History Of The Canadian Dollar
ca. 1600 - 1770
New France

In the early phase of the 17th century Canada witnessed the first ever normal arrangement of barter concerning the Europeans in a place called Tadoussac. The French merchants gathered at Tadoussac every year to barter with the Montagnais natives, who were also known as the Innu, for weapons, food, tobacco, silver items for animal skins, particularly of the beavers.

It may be noted here that the first European colonial inhabitation was established on the banks of the St. Lawrence River at Quebec by Samuel de Champlain in 1608. While the beaver hides became the unanimously acknowledged medium of barter in this newly set up European colony, at times wheat as well as moose skins too were used as legal tender or official mediums for exchange. The gradual arrival of more migrants from Europe not only led to the expansion of the colony, but also changed its economic and monetary requirements. They became more complicated as well as multifaceted and eventually coins were imported from France. These coins were extensively used for transactions amongst the French settlers.

Interestingly, in those days, the French coins were accorded more value in the French colonial settlements in Canada than they were in France itself. This was primarily owing to the fact that transporting gold and silver (metallic money) across the Atlantic was a very hazardous task. Initially, this percentage was fixed at one-eighth in 1664, but increased in due course of time. By 1680, the monnoye du pays were valued at one-third above the monnoye de France. This evaluation remained in effect till 1717 when the French authorities put an end to the dissimilarity and it became possible to reimburse all liabilities and contracts in Canada in terms of monnoye de France.

As the French authorities failed to maintain their coins in distribution in their colonies in North and South America, minting of silver and copper coins specially designed for these French settlements in the Americas began in 1670. However, the coins minted solely for distribution in the French settlements in the Americas could not be circulated in France as it would lead to impounding and penalty. It seems that these coins were basically meant for circulation in the French colonies in the West Indies, but some of them were also supposed to be in use in Canada too.

Some time around the middle of the 1660s, Spanish dollars known as 'piastres' were also found to be in circulation in the French colonies in the Americas because of unlawful trade with the settlers from England and Holland in the south. The use of these Spanish dollars was extensive among these English and Dutch settlers. However, as these Spanish coins were of a vague quality, it needed an 'arret' (a decree) that all coins from foreign lands be weighed to ascertain the purity of their metal content. In 1683, a regulation was passed requiring individual evaluation of all foreign coins. Spanish dollars that possessed the assured full weight were indented with a fleur-de-lys and were assessed to be equivalent to four livres. In contrast, lighter coins were also stamped with a fleur-de-lys and Roman numerical I, II, III and IIII on the basis of their respective mass and the coins that were the lightest were valued equivalent to just three livres. Perhaps these stamped Spanish dollars and even their parts manifest the initial typical Canadian coins. These coins also presaged the use of Spanish dollars in the region that later came to be known as British North America.

On the other hand, the colonial powers that governed New France, the French settlement in the Americas, were faced with a funds crunch in 1685. While their armed mission against the Iroquois people, an ally of the British, fared poorly, even the revenue collection from taxes was on the downhill as their main source of income through beaver hide trade was held back owing to the war as well as the illegitimate trading with the English. As a result of such funds crunch, the colonial authorities in New France usually deferred the payments of the merchants for the items acquired from them till such a time when they received fresh supply of metallic coins from France. However, the authorities were not able to delay the payments of the soldiers as they were their main source of influence in the region. With all their financial resources being exhausted and the unwillingness to borrow from the merchants at the high rate of interests offered by them, the authorities in New France were virtually squeezed to a piquant situation. With a view to overcome the crisis, Jacques de Meulles, the Intendant of Justice, Police and Finance in New France came out with an unusual idea - printing provisional paper money on the playing cards! Such card money was simply an economic measure and its function as a standard for monetary exchange was appreciated much later.

The card money was first issued on June 8, 1685 and was actually traded in some three months afterward. Significantly, both the common public and the merchants willingly accepted the use of the card money and they were issued freely according to their financial worth. Although the authorities in New France reissued the card money in February 1686, their rulers in France were not happy with the move. And this sparked a raging debate between the colonial authorities in New France and their rulers in France.

The issuance of card money by the colonial authorities in New France raised apprehensions among the rulers in France that the move might lead to the hazards of forged money as well as failure of the authorities to be in command of the budget. On the other hand, the colonial authorities effectively made a case asserting that the card money issued by them was similar to the coins circulated in France. They further argued that the King of France benefited from the issuance of such card money as it was no longer necessary for the rulers in France to transport coins to the French settlements in the Americas across the Atlantic undertaking any possible risks of their loss either to the sea or their enemies. Expressing the commercial attitudes prevailing in those days, authorities in New France put up a forceful argument saying that if they circulated the French coins in their settlements in the Americas an amount of it would be used to purchase commodities from New England, the British settlement in North America. According to the authorities in New France, such a move was likely to hurt the economic interests of France a great deal as the loss of coins by France would prove to be a gain for the country's enemies - especially Britain.

It is important to note here that though the authorities in New France argued their case forcefully, the apprehensions of the French rulers were not unfounded too. Incidentally, circulation of too much card money by the New France authorities in the Americas led to the first signs of inflation in the early part of the 1690s. Even as the card money kept on being traded in full steam over a period of time, the reserve of these card money amplified to such an extent that it exceeded the demand. Consequently, this led to a rise in the prices. Over a period of time, the French government eventually reduced their support to the French colonies in Canada as the former economic conditions deteriorated more and more during the early part of the 18th century because of the European wars. As a result, the French colonial authorities increasingly depended on their card money to reimburse their expenditures. As the inflation escalated, it was decided in 1717 that the card money would be traded in with a 50 per cent mark down and eventually taken out of circulation for good. Incidentally, Canada too implemented the monnoye de France during this period.

The withdrawal of card money from the market inadvertently led to a recession. This was primarily owing to the reason that the authorities in New France failed to offer a substitution for the card money following the monetary reforms undertaken by them. Concerned by the developments, the authorities initiated a move to rectify the situation by introducing copper coins in 1722. However, issuance of the copper coins proved to be a failure as the merchants refused to accept them. Earlier, some private parties also tried to provide a solution to the crisis by issuing paper notes on their respective repute and circulated them as money. Incidentally, this practice persisted sporadically till the 19th century and perhaps exists even in the contemporary period. Moreover, faced with a funds crunch once again, the French colonial government in Canada issued promissory notes (letters of credit) that were known as ordonnances and these were also circulated as currency.

Acting in response to public appeal, the French colonial government in Canada obtained the French King's consent to reinstate the card money in March 1729. It was decided to exchange the card money every year for commodities or bills of exchange withdrawn on finances suitable to support the French colonies that was to be paid in cash in France. The new card money totally substituted the ordonnances that were in circulation and were considered to be money to be used for making all payments. This time, the colonial government issued the card money in very restricted numbers.

It is important to mention here that at first the confidence of everyone concerned with the new card money was very high. The card money proved to be an effective reasonable option to the transportation of metal coinage from France to its colonies in Canada as its supply was now restricted and they could be translated into bills of exchange that were payable in France. As a result of the reintroduction of the card money, gold and silver kept on mounting up in New France. Despite this, the government in the French colony in Canada continued to be economically restrained and once again began to depend on the ordonnances and an additional variety of Treasury notes known as acquits to finance its functions.

Since the government had severely regulated the issuance of the card money this time and the increase in the issuance of Treasury notes to reimburse for all its operations, it dealt at a high percentage for a short while. However, when the economic conditions of France got worse and the trade-in of the Treasury notes were repetitively deferred, it destabilized the common people as well as the merchants' confidence on card money too.

To a great extent the dissimilarity between card money and the Treasury notes had waned by the initial phase of the 1750s. Later, by the year 1757, the government had stopped making imbursements in metal coinage, and henceforth, all payments were made in paper currency. While implementing the Gresham's Law that stated 'bad money hounds out or drives out good money', the French government in colonial Canada continued stocking gold and silver and they were hardly ever used in any business deal.

Gresham's Law:
In general terms, the Gresham's Law is defined as the rule stating 'bad money drives out good money' and is accredited to the English businessman and financer Sir Thomas Gresham (1519-1579). Following the accession of Queen Elizabeth I to the throne in 1558, Sir Thomas Gresham wrote a letter to her expressing his remarks regarding the pitiable status of the English coinage because of the degradation of the currency during the regimes of her predecessors. Although the principle is generally accredited to Sir Thomas Gresham, if fact it has been extensively noted and even mentioned in times since much before the English trader and financer made sent his remarks to Queen Elizabeth I.

The principle was born out of the common belief that people will generally use 'bad money' such as degraded coins or paper currency while making imbursements and stock the 'good money' like the pure and full-weight coins for future use. Nevertheless, people often tend to misinterpret the Gresham's Law. In fact, a more precise interpretation of the expression 'bad money drives out good money' is that full-weighted coins will be out of the market if they are traded at the same rate as the degraded coins or paper money. Such an occasion may appear when both modes are considered as legal tenders or official currencies and can be made use of to make payments equally. In addition, such a situation may also arise and 'good money' can be in circulation together with 'bad money' if the demand for currency with the intention of business deals is not met by the circulation of 'bad money'. At the same time, it has been seen throughout history that strong legal tenders, including the Roman denarius as well as the United States' dollar, have always held sway over the weak currencies in the international trade scenario owing to the extensive trust in the superiority as well as permanence of these strong currencies.

The French colonies in Canada witnessed extensive inflation owing to a quick augmentation in the sum of paper money in circulation during the later phase of the 1750s as a result of the increasing expenditures of the war with arch rival the British, waning revenues in the form of taxes combined with widespread corruption and dishonesty all over the region.

Eventually, the government of France postponed making reimbursement of all bills of exchange drawn on the Treasury to recompense the expenditures incurred in by its colonial authorities in Canada on October 15, 1759 and the process was only reinstated till three months after peace returned following the end of war with Britain. Meanwhile, paper money was debased and was exchanged at an acute mark down and turned out to be valueless soon after the conquest by the British in 1760. However, the French government did not terminate its business transactions with Canada. Another significant thing that happened during this period is that gold and silver that was stockpiled thus far was now getting back into circulation.

The Treaty of Paris signed between France and Great Britain in 1763 putting an end to the war between the two mighty European neighbors also included a clause stating that the French government would resolve all the commitments arising out of the paper money and Treasury notes that were issued by the colonial authorities in Canada. Expecting an encouraging agreement, many investors purchased paper cards and other varieties of currencies issued by the French colonial authorities in Canada. Even the British businessmen now started accepting the paper currencies, but they exchanged them at marked down rates ranging between 80% and 85%. In fact, expecting a higher transaction, even Governor Murray, who was in command of the British soldiers in Quebec, suggested that the French colonial authorities in Canada should persevere their paper currencies.

Following the far-reaching conciliations that continued for three years after that, the French government ultimately consented to adapt the card money as well as the Treasury notes into profit-making debentures (certificates of debt) on a variable scale determined by the category of paper notes and their date of issuance with reduced exchange rates varying between 50% and 80%. Usually, the discount was the least on the paper notes issued earliest. Nevertheless, these bonds too rapidly became marked down as the French government basically became bankrupt and they turned out to be valueless by 1771.

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