CAD - Canadian Dollar

The Canadian Dollar is the official currency of Canada. It also circulates alongside the Euro in Saint Pierre & Miquelon, which is a French overseas collectivity south of the island of Newfoundland. It uses the dollar sign $ for abbreviation, or C$ to differentiate it from other dollar denominated currencies such as the United States Dollar. It is divisible into 100 cents, also known as 'sous' in French colloquial language. The word Loonie is sometimes used to refer to the one-dollar coin because of the image of the loon that appears on the coin.

Canada's Economy

Canada is one of the wealthiest countries in the world, a G-7 member country as well as a member of the Organization for Economic Co-operation and Development (OECD). The country's economy is mainly driven by the service-oriented sector, which employs approximately three quarters of the population.

The Heritage Foundation's 2014 Index of Economic Freedom rated Canada's economic freedom at 80.2%, making it the 6th freest economy in the world and the freest in North America. Its business climate is stable and transparent, making it one of the most attractive investment destinations in the world.

Canadian Dollar History

The history of the Canadian dollar is best introduced by understanding the form of money that was used by the first nationals of Canada,the Aboriginals. They placed high regard on strings and belts made from beads of shells collected from the eastern seaboard. Early settlers of English origin called the beads 'wampum', which is an abbreviation for an Algonquin word that is sometimes spelled 'wampumpeague'. French settlers on the other hand referred to the beads as 'porcelaine.'

Early Europeans viewed the beads or 'wampum' as a form of money and they became a crucial part of the fur trade. The settlers used the beads to to buy things like beaver pelts from the inland people like the Iroquois. Wampum gradually gained all the characteristics of a useful currency and demand for it grew among the Native peoples. In fact wampum was used as legal tender around mid 17th century where 8 white beads or 4 purple beads were an equivalent of one penny. Lower Canada passed legislation in 1792 that permitted the importation of wampum for purposes of trade with the Native peoples.

The beads (wampum) were equally valued and accepted on the west coast though copper shields were the ultimate measure of wealth for the Haida people. Indeed the Haida symbols have been featured in some Canadian dollar denominations like the 2004 $20 note as a way of linking present Canada to its heritage.

The first regular exchange in Canada involving Europeans is believed to have occurred in the early seventeenth century in Tadoussac where French traders bartered with the Montagnais (Innu).

Introduction of Canada's Paper Money

The first form of paper money came out on June 8, 1685, and was printed on playing cards. The practice was highly criticised though, because the money could be counterfeited easily. Copper coins were later introduced in 1722 even though merchants dint like them so much.

There was confusion around the eighteenth century resulting from the many coins that were in circulation among the colonies, making it difficult to trade and thus hindering economic progress. This pushed the Montreal Bank (later the Bank of Montreal) to issue the first ever bank notes in 1817 which is also the year that the bank was established. The notes were produced in dollars.

Other banks followed suit soon afterwards and the bank notes were soon accepted as the main mode of payment in British North America.

Establishment of Bank of Canada

On July 3, 1934, the Bank of Canada Act was assented, ushering in the country's central bank to officially start operations on March 11, 1935, and take control of the country's currency as a central authority. The Bank of Canada notes replaced the Dominion notes. On September 20, 1949, the Canadian dollar was devalued by about 9.1% against the U.S. dollar due to a revolutionary realignment of major European currencies including the pound sterling, against the U.S. dollar.

Performance Up to Date

The Canadian dollar started to weaken against the U.S$. in 1918, declining steadily during the next two years until it hit a low of about US$0.84 by 1920. The country then returned to the gold standard temporarily between 1926-31.

The inflation experienced in the early 20th century was linked to infrastructure projects in the country that were mainly funded by foreign capital that came in huge inflows. The years immediately after the two world wars also saw inflation rates shoot to high levels.

The period 1970s-80s was also characterized by high inflation rates, due to the oil crisis and policy-related errors.

The Canadian dollar registered remarkable performance against the U.S. dollar during the 1970s, reaching a high of US$1.0443 on April 25, 1974. This was attributed to strong global demand that pushed up the prices of raw materials. The Canadian dollar would later depreciate again in late 1970s to reach US$0.84. The U.S dollar was equally depreciating against other major overseas currencies during this period.

The Canadian dollar experienced a weak spell in the first half of the 1980s, followed by strong recovery through the second half with an initial stabilization at about US$0.72.

The 1990s began on a stronger note but the currency weakened consistently almost through the entire decade. It closed the 10 year period at US$0.6929, down from a high of US$0.8934 on November 4, 1991.

The Canadian currency started the 21st century on a weak point especially between 2000-2001, coming to a low of US$0.6179 on January 1, 2002. It started to recover afterwards, peaking above US$0.85 by November 2004, a level not witnessed for a period of 13 years back.

At close of business on November 6, 2007, it touched a high of US$1.08, and had earlier hit its modern day intra-day high of US$1.10 still on the same day. The Canadian dollar closed at 76 cents against the USD on March 9, 2009, but started rising again to reach parity on April 6, 2010, the first time in close to 20 months.