The Canadian dollar: The sixth most traded currency in the world

Since becoming a floating currency, the Canadian dollar has flirted around the value of the US dollar.

The Canadian dollar (CAD $) is the currency of Canada, and is divided into 100 cents. The currency is sometimes referred to as the “loonie” by exchange traders and analysts due to an image of the loon on the one-dollar coin.

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Value and exchange rates of the Canadian dollar

Throughout its history, Canada has used everything from furs to playing cards as currency. It was the French who first introduced coins to the nation in the 1660’s, but they were only used to pay taxes and buy European goods. Without coins to buy local goods, the colonial authorities began to place value on the back of playing cards in order to pay soldiers. Throughout the 18th century, the coin shortage continued and the government began printing paper money from cardboard in order to fill the deficit.

Starting in 1841, the Province of Canada began using the Halifax rating. This new Canadian pound was equivalent to four US dollars, while it took an additional four shillings and four pence to equal one British pound sterling. There was a lot of debate over the adoption of a sterling monetary system or to use a decimal one based on the US dollar. This debate lasted well into the 1850’s, with the end result being an alignment of Canadian currency to the US dollar in 1858.

The Provinces of Canada, New Brunswick and Nova Scotia united in a federation called the Dominion of Canada in 1867, merging their three currencies into one Canadian dollar. By 1873, Prince Edward Island joined this federation and Canada was finally on its way to having its own, uniform currency for trade.

The Uniform Currency Act passed in 1871 ensured that all of the provinces were now using the Canadian dollar based on the gold standard. However, the gold standard was abandoned during World War I, and by the start of World War II the rate was fixed against the US dollar at $1.10 CAD. When Canada began to float its currency in the 1950’s, it rose in value in comparison to the USD for over ten years.

The value of the CAD in comparison to the USD is considered very important because of the amount of trade between the two countries. When the Canadian dollar is valued lower than the USD, consumers become concerned because of the heavy reliance on exports. When the CAD rises in value, manufacturers are able to purchase foreign materials at a better price.

The export of commodities from Canada, especially oil, helps drive the value of its dollar. The technological boom of the 1990’s was centered in the United States and brought the value of CAD to an all time low of $0.167 in 2002. It rose sharply and was able to meet the USD in value at the start of the sub-prime mortgage crisis in 2007.

The way the Canadian and US dollars work in tandem has become a tool for foreign exchange investors, who use the behavior of the CAD to predict what is going to happen in the US economy. By noting trends in the commodities market and the changing value of the CAD, investors are able to plot a course that shows them how the USD is going to react. This is only possible because of the tight economic relationship that Canada shares with the US.

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History of the Canadian dollar

It was the War of 1812 that finally ended the currency shortage in Canada and led to the creation of hard currency. The colonies issued army bills to help finance the war, and when it ended, the British government accepted them at face value. With a newfound trust in paper money, banks began popping up in Canada. By 1822, the Bank of Montreal had received its charter and was able to circulate money. They were followed by other banks, and by 1858 Canada had their first official Canadian coin system.

Coins and banknotes of the Canadian dollar

The Canadian Dollar-01

The Canadian Dollar-02

The modern Canadian banknote has come a long way from dollar values on the back of playing cards. Canada is now using polymer for their banknotes, a durable material that has less of an impact on the environment. You will find them used in Canada in the following denominations:

  • $5 —  Images of Former Prime Minister Sir Wilfrid Laurier along with the Mackenzie Tower.
  • $10 — Issued in 1971, it features one of the founding fathers of the confederation, Sir John A. Macdonald.
  • $20 —  It always includes a portrait of Queen Elizabeth II, which is updated each time a new series of bank notes is issued. In September of 2015 a commemorative 20 dollar note was issued that features a much younger picture of the queen taken in 1951. This note was specially issued to mark the date in which Queen Elizabeth’s reign exceeded that of Queen Victoria.
  • $50 — Image of Canada’s longest serving Prime Minister, William Lyon Mackenzie King.
  • $100 — Portrait of Sir Robert Borden, Canada’s eighth Prime Minister and the leader who helped see the nation through the First World War.

All Canadian coins feature Queen Elizabeth II on one side, with an image reflecting the nation’s heritage on the other:

  • .01 — Maple leaf
  • .05 — Beaver
  • .10 — The Bluenose, a fishing and racing schooner built in 1921 
  • .25 — Caribou
  • .50 — The Canadian coat of arms
  • 1.00 — Voyagers in a canoe on the silver coin and the common loon on the gold dollar coin
  • 2.00 — Polar bear
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