Every British settlement in North America controlled the use of money within the respective areas under their command till mid-19th century. It is interesting to note that while all the British colonies in North America made use of the economic structure prevalent in Great Britain, including the pounds, shillings and pence, for accountancy purpose, each of these settlements chose for itself a different value or 'evaluation' of an assortment of coinage that were used in business deals or to clear up liabilities. Intriguingly, these currencies not only included coins from England and France, but also money or coins from Spain, Portugal and those from the Spanish settlements in Latin America, especially Mexico, Colombia and Peru. When these coins had been evaluated vis-à-vis the British monetary system, they were regarded as legal tenders.
It is important to note here that the evaluation of the foreign coins were primarily determined by the quantity of gold or silver content in those coins and it greatly differed from one British colony to another. However, in any case, the ratings of the foreign coins in the colonies were at all times higher than what was usually applicable in Great Britain. For instance, during the middle of the 18th century, a Spanish silver dollar that was considered to be the standard of exchange and the foundation for all monetary contracts was valued at four shillings and six pence in London, six shillings in New England, five shillings in Halifax, eight shillings in New York, seven shillings and six pence in Pennsylvania. In effect, the higher evaluation of these coins in the colonies was a sign of the endeavor to draw and keep hold of the specie (gold and silver coins) in the settlements to diminish any probable deficiency of precious metal coins that were in use in the British colonies in North America.
Occasionally, the colonial authorities intentionally raised or decreased the values of specific coins in relation to others with a view to promote or put off their usage by the common public as well as the merchants. As a result of this, circulation of some coins enhanced or declined from time to time. At times, the evaluation of the foreign coins were also reworked in reaction to different aspects, including the fall in the value of silver in comparison to gold all through the 18th and the 19th centuries as well as the regular abrasion of the coins that resulted to a decrease in their weight and hence lessened their inherent worth.
The British colonies in North America often faced coinage crunch, but the reason behind such scarcity of coins is yet to be ascertained. According to a section of experts, the occasional shortage of coins was a fall-out of the hazards of transporting them across the Atlantic and also the constant trade disparities between the colonies and Great Britain. In contrast, another group of experts are of the view that the scarcity of coins was more deceptive than genuine, as colonies did not obtain metal coins (specie) only through trade and no one took the paper money in circulation into consideration while mentioning about the scarcity of currency. In addition, the currency policies adopted by the different British colonies always promoted the use of coins that were of inferior quality. In fact, it has been noticed that the coins that were over valued by the authorities automatically put the undervalued coins out of circulation. As a result, people stockpiled the undervalued coins, while the inferior quality coins remained in circulation. Owing to this trend, gold and silver coins were only obtainable at exorbitant rates making it seem that there was a scarcity of coins.
Hence, it is not amazing that assortments of evaluation of coins in the British settlements in North America led to much financial uncertainty and made trading quite difficult. Consequently, the authorities of the different British colonies in North America endeavored to regulate as well as homogenize the evaluation of foreign coins with a view to smoothen the progress of trade among the different settlements as well as with Great Britain. The issue even concerned the British government so much that Queen Anne released a royal decree by early June 1704 to rectify the situation. The royal decree noted with concern the problems that had occurred owing to the dissimilar prices at which identical foreign silver coins or species were used in the different colonies and plantations under the Queen's rule in North America. The royal decree also prevented all the British colonies in North America from evaluating the Spanish dollar, which was a popular currency all over the continent, above six shillings. As many settlements paid no attention to the royal decree, later the British government changed the decree into a law in 1707 with provisions for harsh punishments or fines for anyone who did not obey the legislation. The legislation notwithstanding, many authorities in British settlements in North America as well as the Caribbean Islands persistently disregarded or dodged the law and there was no change whatsoever in the manner in which trade was being conducted.
It is pertinent to mention here that the Halifax rating, which derived its name from the city of Halifax where it was first implemented, turned out to be exceptionally imperative in the British settlements in North America. The Halifax rating was legalized in 1758 when the first Nova Scotia House of Assembly passed an Act on the subject. According to the Halifax rating, pounds, shillings and pence were used as units for bookkeeping and evaluated on the Spanish silver dollar or the dollar of the Spanish colony in North America having a weight of 420 grains and containing 385 grains of unadulterated silver at five shillings of the currency circulating in the North American British colonies. The new Act asserted that this appraisal of the Spanish dollar would be used while resolving all liabilities/ dues. Following the legislation, the Spanish dollar actually assumed the value of a legal tender in Nova Scotia.
Notwithstanding the fact that the British royal authorities disapproved the legislation passed by the first Nova Scotia House of Assembly relating to the Halifax rating in 1758 and actually abolished the law in 1762, this assessment continued to be in general use in Nova Scotia. Later, the British colonial authorities in Quebec also approved the Halifax rating following the end of the Seven Years' War with arch rival France. In fact, even the British colonial authorities in New Brunswick and Prince Edward Island too accepted the Halifax rating afterward.
On the other hand, British colonial authorities in Upper Canada as well as the traders in Montreal used a different evaluation system called the York rating for some period of time after the American War of Independence. This evaluation system derived its name from New York where it had initially been initially set up and was later introduced in Upper Canada by the Loyalist colonists. According to the York rating, eight shillings were equivalent to one Spanish dollar.
Interestingly enough, while the British imperial authorities had abolished the Nova Scotian Act legalizing the Halifax rating, Upper and Lower Canada passed similar legislations adopting the evaluation system again in 1796. According to the new legislation, one Spanish dollar was evaluated at five shillings in the two British colonies in Canada, while the evaluation of the other coins remained at variance in both the colonies causing much inconvenience in conducting trade between Upper and Lower Canada. It may be mentioned that despite the legislation adopting the Halifax rating, the York rating continued to be in existence in Upper Canada. In such a situation, the legislature in Upper Canada had to reiterate in 1821 that the colony had officially accepted the Halifax rating and imposed restrictions and penalties on anyone using the previous York rating. However, the reaffirmation notwithstanding, reports regarding the use of the York rating continued to pour in from the rural areas till Upper and Lower Canada were unified in 1841.
The absence of a regular currency combined with an assortment of evaluations of the different types of foreign coins that were in extensive circulation in the British colonies in Canada certainly hampered commerce and proved to be the main cause of financial incompetence on the part of the colonial authorities. However, the predominance of this practice also hints at the presence of noteworthy contravening activities, including the weight of custom and the unstable commerce links among the different British colonies in Canada and Great Britain. Moreover, it is believed that the execution of a universal evaluation system was prone to lead to competition among the different British colonies in North America by creating victors and vanquishers from among them. At the same time, it would also possibly give rise to deflation or devaluation of currency in the settlements that needed to cut on their ratings.
It may be mentioned here that as in the case of the French colony in North America - New France, the British settlements too had their share of experimentation with paper money and experienced varied results. Authorities in the British colonies circulated 'bills of credit' that were normally, but not always, made use of to fund wars. These bills were valued according to amounts that suited the issuers and were extensively circulated as currency. Among all the British settlements in North America, the first such 'bills of credit' were circulated by the authorities of the Massachusetts Bay Colony in 1690. Owing to intimate financial and political ties among Massachusetts, the British garrison and the people of Annapolis Valley, earlier known as Port Royal, the paper money or 'Boston bills' circulated by Massachusetts were in extensive use in Nova Scotia throughout the first half of the 18th century.
As these bills of credit (short-term public loans to the government) were not supported by specie or gold and silver coins, they soon became objects of disregard. Other reasons for their disrepute also include issuance of these bills in surplus as well as the steep price rises or inflation in the British colonies in the United States before the American Revolution. However, people's faith on paper money was reinstated in the British colonies in Upper and Lower Canada following the successful issuance of the army bills that were circulated to fund the War of 1812. Initially, the government of Lower Canada issued army bills to the tune of £250,000. The total worth of these army bills, assigned in dollars, was later increased to outstanding amounts equivalent to £1.5 million. These army bills were regarded as currency in the British colonies in Upper as well as Lower Canada and bills valued at $25 or above also earned a fee for or interest on the use of the money by the authorities. When the war ended in 1816, the government bought back all the bills and this enhanced the credibility of paper currency to a great extent.
The experience of other British colonies with paper money was more or less the same. In fact, the British settlement at Prince Edward Island, known as the Island of St. John in those days, experimented with the use of paper currency way back in 1790 when the authorities of this colony released Treasury notes worth £500 with a view to overcome the crisis created by scarcity of coins. These paper notes were considered as currency and were issued in varying denominations with the highest one having a valuation of $2. The colonial authorities in Prince Edward Island issued more such Treasury notes during the first half of the 19th century. The British colonial authorities in New Brunswick also issued such Treasury notes at different points in time. These notes were in amounts of dollars when initially issued in 1805 and 1807 and after the War of 1812 they were issued in denominations of pounds. The colonial government of New Brunswick sustained the issuance of such Treasury notes till 1820 and abolished the practice after this.
In fact, the British colony in Nova Scotia too circulated Treasury notes with a view to fund the expeditions of its armed forces during the War of 1812. It is interesting to note that though the War of 1812 did not have much effect on Nova Scotia; authorities of this British colony in North America cultivated a liking for paper currency as an easy mode for funding public utility works and carried on releasing new sequences of Treasury notes even after the War of 1812 ended. The maiden edition of the Treasury notes promised interest payment and was exchangeable at par with gold and silver coins. However, over a period of time, the financial support of these Treasury notes worsened and by 1826, they could no more be exchanged for gold and silver coins. In fact, as time passed, the amount of Treasury notes circulation in Nova Scotia also enhanced spectacularly.
People as well as merchants of the British colony in Nova Scotia initially accepted the Treasury notes openly and used them extensively for some time. However, as the notes began to be over issued and they lost their power to be exchanged for currency, the Treasury notes gradually started losing their worth among the Nova Scotians. In such a situation, the colonial authorities made an attempt to launch a second currency in Nova Scotia in 1832 with a view to reinforce the trust of the people on the colony's legal tenders. The colonial authorities also lessened the stockpile of the unresolved or due Treasury notes and in 1834, made it mandatory to buy back all private notes circulated by different banks, organizations and individuals in specie. Such tight control on the monetary system aggravated a severe economic slump in Nova Scotia in 1834. The colonial authorities of British Columbia too issued Treasury notes a few years later in 1861. Initially, these Treasury notes were apparently denominated in pounds and afterwards they were assigned in dollars. As the province experienced a coinage scarcity during the period, these Treasury notes were in free circulation and the money collected from the public through these notes was utilized in undertaking public utility projects.
Experimentations by both the French and the British colonial authorities in North America with paper money witnessed varied results - sometimes they were successful, and failures on other occasions. Interestingly, there are many things common between the two sides vis-à-vis paper currency. First, the French and British authorities normally issued paper currencies with a view to meet their war expenditures. Second, the French as well as the British colonial authorities in North America asserted that they felt the need for the paper money as there was a shortage of coins in their respective jurisdictions. Third, initially the paper money introduced by both authorities was well received by their respective peoples and aided in augmenting the process of trade. Fourth and most importantly, the failure of both the colonial authorities to regulate the circulation of paper money, made them depend too much on the issuance of paper currencies to finance their respective activities and this often led to over issuance of the paper currency and their subsequent debasement. On the other hand, quick rise in the supply of paper currencies in comparison to the demand resulted to steep inflation. All these prompted the people in the French as well as the British colonies in North America to refuse to accept paper money at a value equivalent to the specie (gold and silver coins) and eventually this necessitated urgent financial reforms in the colonial set-ups of the two rival European nations.
Soon after its inception in 1817, the Montreal Bank, which was later renamed the Bank of Montreal, was the Canadian bank to issue bank notes in the country. These initial bank notes were denominated in dollars. Inspired by the accomplishment of the Bank of Montreal several new banks were set up in Upper and Lower Canada and also in the provinces along the Atlantic in a little while and each of them issued their respective bank notes. The new banks set up in Canada included the Bank of Canada in Montreal and the Bank of Quebec in Quebec City (both established in 1818), the Bank of Upper Canada in Kingston (established in 1819), the Bank of Brunswick in St. John (established in 1820), the Chartered Bank of Upper Canada in York, later renamed as Toronto (established in 1822), the Halifax Banking Company (established in 1825), the Bank of Nova Scotia in Halifax (established in 1832) and the Bank of Prince Edward Island (established in 1855).
These bank notes manifested the most important legal responsibility of the issuing banks and could be converted into cash (in specie) whenever the holder demanded. On the one hand, the banks guaranteed the convertibility of these bank notes, on the other hand, limited their entire responsibilities to a specified multiple of the notes' worth in their agreements/ bonds. These banks were very cautious while issuing the notes and their number was usually restricted by the public demand. All surplus and redundant bank notes were given back to the issuing banks and changed into cash (specie).
Gradually, these bank notes became well accepted by the public and turned out to be the main mode of making payments throughout British North America. The universal recognition and acceptance of the bank notes in business deals greatly aided in easing the difficulties normally related with assortments of foreign coins in distribution each of which had a special evaluation.
With more and more new banks being set up in the British colonies in Upper and Lower Canada between the 1830s and the 1840s, the bank notes issued by them were normally assigned in dollars as well as in pounds. These bank notes were in unrestricted circulation in both regions of Canada as well as in the United States. However, some of these bank notes were regularly used at a marked down rate depending largely on the distance of the place where they were in circulation, the repute of the issuing bank and the money evaluation used. Similarly, notes issued by the banks in the United States and denominated in dollar were also in extensive circulation in the British colony in Upper Canada through the early part of the 1880s.
On the other hand, the bank notes that were in circulation in the British colonies in Nova Scotia, New Brunswick, Newfoundland and Prince Edward Island were normally assigned in pounds, shillings and pence. This particular issue revealed two important things. First, these colonies enjoyed very intimate political and financial association and had very strong ties with Great Britain. Second, the business links between these British colonies in North America and the United States were feeble as well as unstable.
Till the mid-19th century, pounds, shillings and pence were the mode of bookkeeping in all the British colonies in North America. Nevertheless, the occasional shortage of British coins as well as the dominance and the popularity of the Spanish silver dollars in the British colonies in North America made it increasingly difficult to sustain a monetary system that was founded on sterling. In addition, the inception of the U.S. dollar, designed on the Spanish dollar, in the United States in 1792 along with the increasing commerce and economic associations between Upper and Lower Canada as well as the United States throughout the first part of the 19th century also necessitated the use of dollars in the British colonies in North America. The need was aggravated as the British colonies in Vancouver Island and British Columbia on the western coast of the continent also faced problems in conducting trade with San Francisco throughout the later part of the 1850s and early 1860s as they were following a financial system based on sterling.
Interestingly, the notes issued by the Canadian banks were assigned in dollars and turned out to be extensively accepted and circulated without any restraint in the United States too. It is believed that if Canada had espoused the sterling benchmark, its coins would not have been circulated so freely and widely. Such a situation would have eventually proved to be unfavorable for the Canadian banks.
The reputation of the dollar and its extensive use coupled with the probable price of changing to a sterling benchmark actually frustrated the endeavors of the imperial authorities in the British colonies in North America to set up a universal economic system all over the British Empire founded on pounds, shillings and pence. In fact, the British rulers were of the view that establishing a universal currency throughout their empire would help to reinforce the financial and political relations among the different British colonies spread across the globe as well as with Great Britain. However, this plan failed to materialize owing to a number of reasons.