Political union of Upper and Lower Canada
to create the Province of Canada on 10 February
1841 led to a new standardized rating for coins in
the newly united province that took effect in April
1842.30 The British gold sovereign was valued at
one pound, four shillings, and four pence in local
currency, while the US$10 gold eagle was valued
at two pounds, ten shillings.31 Both coins were
considered legal tender. Spanish (including Spanish
colonial) and U.S. silver dollars with a minimum
weight of 412 grains were also made legal tender
with a value of five shillings and one pence—a
valuation very similar to the old Halifax rating.
At this time, efforts also began to move
to a decimal-based currency system and to
introduce a government issue of paper currency.
In 1841, Lord Sydenham, Governor General of the
new united Province of Canada, proposed that the
provincial legislature establish a provincial bank that
would issue up to £1 million in provincial paper
currency denominated in dollars, 25 per cent of
which would be backed by gold, the remainder by
government securities. He also recommended that
notes issued by chartered banks be prohibited. In
effect, Lord Sydenham’s proposal amounted to the
establishment of a Canadian central bank.32
Great Britain, sovereign, 1817
The image of St. George and the dragon, which appears on the reverse of
this coin, was engraved by the famous Italian medallist Benedetto Pistrucci,
who later became Chief Medallist (1828–55) at the Royal Mint in London.
30. In addition to McCullough (1984), this section draws heavily from Breckenridge (1910) and Shortt (1914b).
31.
Recall that colonial legislatures rated coins higher than in Great Britain, where a sovereign was worth £1 sterling. The valuation for the U.S. gold eagle is
for coins minted after 1834. Coins minted before that date had a higher gold content and were worth £2 13s. 4d. each in local currency.
32. While perhaps the best-articulated proposal, this was not a new idea in Canada. As early as 1820, an anonymous pamphlet published in Quebec had
advocated the establishment of a government-owned national bank that would be the sole issuer of paper money. See “Anonymous” (1820). The issue
was also debated periodically in the assemblies of both Upper and Lower Canada.
United States, $10, 1844
Called an “eagle,” after the prominent
image appearing on the reverse, this
coin was occasionally used in Canada
for large transactions.
22 A History of the Canadian Dollar
While Lord Sydenham sought a paper
currency with guaranteed convertibility,
he was also
strongly motivated by a desire to acquire funds to
finance provincial public works and to obtain the
seigniorage profits from the note issue. Seigniorage
was estimated to be at least £30,000 per annum and
had the potential to rise considerably as the
currency issue increased (Breckenridge 1910).33
The proposal was studied by a parliamentary select committee on banking and currency,
headed by Francis Hincks, who strongly favoured
the Governor General’s plan. The provincial
assembly turned it down, however, because of
widespread opposition, particularly from a strong
bank lobby. Banks were concerned about the
impact on their profits if they lost the right to issue
paper currency. Interestingly, borrowers were also
worried that government control of the bank note
issue would lead to tighter credit conditions.
There
were also concerns that the government would
gain too much power. Because of the assembly’s
rejection of the Governor General’s proposal, a
provincial issue of paper currency had to wait
another 25 years. The establishment of a central
bank was delayed almost 100 years.
Upon Confederation in 1867, there was
another proposal to make the new federal government the sole issuer of legal tender paper money,
with the seigniorage accruing to the government.
Unlike the earlier Sydenham proposal, the money
would be fiat-based; i.e., inconvertible into gold.
Moreover, there was no specific reference to the
establishment of a bank. Instead, control of the
proposed new monetary system would be given to
a small number of commissioners, of whom the
minister of finance would be an ex officio member.
In apparent recognition of the potential perils of
giving such authority to the government, ties to the
government would be restricted to the minister of
finance (Davis 1867). While this proposal did not
succeed, it foreshadowed key elements of modern
central banking—a fiat currency, a government
monopoly on the issuance of paper money, and
independence for the issuer.34
Introduction of a decimal-based
currency
Despite Lord Sydenham’s failure to
introduce a government issue of paper currency,
efforts to introduce a decimal-based currency in
British North America gained momentum through
the 1850s, especially during the government of
Francis Hincks, who became prime minister of the
Province of Canada in 1851. In June of that year,
representatives from the Province of Canada,
New Brunswick, and Nova Scotia met in Toronto
to work towards the establishment of a decimal
currency. A few months later, the Canadian
legislature passed an act requiring that provincial
accounts be kept in dollars and cents. However,
the British government, still seeking to establish a
33. Seigniorage arises from the fact that the province would issue non-interest-bearing paper money while earning interest on the securities backing the
currency issue. These profits would otherwise have been earned by banks on their issue of notes.
34. This paper foreshadowed a movement during the 1870s, headed by Isaac Buchanan, a wealthy Hamilton merchant and politician, aimed at introducing
an inconvertible, government-issued paper money (Helleiner 2003, 88).
currency system based on pounds, shillings, and
pence throughout the empire, delayed confirmation
of the act on a technicality. While willing to
concede the introduction of a decimal currency, the
British government was still reluctant for Canada to
adopt the dollar—
the currency system of a foreign
government with possible continental ambitions.
Instead, the British authorities proposed the
introduction of the “royal,” a gold coin linked to
sterling, with subsidiary silver and copper coins, to
be called “shillings,” and “marks,” respectively.
While Hincks was open to the idea, this proposal
was rejected by the legislature (Shortt 1914b, 276).
A compromise Currency Act was finally
passed in 1853 and proclaimed on 1 August 1854.
Under this act, pounds, shillings, and pence, as well
as dollars and cents, could be used in provincial
accounts and were recognized as units of Canadian
currency.
The Currency Act also confirmed the
ratings of the British sovereign and the US$10 gold
eagle that had been in place since the establishment
of the Province of Canada in 1841. The British
gold sovereign was rated at £1 4s. 4d. local
currency or Can$4.8666, while the gold eagle
(those minted after 1834 with a gold content of
232.2 grains) was valued at Can$10. British coins,
both gold and silver, as well as U.S. gold coins,
were legal tender. Other foreign silver coins,
while not legal tender, continued to circulate
(McCullough 1984, 110).
Since the colonial authorities in New
Brunswick had passed similar currency legislation in
October 1852, the proclamation of the Currency
Act in the Province of Canada meant that the two
regions had compatible currencies, fixed at par with
their U.S. counterpart, with $1 equivalent to 23.22
grains of gold (or $20.67 per troy ounce).
A History of the Canadian Dollar 23
Province of Canada, double-proof set, 1858
To celebrate Canada’s new coinage, several sets of specially
struck coins, called proofs, were prepared for presentation.
24 A History of the Canadian Dollar
Decimalization received a further boost a
few years later. Following a recommendation from
the public accounts committee, the Province of
Canada revised the Currency Act in 1857 so that,
from 31 December 1857, all provincial accounts
would be kept in dollars. Silver and bronze coins,
denominated in cents and bearing the word
“Canada,” were subsequently issued for the first
time in 1858.35 This marked the birth of a
distinctive Canadian currency.
In Nova Scotia, decimalization occurred on
1 July 1860. Nevertheless, because the colony
rated the sovereign at $5 instead of $4.8666, its
currency remained incompatible with that of
Canada and New Brunswick. New Brunswick
officially decimalized on 1 November 1860, while
Newfoundland passed similar legislation in 1863.36
Like Nova Scotia, Newfoundland’s currency was
not compatible with that of Canada or New
Brunswick. The colony of Vancouver Island
decimalized in 1863, followed by British Columbia
in 1865.37 Manitoba decimalized in 1870, upon its
entry into Confederation, and Prince Edward Island
followed in 1871.
The first government note issue
In the late 1850s and the early 1860s,
efforts were renewed in the Province of Canada to
35. Prior to the establishment of the Ottawa Mint in 1908 (a branch of the Royal Mint under the Imperial Coinage Act of 1870), coins used in Canada
were minted in the United Kingdom. The first gold coins minted in Canada were sovereigns, identical to those produced in the United Kingdom
except for a small identifying “C.” It was not until May 1912 that the Ottawa Mint began to produce limited quantities of gold $5 and $10 coins.
The Ottawa Mint became the Royal Canadian Mint in 1931.
36. The legislation took effect at the beginning of 1865.
37. The colonies of Vancouver Island and British Columbia were united in November 1866 under the name British Columbia. A decimal currency act for
the new combined province was passed in 1867. British Columbia entered Confederation in 1871.
Nova Scotia, 1 cent, 1861
Although Nova Scotia ordered its
first coinage in 1860 to be ready for
issue later that year, the Royal Mint
did not ship the coins until 1862,
owing to the heavy demand for
domestic British coinage.
New Brunswick, 1 cent, 1861
Like Nova Scotia, New Brunswick
did not receive its shipment of
new decimal coins until 1862,
almost two years after they were
ordered.
Newfoundland, 20 cents, 1865
As a separate colony of the
British Empire, Newfoundland
had its own distinctive coinage,
from 1865 to 1947.
A History of the Canadian Dollar 25
introduce a government issue of paper money.38
This time, the financial and political environment
was more receptive than had been the case in 1841.
The collapse of a number of banks during
this period brought bank notes issued by chartered
banks into disrepute. In 1859, two Toronto-based
banks, the Colonial Bank and the International
Bank, failed. This was soon followed by the
collapse of the Bank of Clifton and the Bank of
Western Canada.
The failures of these last two
banks were particularly scandalous, with the former
pretending to redeem its notes in Chicago and the
latter, owned by a tavern-keeper, attempting to
circulate worthless bank notes in the U.S. Midwest.
In his authoritative review of early banking in
Canada, Roeliff Breckenridge wrote,
No great loss was caused to the Canadian public by
their collapse, but the scandal and the ease of
acquiring dangerous privileges which had led to the
scandal, called forth bitter and general complaint
(Breckenridge 1910, 71).
Nevertheless, a loss of confidence in
chartered bank notes, the principal means of
payment, posed a threat to economic prosperity. To
restore confidence in the currency and to raise
funds for the government, in 1860 A.T. Galt,
Finance Minister of the Province of Canada,
proposed replacing chartered bank notes with an
issue of government notes.39 Once again, the
chartered banks objected strongly to the potential
loss of their bank-note-issuing privileges, and the
proposal was quickly withdrawn. In 1866, however,
Bank of Clifton, $5, 1859
This note was issued by an early Canadian chartered bank,
which was also known as the Zimmerman Bank. It became a
“wildcat” bank, issuing large quantities of notes with no intention
of redeeming them. The detailed engraving is typical of
nineteenth-century bank notes. The coloured “Five” is an
anti-counterfeiting device.
Bank of Montreal, 25 shillings or $5, 1852
This note is an example of the dual currency system that existed
in the Province of Canada prior to decimalization in 1858.
38. During 1848–49, the provincial government issued provincial debentures, which circulated in small denominations. They were interest earning and
payable one year after issue, although the government could choose to reissue them. Arguably, these debentures set the stage for the subsequent
issuance of provincial notes.
39. In contrast to Lord Sydenham’s earlier proposal, the notion of establishing a provincial bank to issue the notes was dropped. Instead, a provincial
Treasury department would be established that would issue the paper money.
2
6 A History of the Canadian Dollar
with the Canadian government again seriously short
of resources, the need for a new source of funding
became acute.40 Domestic and British banks were
unwilling to advance new funds or roll over existing
loans. Moreover, the provincial government was
unable to sell bonds in London even at very high
rates of interest. With all funding avenues
apparently closed, the provincial authorities passed
controversial legislation to issue up to $8 million
in legal tender, provincial notes. These notes
were payable on demand in gold in either Toronto
or Montréal and were partly backed by gold—
20 per cent for the first $5 million and 25 per cent
for amounts in circulation in excess of $5 million.
The Provincial Notes Act received royal assent on
15 August 1866.
Unlike Galt’s earlier proposal, chartered
banks were not obliged to give up their right to
issue bank notes although they were encouraged
to do so.41 Compensation was offered, including
the payment of 5 per cent of their average
notes in circulation and a further 1 per cent per
year for issuing and redeeming provincial notes.
Nevertheless, only the Bank of Montreal, the
government’s fiscal agent, took up the offer. It too
resumed its bank note issue following the passage
of the 1871 Bank Act.
