When we spend or receive money, we rarely think of it as anything other than a medium of exchange. However, money is much more than that. It can reflect the history of a nation, its independence, and values. In Canada, the evolution of money spans from the trade networks Canada’s Indigenous peoples used through colonialism to independence. In terms of currency, this journey takes us from wampum and fur-based trade to the establishing of the Canadian dollar, and most recently, the rise of digital currencies.
In this article, we will find out how Canadians moved from bartering systems to money and modern banking. We will also look at the role the Bank of Canada plays in stabilising the country’s economy, how the country has embraced cashless payments, and what the future might hold for Canadian money.
Indigenous and European Trading in Canada
Long before Europeans arrived in Canada, Indigenous communities across the area now known as Canada had developed sophisticated trade networks. These networks were based on bartering systems, where tribes exchanged natural goods such as furs, fish, and copper with each other. One form of currency used by the Indigenous peoples of Canada was wampum. This was created by stringing together shell beads in necklaces or belts. Wampum was also used to record agreements and treaties, thus holding diplomatic and cultural significance.
When European traders and explorers began to arrive in the 16th century, they introduced new goods such as metal tools, textiles, and firearms to existing Indigenous trade networks. These were often traded for fur, especially beaver pelts were in high demand in Europe. For a long time, barter remained the dominant form of trade, despite the French and British traders introducing coins and paper money. However, with the arrival of more and more Europeans, their economic practices and currencies eventually replaced the traditional Indigenous trade systems and set the stage for transitioning into a formal monetary economy.
Colonial Currencies in Canada
The earliest colonial economies used a mix of bartering, locally made tokens, and a range of foreign coins in their exchanges. Since there was no established, regulated monetary system, European settlers, merchants, and military officials used whatever currency they happened to have to hand, including British, French, Spanish, Dutch, and Portuguese currencies.
When the Brits and French competed over the Canadian territory, their currencies reflected their influence, with the British pound becoming the official currency in British-controlled areas while the French livre was the official currency in New France. However, these currencies were not always readily available, leading settlers to use alternative means, even commodities such as fish and wheat as de facto currency. Following the Treaty of Paris in 1763, Britain took control of New France and the British pound took precedence and the French currency was gradually phased out.
One of the weirdest solutions to currency shortages was the use of playing card money in New France. When the colonial government struggled to pay its soldiers and officials because of delays in currency shipments from France, they cut playing cards into pieces and marked them with denominations. These were then signed by the governor to authorise their use as temporary money. The playing card money was meant to be redeemed for official currency when the ships arrived, but the system ended up persisting for decades. The playing card system eventually collapsed because of counterfeiting and inflation.
The Birth of a Unified Monetary System
Before Canada became an official country in 1867, it had a fragmented and inconsistent financial system, with each province having their own monetary practices. Many of these provinces used a mix of British pounds, Spanish silver coins, American dollars, and private banknotes. This created challenges for trade, economic growth, and taxation, and the need for a standardised currency became ever more pressing as discussions of Confederation advanced.
The call for a united monetary system gained further momentum in the 1850s when the Province of Canada (today Ontario and Quebec) introduced its own decimal-based system in 1858. They modelled it after the American monetary system and became known as the Canadian dollar. Its value was on par with the American dollar, and was intended to simplify trade with the United States, Canada’s largest commercial partner.
However, foreign currencies and private banknotes were still widely circulated until the Uniform Currency Act of 1871, which officially established the Canadian dollar as the standard currency across the country. This act phased out all other currencies, including the British pound and any remaining provincial currencies and ensured all Canadians used the same monetary system
Slowly, the monetary system became more regulated and the emerging financial institutions helped to stabilise the system further. The first banks, which included the Bank of Montreal founded in 1817, played a key role: they issued banknotes, provided credit, and regulated trade. However, barter and use of foreign currencies continued alongside the regulated systems, especially in remote areas with limited banking services and it was not until the mid-19th century that Canada established a consistent currency system.
The Introduction of the Canadian Dollar
Once the Canadian dollar was established as the official currency, the government took steps to use its banknotes and coins to support the creation of a distinctive national identity. The Dominion of Canada issued the first official Canadian banknotes in 1870, with denominations ranging from $1 to $1,000. The early Canadian banknotes featured portraits of Canadian politicians, British monarchs, and figures that symbolised commerce and agriculture in Canada.
The first Canadian coins were also issued in 1870 to replace the mix of foreign and locally minted coins in circulation. The coins’ denominations were one, five, ten, twenty-five, and fifty cents, and followed the decimal-based system introduced in 1858. Initially, the obverse of the coins features images of Queen Victoria, but slowly these images were replaced with uniquely Canadian symbols, including the maple leaf.
In the early years following the introduction of the Canadian dollar, chartered banks could issue their own banknotes. This practice continued until 1935 when the Bank of Canada opened. The early notes varied in security features and designs and often caused confusion among the public. After the Bank of Canada was created, it standardised Canadian banknotes, making them truly uniform and more reliable.
The Evolution of Canada’s Banknotes
Following the establishment of the Bank of Canada in 1935, the first official banknotes issued by the central bank were released into circulation. The banknotes came in English and French versions to reflect Canada’s bilingual heritage. The banknotes from 1935 featured past and present members of the British royal family.
Over the decades, Canadian banknotes have seen various design updates, for example, the incorporation of advanced security features and themes that are distinctly Canadian. For example, the series of banknotes released in 1954 featured more modern imagery with a portrait of young Queen Elizabeth II. In the 1970, a series of banknotes known as “Scenes of Canada” featured iconic Canadian landscapes such as prairies and northern wilderness, marking a shift towards celebrating Canadian identity.
Entering the 21st century, Canada became a leader in innovative currency. In 2011, the Bank of Canada released polymer banknotes that replaced the traditional cotton-paper notes with a more durable, plastic-based material which is more resistant. They were also more resistant to counterfeiting with security measures including transparent windows, holographic elements, and raised ink.
The Future of Canadian Money
In recent years, Canada, like many other countries around the world, has seen a dramatic shift away from traditional cash transactions towards a cashless society where digital payments have come to dominate daily financial transactions. Technological advances such as mobile banking, contactless cards, and digital wallets like Google Pay and Apple Pay have made it easier for Canadians to manage without physical currency. The shift has been accelerated by the speed and convenience offered by mobile devices, which allow users to shop, transfer money, and track spending with just a few clicks.
Canada is one of the leading countries in the world in adopting cashless transactions with more and more businesses and consumers choosing electronic payments rather than cash. This shift has been accelerated by the recent COVID-19 pandemic when people preferred digital payments because of health concerns surrounding handling physical cash.
As well as shifting to digital forms of payments, Canadians are also adopting online banking as a means to manage their finances from paying bills to making investments. The convenience of real-time money transfers has led to a surge in peer-to-peer payment systems that allow individuals to send money to each other directly via smartphones. As a result, many financial institutions have enhanced their mobile platforms and offer features such as real-time transaction tracking and personal finance management tools.
While cash is still used in Canada, especially in smaller businesses and rural areas, the economy is steadily moving toward a future where cash is no longer the primary medium. The increased adoption of cashless payments has raised questions about the role of the Bank of Canada and other traditional finance institutions in managing this transition. It has also posed questions about the challenges and opportunities related to the emerging digital technologies.
The Bank of Canada and Digital Currencies
Alongside the wider adoption of digital payments, more Canadians are also becoming familiar with cryptocurrencies such as Bitcoin and Ethereum. Cryptocurrencies are decentralised and operate independently from central banks. Since the introduction of crypto, the currencies have seen rapid growth in both value and popularity. However, the Bank of Canada has taken a cautious approach to cryptocurrencies and has been monitoring the rise of blockchain technology and cryptocurrencies.
The Bank of Canada has expressed concerns about the volatility of cryptocurrencies, their impact on the stability of the financial system, and potential use in illegal activities. At present, cryptocurrencies are not legal tender in Canada and financial regulators have taken steps to ensure these currencies comply with know-your-customer and anti-money laundering regulations. However, in 2021, Canada became one of the first countries to approve a Bitcoin Exchange-Traded Fund thus allowing investors to gain access to Bitcoin through regulated investment channels. This move shows that the Bank of Canada recognises the role of cryptocurrencies now and in the future. It also helps to ensure cryptocurrencies operate within the legal framework of Canada.
The Bank of Canada has also been investigating the option of introducing a Central Bank Digital Currency (CBDC), which would be a digital form of the Canadian dollar, regulated by the Bank of Canada and representing a sovereign digital currency. This move could offer a potential backup to physical cash and ensure Canadians have access to a trusted and secure form of money in the future as they have now. It would provide several advantages over unregulated cryptocurrencies, including security and stability in addition to facilitating more efficient cross-border transactions.
However, in September 2024 the Bank announced that it had put this project on hold for now. It said it was focusing on preparing for the current evolution of payments in Canada and globally. Furthermore, the Bank does not wish to rush the launch of its own digital currency and wants to ensure that when it might do so in the future, it will be fully compatible with Canada’s existing financial infrastructure and secure.
The Canadian Dollar in Relation to Other Major Currencies
Historically, the Canadian dollar has had a strong connection with both the British pound and the U.S. dollar, while its relationship with the euro is more tied to trade relations and global economic trends. The fluctuations of the Canadian dollar are usually driven by interest rate policies, commodity prices, and economic conditions in major markets. While the value of the Canadian dollar against other currencies is changeable, the CAD remains a key currency in international finance.
The U.S. Dollar
The USD is the most widely used currency in global finance and trade and as such holds significant influence over the value of the Canadian dollar. The United States is the largest trading partner for Canada and therefore the strength or weakness of the USD has a direct impact on Canada’s economy. Historically, the CAD has moved in tandem with the USD because of the countries’ close economic relationship.
While the exchange rate between the CAD and USD fluctuates, the Canadian dollar traditionally trades at a lower value than the American dollar. Often, this is referred to as the “loonie” trading below parity, which means that one Canadian dollar is worth less than one American dollar. However, there have been times when the currencies have been on par and even times when the Canadian dollar has surpassed its American counterpart, for example in 2011. However, the latter events are rare.
The value of CAD relative to the USD is determined by various factors such as trade policies, interest rates, and commodity prices. For example, oil prices often influence the value of the Canadian dollar, since Canada is a major exporter of oil. When oil prices rise, the CAD often appreciates against the USD, thus reflecting the demand for Canadian commodities. When oil prices are low, the CAD can depreciate, leading to a weaker Canadian dollar compared to the USD.
The British Pound
The British pound (GBP) and the Canadian dollar share a long history because of Canada’s colonial ties to the British Empire. While the GBP is not as closely linked to the CAD as the USD, there is still a strong historical connection between the British and Canadian currencies.
The exchange rate between the CAD and GBP has fluctuated greatly over the years. When the Canadian dollar was created, the Great British pound was significantly stronger than the CAD, which reflected the global economic power of Great Britain during the colonial period. Today, the CAD generally continues to trade weaker than the British pound.
While the CAD does not have the same close relationship with the GBP as it has with the USD, the exchange rate is still influenced by a range of global factors, including market conditions, commodity prices, and interest rates. Often the fluctuations in the exchange rate reflect the relative strength of the British economy compared to Canada. However, the recent political developments in the UK, such as changing governments and leaving the European Union, have made the relationship between the CAD and GBP more unpredictable.
The Euro
The euro (EUR), which is the official currency in many European Union countries, represents one of most influential and largest economies in the world. The Canadian dollar has a significant relationship with the euro in terms of trade and investments between EU countries and Canada.
The exchange rate between the CAD and the euro has fluctuated over the years, but the euro has often traded at a stronger value than the Canadian dollar. The European currency has benefitted from the stability and size of the Union’s economy. However, it has also faced challenges caused by economic instability in some of its member countries, for example, during the Eurozone debt crisis from the late 200s to the early 2010s.
The value of the Canadian dollar against the euro is influenced by the same factors as its relationship with the USD and GBP: commodity prices, interest rates, and market conditions. The monetary policy of the European Central Bank (ECB) also plays a key role in the exchange rate between the two currencies, particularly in terms of inflation control and interest rates. When the ECB lowers or increases interest rates, this can affect the value of the euro against the Canadian dollar.
Final Word on Canadian Money
The story of money in Canada is a story of constant transformation, from bartering to the modern-day dollar and digital currencies. Since its independence, Canada has adapted its monetary systems to meet the needs of its people. Each change in monetary systems has reflected the broader economic shifts of Canada, as the country has adapted, and continues to adapt, to challenges in order to ensure a stable financial environment for its citizens. At present, the challenges it has to navigate include increasingly cash-free transactions and the popularity of cryptocurrencies.
In the rapidly changing world of digital transactions and cryptocurrencies, Canada has the potential to remain at the forefront of global financial systems by embracing innovation while maintaining a commitment to the economic stability and security of the country. With its legacy and lessons learnt from adopting its financial practices in the past, Canada
