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The Law

Filed Under Canadian Currency |

The Currency Act finally passed in 1853 and proclaimed into force on August 1, 1854. Under the act, pounds, shillings, and pence as well as dollars and cents could be used in provincial accounts. This Act also confirmed the ratings of various British and American coins that had been in place since the establishment of the Province of Canada in 1841. Pounds, shillings, and pence as well as dollars and cents were recognized as units of Canadian currency. The British gold sovereign was rated at £1. 4s. 4d. currency or $4.8666 = 1 CAD, while the $10 USD gold eagle (those minted after 1834 with a gold content of 232.2 grains) was valued at $10 Canadian Dollars. 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 provinces had compatible currencies, the currency trading exchange rates fixed at par with their U.S. counterpart, with $1 currency exchange to 23.22 grains of gold.

Decimalization received a further boost a few years later. Following a recommendation from the public accounts committee, the Canada revised the Currency Act in 1857 so that, as of January 1, 1858, all provincial accounts would be kept in dollars. Silver and bronze coins, denominated in cents and bearing the word “Canada,” were also issued for the first time later that same year. This marked the birth of a Canadian currency.

In Nova Scotia, decimalization occurred on January 1, 1860. Because that province 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 November 1, 1860, and Newfoundland followed in 1863. The colony of Vancouver Island also decimalized in 1863, followed by British Columbia in 1865. Manitoba decimalized in 1870, upon its entry into Confederation, and PEI followed in 1871.

In Canada, the Finance Act of 1914, which had been adopted as a war measure, was extended in 1919 and revised in 1923. Under the revised act, provision was made for an automatic return to the gold standard after three years unless the government took steps to the contrary. The Finance Act gave the government the power to act as a lender of last resort to the banking system, being one of the powers of a modern central bank. It also provided a means for the government (Treasury Board) to set the Advance Rate, the rate at which it would make loans to the chartered banks. Advances under the Finance Act got made at the request of banks. The government could not freely adjust bank reserves in order to expand or contract the monetary base. So the government did not actively manage interest rates, nor was there any board overseeing the conduct of monetary policy.

The revised act also gave the dominion government greater power to adjust the rate at which banks could obtain funding. The Treasury Board, which was responsible for administering the act, did not conduct an active monetary policy. The Advance Rate remained fixed at 5 per cent, the same level it had been throughout the war. There appeared to be little overt official effort to tighten monetary policy in hope of an eventual return to the gold standard, which would fix the dollar at its pre-war value in terms of gold and at par with its U.S. counterpart.

The Bank of Canada Act received royal assent on July 3, 1934, and the central bank officially started operations on March 11, 1935 and the Dominion Notes Act and the Finance Act were both repealed. Dominion notes were quickly replaced by new Bank of Canada notes. A revised Bank Act, governing the operations of the chartered banks, also took effect in 1934. Revisions to this act initiated a phase-out of private bank notes in favor of Bank of Canada notes.

Another important piece of legislation passed at this time was the Exchange Fund Act, which finally received royal assent on July 5, 1935. The primary purpose of the act was to provide a fund that could be used to “aid in the control and protection of the external value of the Canadian monetary unit.” The resources of the Exchange Fund came from the profits associated with the revaluation of the Bank of Canada’s gold holdings from the old statutory price of $20.67 Canadian per ounce to the prevailing world market price of $35 USD per ounce. The Exchange Fund Act was passed in 1935, the section of the act dealing with the use of the fund to help the value of the Canadian currency was not put into effect until September 15, 1939, following Canada’s entry into World War II.

Comments

One Response to “The Law”

  1. Ron Kronebusch on March 23rd, 2009 3:45 am

    To whom this may concern. This is in regards to the Canadian currency the penny in regards to the act that the government of Canadian makes the penny for us as consumers to spend that has Canada on the currency. All currency wither it is penny, nickels, dimes, or loonies dollars bills or any Canadian currency made should be allowed to be spent without any retail outlet or anybody in Canada able to refuse the currency. W either rolled up or not. Yes common courtesy as consumers can and should be respectable when all possible to roll coins. Also in today society unfortunately retails are now refusing after a certain time to not take 50 or 100 dollar bills due to possible counterfeit problems or afraid of having to much money in the till and they could get rob. as a honest Canadian being aware of this is OK but sometimes you get caught with no banks around and you are traveling late at night and having to buy gas or food at a gas station and you have no way else to pay for your supply’s and the gas stations or mac 7-11 to name a couple refuse the money due to certain store policy’s as a Canadian i feel that our rights are being violated to the freedom of spending legal currency in Canada due to policy’s from retail stores. The other problem due to economic down turn sometimes pennies or money in piggy banks is all you have and to take 5 dollars in pennys to buy milk for your baby and the store refuse it what would happen is that right for the store to say no as i Canadian and spending legal currency even if we had to count it in front of the cashier by law no store or person should be allowed to refuse any legal tender of the Canadian currency. the government prints it for us to spend and society is even refusing to take old 50 dollar bills that are in circulation from our savings at home or where ever you save your money. I received a old 50 dollar bill from a store and i was refused many times from store owners that they will not except old bills have to take it to a bank. If us as consumers using legal tender to be able to go to a store no matter how inbearazing it may be to bay for an example milk in 5 dollars in penny should be not refused because maybe that is all the consumer has to spend. Give it some thought and would love to hear from you on this on going problem with the legal tender of penny and other denominations of the Canadian legal tender money.
    Thank you for reading this. Look forward to your comments.
    From a concerned canadain.

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