The pound currency (symbol £) was the unit of account in the French colony of Canada while under British military governorship, the Province of Quebec (1763–1791), Lower Canada and Upper Canada (1791–1841), and the Province of Canada (1841–1867), from the British conquest of New France until its replacement by the Canadian dollar in 1858. It was subdivided into 20 shillings (s), each of 12 pence (d). It was not a circulating currency, insofar as no coins or banknotes denominated in "Canadian pounds" (nor its subunits) were issued by a monetary authority.
Rather, local custom and law set exchange rates against foreign specie, and that foreign money was used as the circulation medium. These "ratings" varied over time but the most commonly used during this period was the "Halifax rating", established at Halifax, Nova Scotia in the 1750s, which set the value of one Spanish dollar equal to five shillings "Halifax currency". This represented a premium of sixpence more than British tests conducted ca. 1703 that had established an average Spanish dollar coin's weight in silver was equal to 4s 6d sterling. Foreign coins were typically overvalued in this manner to encourage the coinage to circulate and as such Canadian pounds currency were never at par with British pounds sterling.
History
Origins
In British North America the colonies did not have the authority to mint their own money, so foreign coins were used as circulating currency. Each colony managed their monetary supply by setting valuations or "ratings" for foreign coins in their pounds/shillings/pence accounting systems, fixing a value for the coins relative to a pound unit. In particular the use of Spanish dollars in day-to-day transactions was commonplace, but each colony set its own valuation, which varied significantly: in the mid-18th century one dollar was valued at 4s 6d in Britain, but at 5s in Halifax, 6s in New England, 7s 6d in Pennsylvania and 8s in New York.
In New France, the French forces' expenditures rose significantly over the duration of the Seven Years' War, and the continued war effort had to be financed by the colonial government's issuance of paper bills of exchange. The French government issued a decree suspending the payment of bills of exchange drawn on the colonial treasury on October 15, 1759, news of which did not reach New France until June 1760, and it caused a financial panic. After the French failed to retake Quebec City, the British military governor, General James Murray, forbade the circulation of this rudimentary paper money and introduced Halifax currency—one Spanish dollar was equal to five shillings currency—to Quebec City. After General Amherst's army captured Montreal and New France fell to British forces, Amherst similarly introduced York currency to Montreal, as did Burton at Trois-Rivières, at eight shillings per dollar. Murray was named the civil governor of the new Province of Quebec in 1763, and set a separate rating of six shillings per dollar effective January 1, 1765. This Quebec rating wasn't strictly enforced, and the use of the Halifax and York ratings persisted alongside the new rating until it was repealed in favour of the Halifax rating's official use across the province in 1777.
Murray's ordinance set ratings for not only the Spanish dollar but a wide variety of foreign coins, including Portuguese "Johannes" and moidores, French Louis d'or and écus, Spanish pistoles and pistareens, and British guineas, shillings and "coppers" (halfpennies). Halfpennies and old French colonial sols marqués were deliberately undervalued to prevent the importation of excessive amounts of copper coins, while French gold and silver coins were deliberately overvalued to discourage hoarding and keep them circulating. Gold coins were generally undervalued relative to silver coins, so silver coins came to dominate circulation. Because of the undervaluation of copper coins they disappeared from circulation and it became difficult for merchants to make change for small purchases. Instead, merchants resorted to issuing their own paper scrip known by the nickname bons, after the words bon pour (French for 'good for') which often appeared as the first words on them.
To rectify the lack of small coins and encourage the circulation of gold coinage the 1765 ordinance was superseded by a new one in 1777. The value of gold coins was reduced and a rating for Spanish doubloons was added, while value of the dollar was set at the Halifax rating of five shillings and other silver coins' ratings were commensurately reduced. The 1777 ordinance also rectified the overvaluation of many of the old coins rated in the 1765 ordinance; coins such as the moidore and écu hadn't been issued since the 1720s and 1730s, and by 1777 would have been quite worn. Clipping and sweating of Spanish and Portuguese coins has also been rampant in the Thirteen Colonies to the south, and trade with the colonies had been a major source of coins for the Canadians.
The American Revolutionary War interrupted the trade with the colonies, but with the influx of British Army soldiers the British government also shipped hundreds of thousands of pounds' worth of coins. Commercial activity in Canada increased many times over, but by war's end prices fell causing many bankruptcies. Payments to British Army soldiers and for imported materiel caused the gradual depletion of coins in the monetary supply. The colonists resorted to bartering, book credits, and the continued usage of bons.
After the Constitutional Act 1791 split the Province of Quebec into Lower Canada and Upper Canada, the Canadas were free to set their own ratings of coinage, but these were generally the same throughout both provinces after parallel legislation was passed in 1796, 1808 and 1809.
Paper money and commercial banks
After the American Revolutionary War trade between the new independent United States and the Canadas resumed. Canadians imported material goods from the States, while selling agricultural product and raw goods to Great Britain, creating a flow of British money from Great Britain to Canada to the United States. The money would flow back to Canada again through the trade of sterling bills of exchange in markets in New York and Boston. This system kept a steady supply of money in the Canadas until the War of 1812 interrupted trade with the US. With the US supply of coinage effectively cut off and the demand for specie significantly increased by military expenditures to pay soldiers to carry on the war, the Canadas were faced with a currency shortage. Lower Canada turned to selling bills of exchange in the Caribbean through intermediaries in Halifax, but this was not sufficient to increase the money supply.
Instead, the Legislative Assembly of Lower Canada introduced a form of paper money known as "army bills" in August 1812. The issuance of up to £250,000 currency was approved, in series of 'small' and 'large' bills. The small bills, denominated in $4 (equivalent to £1 currency), were not interest-bearing and were payable on cash in Quebec City. The large bills, upwards of $25, paid 4% interest and were redeemable in bills of exchange on London. To encourage the use of the bills the export of gold, silver and copper was made illegal and any contract in the province which did not recognize the army bills as equivalent to coin was rendered void. The amount of the 1812 issuance was soon found to be inadequate, and the maximum issuance was raised to £500,000 in 1813, with £50,000 worth issued in a new series of small bills in $1, $2, $8, $10, $12 and $16 denominations.
The army bills proved to be popular, and Upper Canada made them legal tender in 1813. The Legislative Assembly of Upper Canada authorized the issuance of up to £100,000 worth of its own army bills, but none were issued. In 1814 Lower Canada raised the limit on bills up to £1.5 million, £500,000 of which was authorized for another series of $1, $2, $3, $5 and $10 small bills that were not payable in cash, but could be redeemed for bills of exchange or for larger interest-bearing bills.
After the war the interest on the bills was paid by 1817, and export limits on gold, silver and copper were lifted. The success of the army bills demonstrated that paper money could be issued responsibly, and a group of Montreal merchants incorporated the Montreal Bank (later renamed the Bank of Montreal) in June 1817 and opened their first branch in November of that year. The next year the Bank of Canada (in Montreal) and Quebec Bank were founded, and soon after the Bank of Upper Canada was founded at York. By 1821 each of these banks received charters, and began issuing banknotes. The Bank of Montreal, Bank of Canada and Quebec Bank issued notes denominated in dollars, while the Bank of Upper Canada was the only one that began issuing notes denominated in shillings and pounds.
British monetary policy
Older coins such as the pistareen and pre-revolutionary French half-écus were the prevailing smaller coinage in Lower Canada even well into the 19th century. These coins had been debased by age-related wear, and to add to monetary supply in the province Lower Canada made the (post-revolutionary) 40-franc, 20-franc and 5-franc coins legal tender in 1819. Upper Canada did not.
In 1825, an Imperial Order-in-Council was made for the purposes of causing sterling coinage to circulate in the British colonies. The only acceptable method of payment to British soldiers and for customs charges was in sterling specie, or Spanish dollars at 4s 4d. The intention of the order-in-council was to make the sterling coins legal tender at the exchange rate of 4s 4d per Spanish dollar. This rate was in fact unrealistic and it had the adverse effect of actually driving out what little sterling-specie coinage was already circulating. Upper Canada attempted to rectify this by increased the rating of British crowns to 5s 9d currency and shillings to 1s 2d currency in 1826, and more comprehensively revised its ratings of currencies in 1836. French and Portuguese coins were demonetized, as were Spanish doubloons and pistoles, while the value of the Spanish dollar was set at 4s 6d and gold British sovereigns and U.S. eagles were made legal tender (at 1/4/4 and 2/10/0, respectively).
By contrast, Lower Canada did nothing to encourage the use of sterling coinage. Remedial legislation was introduced in 1838 but it was not applied to the British North American colonies due to recent uprisings in Upper and Lower Canada.
Reunification and decimalization
In 1841, the Canadas were amalgamated into the united Province of Canada, and the new government adopted a new consolidated rating system. The new ratings took effect on 27 April 1842, and demonetized the old French coins once and for all. Gold coins from Portugal, Brazil, France, Spain, Mexico and Colombia were made legal tender, but only by weight. The only gold coins specifically given a rating were British sovereigns (1/4/4) and American eagles (2/13/4 for coins minted prior to July 1834; 2/10/0 for coins minted thereafter). The French 5-franc coin, British crowns, half-crowns, shillings and sixpences, and Spanish, U.S., Mexican, Chilean, Peruvian and other Central American and South American silver dollars and fractional currency thereof were also given ratings. The ratings of silver coins were increased, with dollars set to 5s 1d currency, crowns at 6s 1d, and shillings at 1s 2.5d.
This created an inequity in the valuations of eagles compared to dollars, and between crowns, shillings and sixpences. With a crown valued as 6s 1d currency, a shilling should have consequently been valued at 1s 2.6d. The 1s 2.5d rating of a shilling was close, but for practicality's sake many merchants took them in trade at 1s 3d. With dollars rated at 5s 1d that meant that $10 was equal to 50s 10d (or 2/10/10) currency, but eagle coins—which were worth US$10—were valued at 50 shillings currency (2/10/0). This premium on dollars had the effect of causing Canadians to export eagle coins out of the province and import silver American dollars in exchange.
The impracticality using the new ratings in a pounds/shilling/pence system, where transactions would commonly involve fractions of a penny, made the idea of a decimalized currency similar to the American dollar popular. Banknotes from chartered banks were already commonly denominated in dollars, and merchants found the system much more easy. The committee that had drafted the new currency law had called 23 witnesses from the banks and industry, and when asked which system they would prefer 11 preferred sterling, 10 preferred a decimalized dollar, and two preferred retaining the Halifax rating.