Canadian Dollar-CAD

The Canadian dollar is the legal tender of Canada. It is denoted by symbol $ or C$ and the international code of the currency is CAD. As of 2011, the Canadian dollar was world’s seventh most traded currency. A Canadian dollar is divisible into 100 cents.

History of Canadian Dollar

From the Canadian Pound to Canadian Dollar

In 1841, the Province of Canada implemented a new monetary system based on the Halifax rating. According to this system, a new Canadian pound was equivalent to four US dollars (92.88 grains gold), making one pound sterling equivalent to 1 pound, 4 shillings, and 4 pence Canadian. Consequently, the new Canadian pound was worth 16 shillings and 5.3 pence.

The period of 1850s was a decade of dilemma for Canada as it could not decide whether it should adopt a sterling monetary system or a decimal monetary system based on the US dollar. The local populace, for reasons of practicality in relation to the ever growing trade with the neighboring United States, wanted to associate closely the Canadian currency with the American unit, however the colonial authorities in London still favored the idea of sterling remaining as the sole currency throughout the British Empire.

In 1851, the Legislative Council and the Legislative Assembly of Canada passed an act for the purposes of introducing a pound sterling unit together with a system of decimal fractional coinage. The rationale was that the decimal coins would correspond to exact amounts relative to the US dollar fractional coinage.

Finding the middle ground, in 1853 an act of the Legislative Council and Assembly of Canada introduced the gold standard into Canada which was based on both the British gold sovereign and the American gold eagle coins. This gold standard was implemented with the gold sovereign being legal tender at £1 = $US4.86 ²⁄₃. No coinage was introduced under the 1853 act. Sterling coinage was accepted as the legal tender even as all other silver coins were demonetized. The British government in theory permitted for a decimal coinage; however, they also hoped that a sterling unit would be selected under the name of ‘royal’. In 1857, though, the decision was made to launch a decimal coinage into Canada in conjunction with the US dollar unit. Therefore, when the new decimal coins were made public in 1858, Canada’s currency became associated with the US currency, even though the British gold sovereign continued to exist as a legal tender at the rate of £1 = 4.86 ²⁄₃ right up until the 1990s. Later in 1859, Canadian postage stamps were introduced with decimal denominations for the first time.

In 1861, New Brunswick and Nova Scotia also decided to adopt a decimal system based on the US dollar unit. In the subsequent year, Canadian postage stamps were circulating with the denominations shown in dollars and cents.

Newfoundland followed the decimal system in 1865, but unlike in the cases of Canada, New Brunswick, and Nova Scotia, it adopted a unit based on the Spanish dollar more willingly than the US dollar, and there was a small variation between these two units. The US dollar was formed in 1792 under a system of the average weight of a selection of worn Spanish dollars. As a result, the Spanish dollar was worth slightly more than the US dollar, and similarly, the Newfoundland dollar while it existed, was worth slightly more than the Canadian dollar.

In 1867, Canada, New Brunswick, and Nova Scotia formed a federation called the Dominion of Canada and the three currencies were united.

In 1871, Prince Edward Island decided to implement the decimal system within the US dollar unit and introduced coins for 1¢. However, the currency of Prince Edward Island was absorbed into the Canadian system soon afterwards, when Prince Edward Island merged with the Dominion of Canada.

Also in 1971, the federal Parliament passed the Uniform Currency Act; and, accordingly all the currencies of different provinces were replaced by a common Canadian dollar. The gold standard was for the time being abandoned during the First World War and completely abolished on April 10, 1933. At the start of the Second World War, the exchange rate relative to the US dollar was fixed at C$1.10 = US$1.00.

This exchange rate was changed to parity in 1946. In 1949, sterling was devalued and so was the Canadian dollar. Subsequently the Canadian dollar was pegged to USD (C$1.10 = US$1.00). Nevertheless, it changed the exchange rate mechanism in 1950 and decided to float its currency, then in 1962 it returned to fixed exchange rate regime. This time a Canadian dollar was pegged at US$0.925. This peg continued until 1970, after which the currency’s value has floated to date.

Terminology

Just like the American English, Canadian English also uses the slang term “buck” for a dollar. The Canadian expression for dollar originates from a coin which was struck by the Hudson’s Bay Company during the 17th century with a value equal to the pelt of a male beaver – a “buck”.

Since there is an image of a loon on the reverse of the dollar coin that replaced the dollar bill in 1987, the word “loonie” was used in Canadian parlance to distinguish the Canadian dollar coin from the dollar bill.

In 1996, when the two-dollar coin was introduced, the derivative word “toonie” (“two loonies”) was widely used in Canadian slang. The term “loonie” is commonly used for the Canadian dollar as a currency, as opposed to the American dollar.

In French, the currency is also known as le dollar; Canadian French slang terms include piaster or piasse (the original word used in 18th-century French to translate “dollar”) and huard (the same as “loonie”, since huard is French for “loon,” the bird appearing on the coin).

The French pronunciation of “cent” is usually used for the subdivision; sou is another, informal, term for 1¢. 25¢ coins in Quebec French are often termed trente sous (thirty cents) because of a series of changes in terminology, currencies, and exchange rates.

Following the British conquest of Canada in 1759, French coins slowly went out of circulation, and sou turned into  a nickname for the halfpenny, which was comparable in value to the French sou. Spanish dollars and US dollars were also under circulation, and from 1841 to 1858, the exchange rate was set at $4 = £1 (or 400¢ = 240d). This made 25¢ equivalent to 15d, or 30 halfpence (trente sous). Since the adoption of decimalization and the withdrawal of halfpence coins, the nickname sou began to be used for the 1¢ coin, but the idiom trente sous for 25¢ continued.

Coins

Coins are minted by the Royal Canadian Mint in Winnipeg, Manitoba, and at present issued in denominations of 5¢ (nickel), 10¢ (dime), 25¢ (quarter), 50¢ (50¢ piece) (but the 50¢ piece is hardly used in most provinces), $1 (loonie), and $2 (toonie). The last 1¢ (penny) to be minted in Canada was struck on Friday, May 4 2012.

The designs and symbols used on these coins center around wildlife, on the reverse, and an effigy of Elizabeth II on the obverse. However, some pennies, nickels, and dimes remain in circulation that depicts the image of George VI. Commemorative coins with different images are also issued on an infrequently.  50¢ coins are hardly seen in circulation; they are often collected and not frequently used in everyday transactions in majority of the provinces.

History

In 1858, the Province of Canada issued bronze 1¢ and 0.925 silver 5¢, 10¢ and 20¢ coins. With the exception of f 1¢ coins which were struck in 1859, no more coins were issued until 1870, when production of the 5¢ and 10¢ was recommenced and silver 25¢ and 50¢ were introduced. In the period between 1908 and 1919, sovereigns (legal tender in Canada for $4.86 ²⁄₃) were minted in Ottawa with a “C” mintmark. Gold $5 and $10 coins were also issued between 1912 and 1914.

In 1920, the size of the 1¢ was made smaller and the silver fineness of the 5¢, 10¢, 25¢ and 50¢ coins was lowered, with new composition of 0.800 silver and .200 copper. However, the composition was maintained for the 10¢, 25¢ and 50¢ piece until 1966. In 1922, due to the debasement of the 5¢ piece the silver 5¢ was completely replaced by a larger nickel coin. In 1942, as an contingency measure during the wartime, nickel was replaced by tombac in the 5¢ coin; its shape also changed from round to dodecagonal. 5¢ were made out of chromium-plated steel n 1944 and 1945 and between 1951 and 1954, after which nickel was once again used for making these denominations. Then in 1963, 5¢ returned to a round shape.

In 1967,10¢ and 25¢ coins having the composition of  0.800 silver/0.200 copper and,  0.500 silver/.500 copper respectively were issued. 1968 saw further alterations in metal compositions: the 0.500 fine silver dimes and quarters were entirely replaced by nickel ones mid-year. All 1968 50¢ and $1 coins were had their sizes shrunk and were made only in pure nickel. As a result, 1968 marked the last year in which any circulating silver coinage was issued in Canada.

In 1935, the 0.800 silver Voyageur dollar was launched.  Its Production continued until 1967 with the exception of the war years between 1939 and 1945.

In 1982, the 1¢ coin’s shape was altered to dodecagonal and the 5¢ metal composition was changed (to a cupro-nickel alloy). In 1987, a $1 coin minted in aureate-plated nickel was introduced. A bimetallic $2 coin was later issued in 1996. In 1997, copper-plated zinc was used, replacing bronze in the 1¢.  In 2000, this coin was further debased as even  cheaper plated-steel was introduced for producing 1¢, 5¢, 10¢, 25¢ and 50¢ coins, with the 1¢ plated in copper and the others plated in cupro-nickel.  In 2012, the multi-ply plated-steel technology was also used for denominations such as $1 and $2 coins as well.

Banknotes

Between 1813 and 1815, paper money was issued in Canada for the first time. The currency was denominated in dollars were British Army bills. Later in 1930s, Canadian dollar bank notes were issued by the chartered banks along with several pre-confederation colonial governments (most notably the Province of Canada in 1866. Then in 1870 when the confederation was formed, the Dominion of Canada started issuing the paper currency. During 1930s, some municipalities also issued notes, most notably depression scrip.

In 1935, with just 10 chartered banks still issuing notes, the Bank of Canada was established. The bank took over the federal issuance of notes from the Dominion of Canada. It started issuing notes in denominations of $1, $2, $5, $10, $20, $25, $50, $100, $500 and $1000. In 1944, the chartered banks were abandoned from issuing their own currency, while the Royal Bank of Canada and the Bank of Montreal were last to issue notes.

Since 1935, the designs over notes have significantly varied. New series of notes were issued in 1937, 1954, 1970, 1986, and 2001. In June 2011, newly designed notes printed on a polymer substrate, instead of cotton fibre, were announced;  subsequently in November 2011, the first of these polymer notes- $100 bill began to circulate in the financial system, this was followed by $50 bill began and additional denominations are expected to circulate  before 2013.

At present, all banknotes are printed by the Canadian Bank Note Company and BA International Inc, under contract to the Bank of Canada.

Legal tender

Canadian dollar banknotes issued by the Bank of Canada are legal tender in Canada. The commercial transactions, though may be legally settled in any manner (US dollar, euro etc) agreed by the parties involved.

Legal tender of Canadian coinage is governed by the Currency Act, which sets out limits of:

• $40 if the denomination is $2 or greater but should not be more than $10;
• $25 if the denomination is $1;
• $10 if the denomination is 10¢ or more but less than $1;
• $5 if the denomination is 5¢;
• 25¢ if the denomination is 1¢.

Retailers in Canada may deny accepting bank notes without breaking the law. According to legal guidelines, the manner of payment has to be mutually decided upon by the parties involved with the transactions. For instance, stores may decline $100 bank notes if they consider that would put them at risk of being counterfeit victims; nevertheless, official policy says that the retailers should assess the impact of that approach. In a case where no mutually acceptable form of payment can be agreed upon for the tender, the parties involved in the transaction should seek legal advice.

Just as US dollars are accepted by some Canadian businesses, Canadian dollars, particularly coins, are also accepted by some businesses in the northernmost cities of the United State in addition to many Canadian snowbird enclaves.

In 2012, the Mid-Atlantic state of Iceland started to think about adopting the Canadian dollar as a stable alternative to the Icelandic krona.

Value

While other currencies adopting Bretton Woods system had their currencies fixed, the Canadian dollar was allowed to float from 1950 to 1962. During the period of 9952 – 1960, the Canadian dollar traded at a slight premium over the US dollar,touching a high of US$1.0614 on August 20, 1957.

After 1960, the Canadian dollar significantly devalued, and this resulted in Prime Minister John Diefenbaker’s defeat in the 1963 election. After the sharply losing its value, the Canadian dollar returned to a fixed exchange rate regime in 1962 when its value was fixed at US$0.925. This exchange rate relative to USD continued until 1970.

Then in 1970, amid rising inflation, the Canadian dollar was allowed to float. Its value increased and it was worth more than the US dollar for most part of the 1970s. The Canadian dollar touched its peak on April 25, 1974, when it reached US$1.0443.

During the technology/ dotcom boom of mid and late 1990’s, The Canadian dollar fell in value against its American counterpart. Canadian dollar traded as low as $0.6179¢ to a US on 21 January 2002, which was also an all-time low. However, in the first decade of 2000, a period when demand for commodities shoot up, – the Canadian dollar backed by strong commodity exports gained against all major currencies of the world.

The CAD’s value relative to the US dollar climbed up sharply in 2007 because of the continued strength of the Canadian economy and the US currency’s weakness on world markets. During trading on September 20, 2007 Canadian dollar traded at parity with the US dollar since November 25, 1976.

While the Inflation in the value of the Canadian dollar was significantly low since the 1990s, decades before that saw some severe devaluation. In 2007 the Canadian dollar gained sharply, soaring 23% in value.

On September 28, 2007, the Canadian dollar traded above the US dollar for the first time in 30 years, at US$1.0052.

Then on November 7, 2007, it traded even higher at US$1.1024, a modern-day highafter China hinted that it would diversify its US$1.43 trillion foreign exchange reserve away from the US dollar. (The Canadian dollar has been as high as US$2.78, reached on 11 July 1864 following the United States decision to temporarily abandon the gold standard.) By November 30, though, the Canadian dollar  returned to par with the US dollar, and on December 4, the dollar again dropped to US$0.98, as Bank of Canada decided to cut the interest rates aimed at boosting dollar, weighing on its exchange rate.

In 2007, owing to its soaring value and hitting new record highs, the Canadian dollar was named the Canadian Newsmaker of the Year for 2007 by the Canadian edition of Time magazine.

As Canada exports  82.4% of the total export to the U.S and imports  56.7% of total imports,  Canadians are mainly interested in the value of their currency against the US dollar. Although there are perils for economy when the dollar trades much lower than its US counterpart, concerns are also widespread among exporters when the dollar appreciates quickly. The rapid appreciation in the value of the dollar raises the price of Canadian exports to the US. On the other hand, there are benefits from a rising dollar, as imports of materials and services from international markets especially, the U.S. become cheaper.

The fluctuation in the dollar vis-à-vis USD has led to a change in the pricing strategy in the book and book publishing industry, where buyers have been familiar to fixed prices on the backs of their books: one for the Canadian market while another one for the American market.

The Bank of Canada has no definite target value for the Canadian dollar. The central bank follows the policy of non intervention in the foreign exchange market since 1998; that is, it lets the forces of demand and supply decide the price of the dollar, although the BoC occasionally makes minor attempts to influence its value (by buying or selling dollars).

On global currency markets, the Canadian dollar traditionally tended to move in tandem with the US dollar.

While rising Canadian dollar (against the US dollar) was dropping against other major international currencies previously, since 2002 it has gained against basket of major international currencies, including the US dollar.

In recent years, amid increased fluctuations in the value of the Canadian dollar, the dollar has tended to track the prices of crude oil, underpinning the dollar’s status as a petrocurrency owing to Canada’s significant oil exports.

Reserve currency

A quite a few numbers of central banks and commercial banks hold Canadian dollars as a reserve currency. The Canadian dollar is considered to be a benchmark currency, since the Canadian economy is very stable with sound banking system.

In the economy of the Americas, the Canadian dollar plays a significant role akin to the Australian dollar (AUD) does in the Asia-Pacific region. The Canadian dollar being the regional reserve currency for banks has been an important part of the British, French and Dutch Caribbean state’s economies and finance systems since the 1950s. The Canadian dollar is held as reserves by many central banks in Central America and South America as well. The holding of the Canadian dollar in Latin America is done so because of each nation’s nationally important issues of remittances and international trade.

By examining how the Canadian dollar move against the US dollar, foreign exchange economists can indirectly study internal behaviors and patterns in the US economy that could not be discerned  by direct observation. The Canadian dollar has completely evolved into a global reserve currency only since the 1970s, when the BoC decided to float the dollar against all other world currencies. Some economists have credited the rise of importance of the Canadian dollar to the long term effects of the Nixon Shock that effectively put an end on the Bretton Woods system of global finance.

Most traded currencies by value

(Triennial Central Bank Survey, Basel, Switzerland: Bank for International Settlements)