operations in Pennsylvania


The Canadian dollar and the U.S.
greenback (1862–79)
In 1862, the American Civil War began to
affect currency in the United States. As the finances
of the Union government deteriorated, U.S. banks
suspended the convertibility of their notes into
gold, and the government suspended the right to
convert U.S. Treasury notes (government-issued
paper money) into gold. Shortly afterwards, the U.S.
Congress authorized the government to issue
non-convertible legal tender currency, which
became popularly known as “greenbacks.” While
little was said officially regarding the future
convertibility of greenbacks into gold, it was widely
assumed that convertibility would be restored when
the war was won (Willard et al. 1995).

 Trading in
the greenback vis-à-vis gold commenced in
mid-January 1862 in New York and continued with
only one short interruption until the United States
returned to the gold standard on 1 January 1879.
Almost from the start of trading, the
greenback depreciated relative to gold and against
other currencies, including the Canadian dollar,
which remained on the gold standard. The
weakness in the greenback undoubtedly reflected
the rapid expansion of the U.S. note issue from
$150 million in early 1862 to $450 million by March
1863. Fluctuations in its value also reflected the
military and political fortunes of the Union
government and, hence, the expected likelihood
United States, $1, 1862
Known as the “greenback” and produced during the
Civil War, 

this was part of a note issue that re-established a
government (paper) currency in the United States.
53. Net capital inflows into Canada reached a record 18 per cent of GDP in 1912 (Urquhart 1986).
36 A History of the Canadian Dollar
that the government would eventually be able
to redeem the greenbacks in gold. The greenback tended to strengthen on news of Union
victories, such as the Battle of Gettysburg in 1863,
and weakened on Union reversals. It reached its
nadir during the summer of 1864, when the Union
government, in a move against speculators,
temporarily shut down gold trading for
two weeks in late June, followed in early July
by Confederate advances towards Baltimore
and Washington and raiding operations in
Pennsylvania.54 Based on available information, the
U.S. greenback fell from close to parity against the
Canadian dollar in early 1862 to less than
36 Canadian cents (or Can$1=US$2.78) on Monday,
11 July 1864 (Chart 1)

.55 This represents the
all-time peak for the Canadian dollar in terms of
its U.S. counterpart.
The greenback subsequently began to
recover, almost doubling in value by the end of the
Civil War in April 1865. After the war, it continued
to strengthen, albeit at a slower pace, as the
government retired a significant amount of
greenbacks during the 1866–68 period. Deflation
after the Civil War enabled the United States to
return to the gold standard on 1 January 1879, with
the greenback convertible into gold at the old
pre-war rate of 23.22 grains of gold (Yeager 1976).
Once again, the Canadian dollar traded at par with
its U.S. counterpart. This exchange rate held until
the outbreak of World War I.



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