History of the Canada's Currency


Canada is a picturesque country with vast area and distinctive culture. Although sparsely populated, with most Canadians living within 160 km north of the United States border, Canada is the 2nd largest country in the world and has the 8th largest economy. The industrialization of many staples found naturally in Canada led to the foundation and settlement of the many diverse regions from the Atlantic Ocean to the Pacific. These industries have also provided the base for explosive growth in the service sector of the economy and have caused Canada to occupy a position of increasing significance in the world market. Canada is heavily influenced by America and resembles the US’s market-oriented system, high standard of living, and patterns of growth & recession. Canada has also mirrored their form of currency, dollars and cents, from their southern American neighbor. The Canadian dollar, called the “loonie,” has only been around since but has made its presence known in the world market. It has had a colorful history as its value has adjusted to different world events and conditions. This paper will discuss the evolution of the loonie into Canada’s official currency, the major events affecting the value of the Canadian dollar, and recent trends in its value.

Canada’s currency is a decimal based system using the dollar, cent, and mill (1/10th cent), as it’s national currency. The loonie’s value is determined by looking at its exchange rate against the US Dollar. The value of the Canadian dollar flip-flopped between a fixed rate and floating rate of exchange for the first years of its history until 1970 where it has remained as a floating currency. Table 1A shows changes in Canada’s exchange rate since 1948 (IMF Statistics).

Prior to the 19th century, there was no official currency in Canada. The British pound sterling was the main unit of legal tender, as well as Spanish and American silver dollars, but there was much confusion over the significance of the currencies and which of many rating systems to use to determine their values. In order to maintain control over North American Territories, the British government delayed the development of a uniform currency based on dollars and cents and continued to reinforce the pound sterling system although increased interaction with the United States made the use of the decimal based system popular. After assuming the gold standard currency system, the country had a currency value that was backed by and fixed in terms of gold. The gold standard system also marked the first time coins were minted with the word “Canada.” The gold standard was in use during economic expansion, not in use during recession, and sometimes only partially backed. The gold standard was abolished completely in 1933. The country did not decimalize its currency until after Confederation of the provinces and the extinguishment of control from the British government in 1867. Under the new Dominion government’s Uniform Currency Act, a new Canadian currency was established in dollar and cents denominations as Dominion Notes. Dominion Notes were replaced with Bank of Canada notes in 1935 when the Bank of Canada became the national bank with control over the country’s monetary policies.

There are many periods in Canada’s history that have sparked a change in value of its currency. The very beginning of Canadian trade was between the Native Americans, British, and the French. These cultures traded furs, guns, textiles, and other luxuries among each other. With the colonization of the British and French empires in Canada, along with the many other Western European immigrants coming to the region, many native coins were in circulation in Canada and used for trade.

Timber was the dominant industry in British North America during the colonial period and became a huge export out of Quebec City. The timber industry also influenced immigration into Canada by selling passage to the Americas to European refugees trying to escape war and political turbulence. The timber industry also offered jobs to those immigrating into Canada and encouraged settlement and growth. Montreal is one example of a major city made populous by lumber camps. Two important mechanisms for economic growth during the 19th century were the construction of canals and railroads. Canals and Railroads increased the efficiency of the transportation of goods and services between regions and countries. In fact, the Canadians felt these projects were so important in creating a market for their goods, that many provinces bankrupted themselves in order to engineer them. These bankruptcies, and that business’ hoped to find new export markets and competition in other regions, eventually led to the colonies of Nova Scotia, New Brunswick, and Lower and Upper Canada (Quebec and Ontario) to merge into the new Dominion in 1867.

Soon after, the dream of connecting a railroad between the Atlantic and Pacific coasts was realized by the new, more stable, central government. The completion of the intercontinental railroad was a leading factor in the settlement of the west. The Confederation and completion of the railroad provided a slight boost in the economy. However, shortly after that boost, Canada’s economy hit a post-Confederation slump likely caused by a depression that was affecting the whole world. The depression caused the demand for Canadian resources to drop while protective policies on trade in other countries hurt Canada’s exports further. During this time and 30 years after Confederation, Canada experienced a net emigration, or migration of people out of the country, with most Canadians relocating to the United States. One lasting outcome of the post-Confederation slump was the decline of industry in the Canadian Maritimes; this region remains far poorer than the rest of the country to this day.

After around 1896, Canada experienced another period of boom caused by mass industrialization and achieved a higher rate of growth than in the United States. Railway construction contributed to the development of new resources in the Canadian Shield. For example, new metallic mineral deposits were discovered and the paper and pulp industry boomed when new regions of forest were discovered. New technology made possible the development of hydroelectric power resources, which in turn permitted development of electro-chemical manufacturing, pulp and paper mills, and light manufacturing. New technological advances increased production of goods and services at lower cost, which, in turn, stimulated the economy and increased the value of the Canadian dollar. Another period of boom soon followed with the start of World War 1. There was a massive increase in the amount of manufacturing as well as a great increase in the demand for the production of food, which caused prices to skyrocket. The value of the dollar had dropped due to inflation because the Canadian government was printing money in excess to pay for the war. The economy readjusted to the end of wartime production without a major recession by switching quickly to manufacturing. This led to rapid urbanization and another exceptional increase in the standard of living through the Roaring 20’s. Until this time many homes lacked such luxuries as radios, automobiles, and flush toilets. Unfortunately, at the end of the 1920’s, Canada could not avoid feeling the harsh effects of the Great Depression. When the American economy began to collapse in the late 20’s, it spread easily across the border to Canada because of the close links between the economies. The value of the Canadian dollar remained strong for the first few years of the depression due to monetary contraction, in this case the government forced the bank to borrow money, increasing the money supply and decreasing demand for goods and services. However, by 1933, there was 30% unemployment, wages were low, prices fell, birthrates fell, crime increased and there was a 42% decline in Gross National Expenditure. One outcome of the Depression was the establishment of the Bank of Canada in 1934, which issued a uniform national note while legislation phased out the use of private bank notes and dominion notes. Canada felt the effects of the Depression up until the 2nd World War. During WWII, unemployment virtually disappeared and virtually disappeared due to wartime production that was easily transformed to consumer goods. With this economic boost, Canada was able to build an inspiring welfare state with free health care, the Canada Pension Plan, and other programs. Also during this time, the Canadian economy became more closely integrated with the American economy when tariff barriers fell and trade increased between the two countries.

During the 1980’s-1990’s, Canada fell into a recession that caused government deficits and high unemployment. Since around 1996, the Canadian economy has improved noticeably and has become a model of stability to other countries. In recent years, Canada has been able to avoid some recession from the US economy and boast surpluses of the national budget.

In conclusion, Canada is a strong and interesting country that has a currency with a vibrant past. Canada has united to become a major world power with dollar value that is ever changing and growing. Today, Canada maintains its reputation as an industrious, high tech, prosperous, and developed country. It has experienced increasing GDP, standards of living, and dollar value. Canada will continue to play an important role in the world economy in the future as technology increases and trade bonds get stronger.

Bibliography

1. Powell, James. A History of the Canadian Dollar. Ottawa, Ontario. Publications Distribution, 2004.

2. Rea, K.G.. "A Guide to Canadian Economic Development." University of Toronto. Toronto, Ontario. 2003.

3. W.T. Easterbrook and H.G.J. Aitken. Canadian Economic History.

4. Government of Canada, "Key Economic Events." Canadian Economy Online. 13 Oct 2006. Government of Canada. 23 Nov 2006 .

5. Wallace, Iain. A Geography of the Canadian Economy. Don Mills: Oxford University Press, 2002.

6. Makarenko, Jay. "20 Years with the Charter." 19 April 2002. 9 May 2002. .

7. Makarenko, Jay. "Loonie in the Crosshairs: The Dollars Decade of Decline." Maple Leaf Web. 11 Mar 2002. University of Lethbridge. 27 Nov 2006

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