The Canadian dollar is the official currency of Canada, symbolized by $ and coded as CAD. It is divided into 100 cents and is managed by the Bank of Canada. The currency is colloquially known as the loonie after the common loon depicted on the one-dollar coin, and its two-dollar counterpart is called the toonie. As of 2024, the Canadian dollar is the fifth-most held reserve currency globally, valued for Canada's economic stability and strong sovereign position.
History and Development
The history of the Canadian dollar involves a shift from British sterling to a decimal system aligned with the United States. In the 1850s, the Province of Canada debated monetary systems, ultimately choosing a decimal system based on the US dollar unit in 1857. The first decimal coins were introduced in 1858. Other British North American colonies followed: New Brunswick and Nova Scotia adopted a decimal system in 1860, Prince Edward Island in 1871, and Newfoundland in 1865, though Newfoundland based its dollar on the Spanish dollar. British Columbia adopted a dollar at par with Canada's in 1865. After Confederation in 1867, the Uniform Currency Act of 1871 consolidated the currencies of the provinces into a singular Canadian dollar. The gold standard was introduced in 1853 and maintained until it was temporarily abandoned during World War I and definitively abolished on April 10, 1933. During World War II, the exchange rate was fixed at Can$1.10 = US$1.00, changed to parity in 1946, then back to Can$1.10 = US$1.00 in 1949 after a British devaluation. Canada allowed its dollar to float in 1950, but it was pegged again in 1962 at Can$1.00 = US$0.925, a rate sometimes called the Diefenbuck. This peg lasted until 1970, after which the currency has floated freely.
Colonial Currency Details
Before Confederation, various colonies used different monetary systems. The Province of Canada adopted a new system in 1841 based on the Halifax rating, creating a Canadian pound equal to four US dollars, making one pound sterling equal to one pound four shillings and four pence Canadian. In 1851, the province passed an act to introduce a sterling-based unit with decimal coinage, but after British concerns, the 1853 act introduced a gold standard based on both the British gold sovereign and the American gold eagle. The gold sovereign was legal tender at £1 = US$4.86+2⁄3. No coinage was provided under that act, and sterling coinage was made legal tender while other silver coins were demonetized. The British government hoped for a sterling unit called the royal, but in 1857 the decision was made to adopt a decimal coinage aligned with the US dollar. The new decimal coins arrived in 1858, aligning the colony's currency with the US dollar, though the British gold sovereign remained legal tender at the rate of £1 = Can$4.86+2⁄3 until the 1990s. In 1859, Canadian colonial postage stamps were issued with decimal denominations for the first time, and in 1861 stamps showed denominations in cents.
Newfoundland's decimal system, adopted in 1865, was based on the Spanish dollar, which was worth slightly more than the US dollar because the US dollar was created in 1792 based on the average weight of worn Spanish dollars. Consequently, the Newfoundland dollar was worth slightly more than the Canadian dollar until 1895. When British Columbia joined Canada in 1871, its dollar, adopted in 1865 at par with the Canadian dollar, was replaced by the national currency. The Uniform Currency Act of 1871 finalized the merger of all provincial currencies into the common Canadian dollar.
Coins in Circulation and Their History
Coins are produced by the Royal Canadian Mint in Winnipeg and Ottawa. The standard circulating denominations are the 5-cent nickel, 10-cent dime, 25-cent quarter, one-dollar loonie, and two-dollar toonie. A 50-cent coin is also struck but is not distributed to banks and sees very little circulation. The penny, or 1-cent coin, was last minted on May 4, 2012, and distribution ceased on February 4, 2013. Cash transactions are now rounded to the nearest five cents, though the penny remains legal tender. The standard coin designs feature Canadian wildlife on the reverse and an effigy of the monarch on the obverse. Coins bearing effigies of Elizabeth II and, rarely, George VI are still found in circulation. Commemorative coins, most often quarters, are issued irregularly. The composition of coins has changed over time due to material costs and wartime measures.
- 1858: First decimal coins issued by the Province of Canada in bronze 1¢ and 0.925 silver 5¢, 10¢ and 20¢ denominations.
- 1870: Production of 5¢ and 10¢ coins resumed. Silver 25¢ and 50¢ coins introduced.
- 1908 to 1919: Sovereigns (legal tender for $4.86+2⁄3) struck in Ottawa with a C mintmark.
- 1912 to 1914: First Canadian gold dollar coins ($5 and $10) produced, featuring King George V.
- 1920: Size of 1-cent reduced. Silver fineness of 5¢, 10¢, 25¢, 50¢ reduced to 0.800 silver/0.200 copper.
- 1922: Silver 5-cent replaced by larger nickel coin.
- 1935: 0.800 silver voyageur dollar introduced, produced until 1967 except war years.
- 1942 to 1945: Wartime 5-cent coin made of tombac, changed to dodecagonal shape.
- 1967: Last year of circulating silver 10¢ and 25¢ coins (0.800 and later 0.500 fine).
- 1968: All circulating coinage switched to nickel, ending silver coinage. 50¢ and $1 coins reduced in size and made of pure nickel.
- 1982: 1¢ coin changed to dodecagonal. 5¢ debased to cupro-nickel.
- 1987: Introduction of the $1 loonie coin in aureate-plated nickel.
- 1996: Introduction of the bimetallic $2 toonie coin.
- 1997: 1¢ coin returned to round shape, made of copper-plated zinc.
- 2000: Introduction of plated-steel 1¢, 5¢, 10¢, 25¢ and 50¢ coins.
- 2012: Multi-ply plated-steel technology introduced for $1 and $2 coins. Penny mintage ceased.
Banknotes and Polymer Series
Canadian dollar banknotes were first issued by chartered banks in the 1830s and by colonial governments. The first paper money denominated in dollars were British Army bills issued between 1813 and 1815. The federal government began issuing notes in 1870. The Bank of Canada was founded on July 3, 1934, and became the sole issuer of federal notes. It issued its first series in 1935 in denominations of $1, $2, $5, $10, $20, $25, $50, $100, $500 and $1000. The $25 note was a commemorative issue for the Silver Jubilee of King George V. Chartered banks were prohibited from issuing their own currency in 1944, with the Royal Bank of Canada and the Bank of Montreal among the last issuers. Major design series were introduced in 1937, 1954, 1970, 1986, and 2001. A significant change occurred starting in 2011 with the introduction of polymer banknotes. The $100 polymer note entered circulation on November 14, 2011, followed by the $50 on March 26, 2012, the $20 on November 7, 2012, and the $5 and $10 on November 12, 2013. All banknotes are printed by the Canadian Bank Note Company in Ottawa. Previously, BA International (formerly British American Bank Note Company) shared printing duties but ceased printing at the end of 2012. Notes from series prior to the polymer series are considered unfit for circulation due to lacking modern security features like a metallic stripe and are withdrawn by financial institutions for destruction, though individuals may keep them indefinitely.
Legal Tender Rules and Usage
Legal tender rules for Canadian currency are set by the Currency Act. As of January 1, 2021, the $1, $2, $25, $500 and $1000 banknotes issued by the Bank of Canada are no longer legal tender. All other Canadian dollar banknotes remain legal tender. However, retailers may refuse any banknote if mutually agreed upon, such as refusing $100 notes over counterfeit concerns. The Act also sets limits on the amount of coinage that must be accepted as legal tender. Commercial transactions may legally be settled in any manner agreed by the parties involved, and if no mutually acceptable form of payment is found, the parties should seek legal advice. Canadian currency is sometimes accepted in northern US cities and by Canadian snowbird businesses, just as US dollars are accepted by some Canadian businesses. In 2012, Iceland considered adopting the Canadian dollar as a stable alternative to its króna, favoured due to Canada's northern geography, similar resource-based economy, and relative economic stability, but ultimately decided against it.
| Denomination | Maximum Legal Tender Limit |
|---|---|
| $2 to $10 coin | $40 |
| $1 coin | $25 |
| 10¢ to less than $1 | $10 |
| 5¢ coin | $5 |
| 1¢ coin | 25¢ |
Value, Exchange Rates, and Economic Role
The value of the Canadian dollar is of particular interest to Canadians due to the country's close trade relationship with the United States. Approximately 76.7% of Canada's exports go to the US and 53.3% of imports come from there. Canadians are concerned when the dollar trades much lower than its US counterpart, but exporters also worry when it appreciates quickly, as a higher dollar increases the price of Canadian exports to the US. Advantages of a rising dollar include cheaper costs for Canadian industries to purchase foreign materials and equipment. The Bank of Canada has no target value for the Canadian dollar and has not intervened in foreign exchange markets since 1998. The Bank's official position is that market conditions should determine the worth of the Canadian dollar, although it occasionally makes minor attempts to influence its value. On world markets, the Canadian dollar historically tended to move in tandem with the US dollar. During the rise of the Canadian dollar between 2002 and 2013, it gained value against the US dollar as well as other international currencies. In recent years, dramatic fluctuations in the value of the Canadian dollar have tended to correlate with shifts in oil prices, reflecting the Canadian dollar's status as a petrocurrency owing to Canada's significant oil exports. The exchange rate fluctuates daily based on mid-market rates. For example, over recent periods, the CAD to USD rate showed an average of 0.7053 with 0.16% volatility over seven days, and an average of 0.7138 with 0.22% volatility over ninety days. The Canadian dollar traded at a record high of US$2.78 on July 11, 1864, during a time when the US dollar was inconvertible paper currency.
Terminology and Slang
Canadian English uses several slang terms for currency. The term buck for a dollar derives from a 17th-century Hudson's Bay Company coin valued at one beaver pelt. The one-dollar coin is called a loonie after the common loon on its reverse, introduced in 1987. The two-dollar coin, introduced in 1996, is called a toonie. In French, the currency is le dollar, with slang terms including piastre or piasse and huard for the loonie. The subdivision is called un cent, but sou is an informal term for 1¢. After the British conquest in 1760, sou became a nickname for the halfpenny. From 1841 to 1858, the exchange rate was fixed at $4 = £1, making 25¢ equal to 15 pence, or 30 halfpence (trente sous). After decimalization and the withdrawal of halfpenny coins, the nickname sou shifted to the 1¢ coin, but the idiom trente sous for a 25¢ coin endured.
Global Role as a Reserve Currency
The Canadian dollar is a significant global reserve currency. As of January 2024, it accounts for approximately two per cent of all global reserves, ranking as the fifth-most held reserve currency behind the US dollar, euro, yen, and sterling. Its popularity among central banks is attributed to Canada's relative economic soundness, the strong sovereign position of the Canadian government, and the stability of the country's legal and political systems. This reserve status underscores the international confidence in the Canadian economy and its monetary policy. The currency's role facilitates international trade and investment, reflecting Canada's integrated position in the global financial system.
Frequently asked questions
Why is the Canadian dollar coin called a loonie?
The one-dollar coin is called a loonie because it features the image of a common loon on its reverse side. The coin was introduced in 1987, replacing the one-dollar bill. The nickname loonie was adopted in Canadian English to distinguish the coin from the former paper note. The two-dollar coin, introduced in 1996, is consequently called a toonie.
Are Canadian pennies still legal tender?
Yes, the one-cent coin, or penny, remains legal tender in Canada. However, the last penny was minted on May 4, 2012, and distribution ceased on February 4, 2013. For cash transactions, prices are now rounded to the nearest five cents. The Currency Act sets a legal tender limit of 25 cents for payments made in pennies.
What happened to the $500 and $1000 Canadian bills?
The $500 and $1000 banknotes issued by the Bank of Canada are no longer legal tender as of January 1, 2021. This also applies to the $1, $2, and $25 notes from earlier series. All other Canadian banknotes remain legal tender. These high-denomination notes are removed from circulation due to their lack of modern security features and potential for misuse.
What is the Canadian dollar symbol and code?
The Canadian dollar symbol is $ and its international currency code is CAD. Common abbreviations used to distinguish it from other dollar currencies include Can$, CA$, and C$. The base unit is the dollar, which is subdivided into 100 cents, symbolized by ¢. As of January 2024, the Canadian dollar is the fifth most held reserve currency globally, accounting for approximately two percent of all global reserves. Its popularity among central banks is attributed to Canada's economic soundness, strong sovereign position, and stable legal and political systems.
Where are Canadian banknotes printed?
All Canadian banknotes are printed by the Ottawa based Canadian Bank Note Company under contract to the Bank of Canada. Previously, a second company, BA International, which was founded in 1866 as the British American Bank Note Company, shared printing duties. BA International announced the closure of its banknote printing business in 2011 and ceased printing at the end of 2012, making the Canadian Bank Note Company the sole printer. Banknotes from series prior to the polymer series are considered unfit for circulation due to a lack of modern security features and are returned to the Bank of Canada for destruction.
How does the Bank of Canada influence the dollar's value?
The Bank of Canada has no target value for the Canadian dollar and has not intervened in foreign exchange markets since 1998. The Bank's official position is that market conditions should determine the currency's worth. Its primary method of influence is through monetary policy, which affects domestic interest rates and inflation, thereby indirectly impacting the dollar's exchange rate. The value of the Canadian dollar is particularly sensitive to trade with the United States, as a large portion of Canada's exports go to and imports come from the US. In recent years, the dollar's value has also correlated with shifts in oil prices, reflecting its status as a petrocurrency.
Sources and further reading
- Canadian dollar (Wikipedia) en.wikipedia.org
- 1 CAD to USD, Canadian Dollars to US Dollars Exchange ... xe.com
- USD to CAD | Convert US Dollar to Canadian Dollar westernunion.com
- Canadian dollar, CAD Exchange Rates wise.com
This article explains how things work and is not financial, tax or legal advice. Rules, limits and rates change, so check the current figures with the Canada Revenue Agency, your province or your financial institution before you act.