A History of the CANADIAN DOLLAR

1 BANK OF CANADAA History of theCANADIAN DOLLARThe History of Canada s money provides a uniqueperspective from which to view the growth and developmentof the CANADIAN economy and Canada as a nation. AuthorJames Powell traces the evolution of CANADIAN money from itspre-colonial origins to the present day, highlighting thecurrency chaos of the colonial period, as well as the effectsof two world wars and the Great also chronicles the ups and downs of our dollarthrough almost 150 years and describes its relationship withits 2/7/2006 3:37 PM Page 1A History of the CANADIAN Dollarby James PowellThis publication is also available in pr sente publication est aussi disponible en fran 2005 ISBN 0-660-19571-2 Cat. No. FB2-14/2005 EPrinted in Canada on recycled First Nations (ca.)

2 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 theGold Standard (1854 1914)Canada off the Gold Standard (1914 26)Back on the Gold Standard Temporarily(1926 31)The Depression Years and the Creation ofthe Bank of Canada (1930 39)Canada under Fixed Exchange Ratesand Exchange Controls (1939 50)A Floating CANADIAN DOLLAR (1950 62)Return to a Fixed Exchange Rate(1962 70)Return to a Floating Rate(June 1970 present)Concluding RemarksAppendix A: Purchasing Power ofthe CANADIAN DollarAppendix B: Alternative MoneyAppendix C: of ContentsMany persons helped to make this secondedition possible. I would like to thank Mike Bordo,Pierre Duguay, Tiff Macklem, John Murray, andLarry Schembri for their helpful comments andsuggestions.

3 Special thanks go to Paul Berry, ChiefCurator of the National Currency Collection, forhis comments and assistance in choosing pieces tosupplement the story and for providing thanks go to the museum staff, includingDavid Bergeron, Rebecca Renner, Lisa Craig, andGord Carter who worked with Paul to providethe excellent illustrations. Jennifer Devine andDebbie Brentnell from Library and ArchivesCanada were also extremely helpful in locatingand processing some of the editorial cartoons usedin this book. Lisette Lacroix, Joan Teske, Judy Jones,and Taha Jamal provided invaluable research andtechnical assistance. The superb French translationwas done by Lyse Brousseau, Sylvie Langlois,Shirley-Ann Dulmage, Denyse Simard-Ebert, andAndr a Pelletier, supported by Ren Lalonde andSylvie Morin who proofread the French andEnglish , I would like to thank PublishingServices for pulling the project together in anincredibly short period of time.

4 Jill Moxley andLea-Anne Solomonian, supported by Eddy Cav and Glen Keenleyside, edited the Beauchamp provided the very creativelayout, and Maura Brown the comprehensive index,while Darlene Fougere kept us all on PowelliA History of the CANADIAN DollarAcknowledgementsiiA History of the CANADIAN DollarThe History of Canada s money provides aunique perspective from which to view the growthand development of the CANADIAN economyand Canada as a nation. Building on an earlieredition, this expanded History of the CanadianDollar, traces the evolution of CANADIAN moneyfrom its pre-colonial origins to the present on this journey are the currency chaosof the early French and British colonial period, thesweeping changes ushered in by Confederation in1867, as well as the effects of two world wars andthe Great book chronicles the ups and downsof the CANADIAN DOLLAR through almost 150 yearsand describes our DOLLAR s relationship with counterpart.

5 It also examines the forces thatled to the adoption of the DOLLAR as our currency during the nineteenth century, instead of the pound,as well as the factors that led Canada to move fromthe gold standard in the 1920s, to the BrettonWoods system of fixed exchange rates in the 1940sand, ultimately, to a flexible exchange rate regimein , on the seventieth anniversary of theestablishment of the Bank of Canada in 1935, atthe height of the Great Depression, this bookexamines the formation of Canada s central bankand its ensuing quest for a monetary order thatbest promotes the economic and financial welfareof Canada. While its tactics have changed overthe years, the Bank s enduring goal has been thepreservation of confidence in the value of moneythrough achieving and maintaining price History of the CANADIAN DollarThe FirstNations(ca.)

6 1600-1850)1 The word Canada is reputed to comefrom the Iroquois-Huron word kanata, meaning village or settlement. It is thus fitting to beginthe story of the CANADIAN DOLLAR with money usedby Canada s First Aboriginal peoplesof eastern North America placed a high value onstrings and belts fashioned from beads of white orpurple shells found on the eastern seaboard. EarlyEnglish settlers called such articles wampum, anabbreviation of an Algonquin word sometimesspelled wampumpeague. French settlers called shellbeads was highly valued, partly becauseof the difficulty in making shell beads even afterEuropean tools became available in the seventeenthcentury. By one estimate, it took 119 days to makea 5,000-bead belt (Lainey 2004, 18). Strings andbelts made from purple beads were roughly twicethe value of those made from white beads, sincethe purple shell was much more difficult to is particularly associated with theIroquois nations and features prominently in thelegends surrounding the formation of the IroquoisConfederacy.

7 The use of shell beads by theAboriginal peoples of the St. Lawrence River wasdescribed by Jacques Cartier in the sixteenthcentury and by Samuel de Champlain in the earlyseventeenth Europeans viewed wampum as a typeof money. A mid-seventeenth century observerwrites,Their money consists of certain little bones, made ofshells or cockles, which are found on the sea-beach;a hole is drilled through the middle of the littlebones, and these they string upon thread, or theymake of them belts as broad as a hand, or broader,and hang them on their necks, or around their have also several holes in their ears, and therethey likewise hang some. They value these little bones section draws heavily on Lainey (2004) and Karklins (1992). that is typically used as a medium of exchange to buy goods and services can be considered to be money.

8 Other functions of money includeserving as a store of value and a unit of beltAs 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 History of the CANADIAN Dollaras highly as many Christians do gold, silver andpearls ..(Reverend Johannes Megapolensis, Jr., 1644in Karklins 1992, 67).Wampum became an essential part of thefur trade as European settlers used shell beads tobuy beaver pelts from the Iroquois and other inlandpeoples. Wampum had all the hallmarks of a usefulcurrency. There was strong demand for it amongthe Native peoples, beads were difficult to make,and they were conveniently sized. Indeed, for aperiod during the mid-seventeenth century,wampum was legal tender in colonial New England,with a value of eight white beads or four purplebeads to a penny (Beauchamp 1901, 351).

9 3In 1792,legislation was passed in Lower Canada topermit the importation of wampum for trade withNative useful as a medium of exchange, thesignificance of wampum to the Aboriginal peoplesof eastern North America far transcended itsmonetary role. Wampum had considerable symbolicand ritualistic value. In an oral society, the exchangeof wampum helped convey messages and wasused to cement treaties between Indian nations, aswell as with Europeans. Wampum was alsoexchanged in marriages and funerals and used inspiritual the mid-nineteenth century, theexchange of wampum in diplomatic and otherceremonies had fallen into disuse, although thereare reports of its use in Iroquois funeral ceremoniesinto the twentieth century (Lainey 2004, 82). Theuse of wampum for ceremonial purposes has beenrevived in recent shell beads were also valued on thewest coast, copper shields were the ultimatesymbol of wealth among the Haida chiefs could own many shields, whichwere often exchanged at increasing values atpotlach wampum in the east,copper shields and other copper items were a keyelement in the culture of the peoples of the north-west coast.

10 Haida symbols are featured on the 2004$20 note, linking our heritage to the tender money describes money that has been approved for paying debts or settling commercial Museum of Civilization (2005).Haida shield, nineteenth centuryThe copper shields used in thepotlatch ceremonies of the westcoast Native peoples representedwealth. Some of the largest pieceswere highly valued and were evengiven History of the CANADIAN DollarNew France(ca. 1600-1770)According to Adam Shortt,5the greatCanadian economic historian, the first regularsystem of exchange in Canada involving Europeansoccurred in Tadoussac in the early seventeenthcentury. Here, French traders bartered each yearwith the Montagnais people (also known as theInnu), trading weapons, cloth, food , silver items,and tobacco for animal pelts, especially those ofthe 1608, Samuel de Champlain foundedthe first colonial settlement at Quebec on theSt.