Canadian Dollar

The dollar (ISO 4217 code: CAD) is the currency of Canada. It is normally abbreviated with the dollar sign $, or C$ to distinguish it from other dollar-denominated currencies.History

Gold dollar

In 1841, the new Province of Canada declared that its dollar was equal to the gold U.S. dollar and was worth 5 shillings in local currency. The silver Spanish dollars were rated at 5 shillings 1 penny and the British sovereign was rated at 1 pound 4 shillings 4 pence, the proper value due to its gold content compared to that of the gold U.S. dollar.

Independent Canadian dollar

The Province of Canada declared that all accounts would be kept in dollars and cents as of January 1, 1858, and ordered the issue of the first official Canadian coins in the same year. The dollar was pegged at par with the U.S. dollar, on a gold standard of 1 dollar = 23.22 grains gold.

The colonies that came together in the Canadian Confederation progressively adopted a decimal system over the next few years. New Brunswick, British Columbia and Prince Edward Island adopted dollars equivalent to the Canadian dollar (see New Brunswick dollar, British Columbia dollar and Prince Edward Island dollar). However, Nova Scotia and Newfoundland did not adopt the same dollar (see Nova Scotian dollar and Newfoundland dollar). Nova Scotia retained its own currency until 1871, but Newfoundland issued its own currency until joining Confederation in 1949, although the value of the Newfoundland dollar was adjusted in 1895 to make it equal to the Canadian dollar. It is divided into 100 cents.

The Federal Parliament passed the Uniform Currency Act in April 1871, tying up loose ends as to the currencies of the various provinces and replacing them with a common Canadian dollar. The gold standard was temporarily abandoned during the First World War and definitively abolished on April 10, 1933. At the outbreak of the Second World War, the exchange rate to the U.S. dollar was fixed at 1.1 Canadian dollars = 1 U.S. dollar. This was changed to parity in 1946. In 1949, sterling was devalued and Canada followed, returning to a peg of 1.1 Canadian dollars = 1 U.S. dollar. However, Canada allowed its dollar to float in 1950, only returning to a fixed exchange rate in 1962, when the dollar was pegged at 1 Canadian dollar = 0.925 U.S. dollar. This peg lasted until 1970, since when it has floated.

Terminology

Canadian English, like American English, uses the slang term "buck" for a dollar. Because of the appearance of the common loon on the back of the dollar coin that replaced the dollar bill in 1987, the word "loonie" was adopted in Canadian parlance to distinguish the Canadian dollar from other currencies, as in "The loonie performed well today on currency markets". When the two-dollar coin was introduced in 1996, the derivative word "toonie" became the common word for it in Canadian English slang.

In French, the currency is also called le dollar; Canadian French slang terms include piastre or piasse (same as "buck," but the original word used in eighteenth-century French to translate "dollar") and huard (equivalent to "loonie", since huard is French for "loon," the bird appearing on the coin). The French pronunciation cent (pronounced cenne, not like the word for hundred) is generally used for the subdivision; sou is another, informal term.

Coins

In 1858, bronze 1 cent and .925 silver 5, 10 and 20 cents coins were issued by the Province of Canada. Except for 1 cent coins struck in 1859, no more coins were issued until 1870, when production of the 5 and 10 cents was resumed and silver 25 and 50 cents were introduced. Between 1908 and 1919, sovereigns (legal tender in Canada for 4.866 dollars) were struck in Ottawa with a "C" mintmark. Gold 5 and 10 dollars coins were issued between 1912 and 1914.

In 1920, the size of the 1 cent was reduced and the silver fineness was reduced to .800. In 1922, the silver 5 cent was replaced by a larger, nickel coin. In 1935, a silver 1 dollar coin was introduced. In 1942, as a war-time measure, nickel was replaced by tombac in the 5 cent coin, which was changed from round to dodecagonal. Chromium-plated steel was used for the 5 cents between 1944 and 1945 and between 1951 and 1954, before nickel was permanently readopted. The 5 cents returned to a round shape in 1963.
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In 1968, .500 silver 10 and 25 cents coins were issued, before silver was replaced by nickel. At the same time, the sizes of the 50 cents and 1 dollar coins were reduced. In 1982, the 1 cent coin was changed to dodecagonal and the 5 cents was switched to a cupro-nickel alloy. In 1987, a 1 dollar coin struck in aureate-plated nickel was introduced. A bimetallic 2 dollars coin followed in 1996. In 1997, copper-plated zinc replaced bronze in the 1 cent. This was followed, in 2000, by the introduction of plated-steel 1, 5, 10, 25 and 50 cents coins, with the 1 cent plated in copper and the others plated in cupro-nickel.

Coins are produced by the Royal Canadian Mint in Winnipeg, Manitoba, and currently issued in denominations of 1¢ (penny), 5¢ (nickel), 10¢ (dime), 25¢ (quarter), 50¢ (50 cent piece) (though the 50 cent piece is rarely used), $1 (loonie), and $2 (toonie). The standard set of designs has Canadian symbols, usually wildlife, on the reverse, and an effigy of Elizabeth II on the obverse. However, some pennies, nickels, and dimes remain in circulation that bear the effigy of George VI. Commemorative coins with differing reverses are also issued on an irregular basis. 50 cent coins are rarely found in circulation; they are often collected and not regularly used in day-to-day transactions. There have been repeated talks about removing the penny from circulation as it is estimated that it costs the Royal Canadian Mint up to four cents to produce and distribute a one-cent coin. The Canadian penny costs at least C$130 million annually to keep in circulation, estimates a financial institution that called for an end to the penny. A 2007 survey shows that only 37% of Canadians use pennies but the government continues to produce about 816 million pennies per year, equal to 25 pennies per Canadian.

Banknotes

The first paper money issued in Canada denominated in dollars were British Army Bills, issued between 1813 and 1815 in denominations between 1 and 400 dollars. These were emergency issues due to the War of 1812. The first banknotes were issued in 1817 by the Montreal Bank. Large numbers of chartered banks were founded in the 1830s, 1850s, 1860s and 1870s, although many issued paper money for only a short time. Others, including the Montreal Bank (later called the Bank of Montreal), issued notes for several decades. Until 1858, many notes were issued denominated in both shillings/pounds and dollars (5 shillings = 1 dollar). A large number of different denominations were issued, including 1, 2, 3, 4, 5, 10, 20, 25, 40, 50, 100, 500 and 1000 dollars. After 1858, only dollar denominations were used. See Canadian chartered bank notes for more information.

After its establishment in 1841, the Province of Canada began issuing paper money. Notes were produced for the government by the Bank of Montreal between 1842 and 1862, in denominations of 4, 5, 10, 20, 50 and 100 dollars. In 1866, the Province of Canada began issuing its own paper money, in denominations of 1, 2, 5, 10, 20, 50, 100 and 500 dollars. In 1870, following Confederation, the Dominion of Canada introduced 25 cents notes along with new issues of 1, 2, 500 and 1000 dollars. 50 and 100 dollars notes followed in 1872 but the bulk of later government note production was of 1 and 2 dollars note, with 4 dollars added in 1882. Denominations of 500, 1000, 5000 and 50,000 dollars were issued after 1896 for bank transactions only.

The Bank Act of 1871 limited the smallest denomination the chartered banks could issue to 4 dollars, increased to 5 dollars in 1880. To facilitate purchases below 5 dollars without using Dominion notes, Molsons Bank issued 6 and 7 dollars notes in 1871. The government issued 5 dollars notes from 1912. The last 25 cents notes, known as shinplasters due to their small size, were dated 1923.

In 1935, with only ten chartered banks still issuing notes, the Bank of Canada was founded and began issuing notes in denominations of 1, 2, 5, 10, 20, 50, 100, 500 and 1000 dollars. In 1944, the chartered banks were prohibited from issuing their own currency, with the Royal Bank of Canada and the Bank of Montreal among the last to issue notes.

Although the 1 dollar coin was introduced in 1935, it was not until the introduction of the "loonie" that the banknote was withdrawn from circulation. The 2 dollar note was also replaced by a coin in 1996. All banknotes are currently printed by the Canadian Bank Note Company and BA International Inc on behalf of the Bank of Canada.

In 2000, the Bank of Canada stopped issuing 1000 dollar notes and began to withdraw them from circulation, "as part of the fight against money laundering and organized crime."

Even when banknotes are withdrawn, they remain legal tenders and can be used or traded at banks. However, once received by the bank, they must be forwarded to the Central Bank for destruction.

Value

Unlike other currencies in the Bretton Woods system whose values were fixed, the Canadian dollar was allowed to float from 1950 to 1962. From 1952 to 1960, the Canadian dollar traded at a slight premium over the U.S. dollar, reaching a high of US$1.0614 on 20 August 1957.

The Canadian dollar fell considerably after 1960, and this contributed to Prime Minister John Diefenbaker's defeat in the 1963 election. The Canadian dollar returned to a fixed exchange rate regime in 1962 when its value was set at about US$0.925, where it remained until 1970. As an inflation-fighting measure, the Canadian dollar was allowed to float in 1970. Its value appreciated and it was worth more than the U.S. dollar for part of the 1970s. The high point was on 25 April 1974, when it reached US$1.0443.

The Canadian dollar fell in value against its American counterpart during the technological boom of the 1990s that was centred on the United States, and was traded for as little as 61.79 cents U.S. on 21 January 2002, which was an all-time low. Since then, its value against all major currencies has risen due, in part, to high prices for commodities (especially oil) that Canada exports. Its value against the U.S. dollar rose sharply in 2007 due to the continued strength of the Canadian economy, and to the U.S. currency's recent weakness on world markets. During trading on 20 September 2007 it met the U.S. greenback at parity for the first time since 25 November 1976.

Inflation in the value of the Canadian dollar was fairly low since the 1990s, but had been severe for some decades before that. In 2007 the Canadian dollar rebounded remarkably, soaring 23% in value. On 28 September 2007, the Canadian dollar closed above the U.S. dollar for the first time in 30 years, trading at US$1.0052. On November 7, 2007, it hit US$1.1024 during trading, a modern-day high before slipping back to $1.093 by 10:00 AM Eastern time, after China announced it will diversify its $1.43 trillion US of foreign exchange reserves away from the U.S. dollar. (it has been as high as US$2.78, which was reached on 11 July 1864 after the United States had temporarily abandoned the gold standard)

Since 84.2% of Canada's exports go to the United States, and 56.7% of imports into Canada come from the United States, Canadians are mainly interested in the value of their currency against the United States dollar (USD).

On world markets, the Canadian dollar historically tended to move in tandem with the U.S. dollar, but less dramatically. A consequence is that at times an apparently rising Canadian dollar is often falling against most of the world's currencies, and vice-versa. However, during the relatively sharp rise of the Canadian dollar since 2002, it has "parted ways" with the U.S. dollar and has gained value against it, while also rising against other major international currencies.

Although there was a great deal of domestic concern when the Canadian dollar was trading much lower than the U.S. dollar, there is also concern among exporters when the dollar appreciates quickly. The rapid rise in the value of the Canadian dollar increases the price of Canadian exports to the United States, which make up a large part of the economy. On the other hand, Canadian industry enjoys advantages from a rising dollar, primarily in that it is cheaper to purchase foreign material and businesses. The Bank of Canada has no specific target value for the Canadian dollar and has not intervened in foreign exchange markets since 1998. The Bank's current position is that market conditions should determine the worth of the Canadian dollar.

By November 30, however, the Canadian dollar was once again at par with the U.S. dollar, and on December 4, the Canadian dollar had retreated back to US$0.98 by the intervention of the Bank of Canada (through a cut in interest rates) due to their concern about Canadian exports to the U.S. Since then, the rate has been in a state of constant flux, starting 2008 at about US$1.01 before dropping below parity on 6 January.

Due its soaring value and new record highs against the American currency, the Canadian dollar was named the Canadian Newsmaker of the Year for 2007 by Time Magazine

Reserve currency

A number of central banks keep Canadian dollars as a reserve currency. The Canadian dollar is considered to be a benchmark currency.