Early Canadian banking system
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The early Canadian banking system (
British North America British North America comprised the colonial territories of the British Empire in North America from 1783 onwards. English colonisation of North America began in the 16th century in Newfoundland, then further south at Roanoke and Jamestow ...
and
New France New France (french: Nouvelle-France) was the area colonized by France in North America, beginning with the exploration of the Gulf of Saint Lawrence by Jacques Cartier in 1534 and ending with the cession of New France to Great Britain and Spa ...
until 1763; then renamed Upper and
Lower Canada The Province of Lower Canada (french: province du Bas-Canada) was a British colony on the lower Saint Lawrence River and the shores of the Gulf of Saint Lawrence (1791–1841). It covered the southern portion of the current Province of Quebec an ...
) was regulated entirely by the colonial government. Primitive forms of banking emerged early in the colonial period to solve the ''drain of wealth'' caused by the application of mercantilist theory. The drain of wealth translated into a complete lack of gold or silver bullion in the colonies, and thus, a complete lack of forms of economic exchange and payment. __TOC__


History

In New France, playing cards were issued as a method of payment in the 1680s by the
Intendant of New France The Intendant of New France was an administrative position in the French colony of New France. He controlled the colony's entire civil administration. He gave particular attention to settlement and economic development, and to the administration of ...
, in addition to the coins introduced in the 1660s. However, the massive drain of wealth from New France to Europe resulting from mercantilist trade policies made it impossible to back card money with gold bullion. Card money was thus essentially worthless. The card system collapsed in the 1690s, causing long-term suspicion of paper money on the part of the French settlers. Card money was replaced in the 18th century by a type of promissory note called ''bons'', derived from the French phrase, ''bon pour'', meaning ''good for the indicated amount''. These were issued to a limited extent by French merchants, who, lacking in any other form of currency, were forced to create their own, and who consequently became the first Canadian bankers. The issue of ''bons'' spread rapidly into British North America after 1763, when New France became a British possession. ''Bons'' persisted as the most common type of currency until 1812, along with the
English pound Sterling (abbreviation: stg; Other spelling styles, such as STG and Stg, are also seen. ISO code: GBP) is the currency of the United Kingdom and nine of its associated territories. The pound ( sign: £) is the main unit of sterling, and t ...
, American and Spanish coinage, and the ''Halifax standard''. The British administration under
Isaac Brock Major-General Sir Isaac Brock KB (6 October 1769 – 13 October 1812) was a British Army officer and colonial administrator from Guernsey. Brock was assigned to Lower Canada in 1802. Despite facing desertions and near-mutinies, he c ...
introduced what became known as ''army bills'' in 1812, in order to finance the
War of 1812 The War of 1812 (18 June 1812 – 17 February 1815) was fought by the United States, United States of America and its Indigenous peoples of the Americas, indigenous allies against the United Kingdom of Great Britain and Ireland, United Kingdom ...
. The total value of these bills was 250,000 pounds. These were promissory notes issued directly by the government. They came into wide usage during the war (1812–1815) to make up for the lack of bullion in Upper and Lower Canada. Unlike the card money used in the late 17th century, army bills could be and were in fact exchanged for gold coin once the war had ended. The army bills had thus proven themselves reliable, eradicating any real stigma against paper currency. In 1817, Montreal bankers were granted a charter by the British government to open the first formal bank in Canada. This was the Bank of Montreal. Under its charter, the Bank of Montreal was given a
monopoly A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a speci ...
on the right to issue promissory notes on the model of the army bills. Because of its monopoly rights, the Bank of Montreal essentially acted as a
central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central b ...
for both Upper and Lower Canada. In the years after 1817, Britain granted several new bank charters, including a charter to the now-defunct Bank of Kingston, which was to act as a competitor to the Bank of Montreal in Upper Canada. The new chartered banks were required under the terms of their charters to recognise one another's currency, a practice that allowed for the development of long-distance trade within British North America. However, banking remained in private hands, which meant that the issue of currency was at the discretion of private bankers. This frequently led to high
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
when the infant Canadian economy was in
recession In economics, a recession is a business cycle contraction when there is a general decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various ...
(source?). The ''Provincial Note Act'' was passed in 1866 to link note issue to the needs of the British administration. This marked the beginning of an enduring policy of government intervention in the Canadian economy. The
British North America Act of 1867 The ''Constitution Act, 1867'' (french: Loi constitutionnelle de 1867),''The Constitution Act, 1867'', 30 & 31 Victoria (U.K.), c. 3, http://canlii.ca/t/ldsw retrieved on 2019-03-14. originally enacted as the ''British North America Act, 186 ...
formally codified this policy, allowing for government control over coinage, currency, bills of exchange, promissory notes, banking, and incorporation of banks. This in turn allowed for the creation of a uniform currency across Canada. Official Canadian currency took the form of the Canadian dollar in 1871, overriding the currency of individual banks. After Confederation, Canada developed a banking system very different from that of the United States. Whereas the United States was served a large number of small banks serving just one town or, at most state, Canada's banking sector came to be dominated by a few banks with transcontinental branch networks. The Canadian system promoted stability and produced far fewer bank failures than either the contemporary United States or Australian banking systems. The downside of the Canadian banking system was that it was much less competitive that the United States and Australian systems, which meant that consumers paid more for banking services. The legal foundation of the Canadian banking system consisted of a series of laws passed in 1870 and 1871.Andrew Smith, "Continental Divide: The Canadian Banking and Currency Laws of 1871 in the Mirror of the United States". ''Enterprise and Society'' vol. 13 no. 3 (2012): 455-503 Banking remained relatively decentralized until 1935, when the Bank of Canada was founded in response to the economic instability experienced during the
Great Depression in Canada The worldwide Great Depression of the early 1930s was a social and economic shock that left millions of Canadians unemployed, hungry and often homeless. Few countries were affected as severely as Canada during what became known as the "Dirty Thirt ...
. First opened on December 5, 1980, Canada's Currency Museum is located on the ground floor of the Bank of Canada in
Ottawa, Ontario Ottawa (, ; Canadian French: ) is the capital city of Canada. It is located at the confluence of the Ottawa River and the Rideau River in the southern portion of the province of Ontario. Ottawa borders Gatineau, Quebec, and forms the core ...
.


References

* Breckenridge, Roeliff Morton. ''The History of Banking in Canada''. Washington: Government Printing Office, 1910. * Easterbrook, W. T. and Hugh G. J. Aitken. Money and Banking in Canadian Development. In ''Canadian Economic History'', pp. 445-475. Toronto: University of Toronto Press, 2002. * Hammond, Bray. Banking in Canada before Confederation, 1792-1867. In W. T. Easterbrook and M. H. Watkins (Eds.), ''Approaches to Canadian Economic History''. Montreal: McGill-Queen's University Press, 2003. * McIvor, R. Craig. ''Canadian Monetary, Banking and Fiscal Development''. Toronto: Macmillan Company of Canada Limited, 1958. *
Adam Shortt Adam Shortt (1859–1931) was an economic historian in Ontario. He was the first full-time employed academic in the field at a Canadian university ( Queen's University). Biography Shortt was born in Kilworth, Ontario, on 24 November 1859 to Ge ...
(1898
The early history of Canadian banking : Canadian currency and exchange under French rule
''Journal of the Canadian Bankers' Association'' via
Internet Archive The Internet Archive is an American digital library with the stated mission of "universal access to all knowledge". It provides free public access to collections of digitized materials, including websites, software applications/games, music, ...


See also

* Canadian dollar * Bank of Canada *
History of banking The history of banking began with the first prototype banks, that is, the merchants of the world, who gave grain loans to farmers and traders who carried goods between cities. This was around 2000 BCE in Assyria, India and Sumeria. Later, in an ...
{{Canadian currency and coinage Financial history of Canada Banking in Canada