over time with changes in their gold or silver content, government policy, and inflation. For example, the value of the louis d’or ranged from 10 livres in 1640 to 54 livres in 1720 (McCullough 1984, 43).

4 A History of the Canadian Dollar

France, 15 sols, 1670 In an attempt to address perennial coin shortages in France’s North American colonies, Louis XIV ordered the production of three denominations in 1670, including the “double d’amerique” (a base-metal coin), a 5-sol piece, and a 15-sol piece. The “double” was never issued, and the others proved unpopular since they could not be used to pay taxes.

Mexico, 8 reals, seventeenth century Called “cobs” from the Portuguese cabo meaning “bar,” these irregular-shaped coins, struck in silver cut from large ingots, were common in the European colonies of North America during the 1600s and early 1700s.