Have you ever thought about the money that might be in your pocket or wallet? Whose image is on the Canadian bills and coins?

In 2018, the Canadian ten-dollar bill, featuring Nova Scotia businesswoman and civil rights pioneer Viola Desmond, won the international Bank Note Award of the Year.

View this Heritage Minute to learn about Viola Desmond.

Money

Money has changed over time. As you examine the evidence that follows, what questions do you have? How does this story about Canadian money represent stability or variability over time?

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Their money consists of certain little bones, made of shells or cockles, which are found on the sea-beach; a hole is drilled through the middle of the little bones, and these they string upon thread, or they make of them belts as broad as a hand, or broader, and hang them on their necks, or around their bodies. They have also several holes in their ears, and there they likewise hang some. They value these little bones as highly as many Christians do gold, silver and pearls . . .

~ Reverend Johannes Megapolensis, Jr., 1644

Card money occurred on 8 June 1685 and was redeemed three months later. In a letter dated 24 September 1685, to the French Minister of the Marine justifying his action, de Meulles wrote:

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I have found myself this year in great straits with regard to the subsistence of the soldiers. You did not provide for funds, my Lord, until January last. I have, notwithstanding, kept them in provisions until September, which makes eight full months. I have drawn upon my own funds and from those of my friends, all I have been able to get, but at last finding them without means to render me further assistance, and not knowing to what Saint to say my vows, money being extremely scarce, having distributed considerable sums on every side for the pay of the soldiers, it occurred to me to issue, instead of money, notes on cards, which I have cut in quarters . . . I have issued an ordinance by which I have obliged all the inhabitants to receive this money in payments, and to give it circulation, at the same time pledging myself, in my own name, to redeem the said notes.

~ Jacques de Meulles, Intendant (1682-86) and interim Governor General of New France

Source: Bank of Canada, A History of the Canadian Dollar (Shortt 1925a, 73, 75).

For more information, check out the Online Canadian Paper Money Museum.

As you can see, money has changed a lot over time. There are some important characteristics that money must have, and when these are no longer valid, the Bank of Canada will make changes. Only the Bank of Canada (after 1934) can issue money, called legal tender.

You may have wondered why we need money. Given that you can now use a debit card or your smartphone, why do we have money? Money has specific functions that are important for the economy. Watch these two videos and complete the interactive that follows.

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Banks and Banking

Commercial Banks

In Canada, financial institutions are regulated by the government, under the Bank Act.

Schedule I banks are domestic banks, authorized under the Bank Act to accept deposits, which may be eligible for deposit insurance provided by the Canadian Deposit Insurance Corp. (CDIC) 32 in all.

Schedule II banks are foreign bank subsidiaries authorized under the Bank Act to accept deposits, which may be eligible for deposit insurance provided by the CDIC. Foreign bank subsidiaries are controlled by eligible foreign institutions. 

There are a variety of financial institutions which offer a variety of services including: banking, for savings, chequing, loans, investments, currency exchange, insurance and many other services.

Bank of Canada

All free market economies have a central bank owned by the government. In Canada, it is the Bank of Canada, formed in 1935 under the Bank of Canada Act. The Bank of Canada has four functions:

Monetary Policy

Monetary Policy is one of the most important roles of the Bank of Canada.

The Bank of Canada has various methods of influencing the money supply:

1. Change the reserve ratio (rr) [there is no longer a reserve ratio]. Increase rr, decrease CR ( cash reserves), decrease loans, decrease Money  Supply (or vice versa)
2. “Moral suasion” governor of B of C personally persuades banks to increase/decrease Money Supply (MS).
3. Open market operations - Most important method of controlling MS through purchase/sales of securities on open market.

Monetary Policy Evidence

Monetary policy affects all Canadians. To conduct monetary policy, the Bank’s Governing Council assesses diverse relevant information and comprehensive analysis and then applies its judgment. 

Interest Rates in Canada

If the Bank of Canada increases interest rates, the impact would be to increase the costs of loans. This means consumers/businesses have less money available. This would decrease disposable income of consumers, which decreases prices, which reduces inflation. You can use the following short forms to explain the Bank of Canada decision:

 

The Exchange Rate

One other responsibility of the Bank of Canada is to oversee the exchange rate. The exchange rate is the process of exchanging one currency for another. If you have ever travelled to another country, you had to exchange Canadian dollars for that country’s currency. If you purchased something produced in another country, then the businesses had to exchange currency. You will learn more about this in the final unit.

Bitcoin

Bitcoin is a form of digital currency. 

Watch this Tedtalk - The Future of Money.  Use it to keep track of the changes in currency.