Bank of Canada Museum 1 Decoding E-Money

This exhibition was conceived and produced by the Museum. Money as a Reflection All artifacts and related items are part of the of Society 3 National Currency Collection of the . We would like to thank “Made Beavers” our friends in Communications, the Payment and the Fur Trade 4 Systems Oversight and Currency Research for their assistance in researching this topic and Foreign Coins as approving its content. Canadian Currency 6

The Centralization Please follow us on of Money: Banking Twitter @BoCMuseum and Paper Money 12

Pioneers of Electronic Payments 22 Money as a Reflection of Society Efficiency, security and convenience are the goals of any currency or payment method. A new form of money may meet all the right criteria to be a currency, but without your confidence in its usefulness, it will fail. If you use e-money, it’s because it is convenient and you trust it. Learn about the major Over the centuries, our society has used many currencies and faced many challenges with regard to efficiency, stages in the journey convenience, trust and, ultimately, acceptance–as many toward e-money challenges, in fact, as there have been currencies. in this catalogue.

Bank of Canada Museum 3 Decoding E-Money “Made Beavers” Rupert’s Land, Hudson’s Bay Company, early fur trade period (1670–1820), 1 made beaver wooden tally stick (1966.160.1314) and the Hudson’s Bay Company fur traders—the legendary voyageurs—used tally sticks made of wood to pay indigenous hunters for their lots of furs. A stick would have a variety of lines or markings to indicate their value in made beavers. The native Fur Trade hunters could then take the sticks to a fur trading post to redeem that value in goods. During Canada’s fur trade era, exchanging beaver pelts for a rifle made sense because they both had practical values. However, increasing trade brought about a necessity to bridge European and Aboriginal economic Eastmain District (Quebec), Hudson’s Bay Company, c.1857, set of four made beaver brass tokens (1973.81.2.1; 2009.8.15,16 and 17) systems with a common currency. Trading The use of the made beaver as a unit of account carried over into the period when pelts for tokens that could later be traded for Canadian provincial governments and chartered banks were already issuing their a rifle required a strong trust between trading own money in the form of tokens and chartered bank notes. However, these forms of money were impractical in trade with indigenous hunters. The Hudson’s Bay partners. The Hudson’s Bay Co. used the Company (HBC) attempted to bridge the monetary gap. For a brief period in the late “made beaver” (a winter beaver skin) as a unit 1850s, it issued a set of four brass tokens for use in the Eastmain District, located of account in local trade for over 200 years. along James Bay in Northern Quebec. Because of their rarity, it is surmised that the tokens were not popular and that their use was short-lived. The obverse of the tokens sports the HBC logo with the motto Pro Pelle Cutem, which translates into “a skin for a skin.” The reverse bears the initials HB for Hudson’s Bay at the top, EM for Eastmain on the next line, followed by the denomination and, finally, NB (which was supposed to be MB for Made Beaver) at the bottom.

Bank of Canada Museum 4 Decoding E-Money Made beavers The made beaver was the unit of account used by the Hudson’s Bay Company for commerce with Canada’s indigenous people during the fur trade. Consisting of a prime adult beaver pelt in good condition, the made beaver was a standard that both parties could understand and agree on to determine the relative value of other furs and the cost of goods. As a commodity, beaver pelts in particular were highly desired in Europe for the production of top hats. As a currency, made beavers bridged the financial gap between two distinct civilizations, each with their own monetary system. With most Canadians participating in the financial system either through the money in their bank accounts or the cash in their wallets, only one unit of account, the , is required for the system to function within the country. Arctic District (Northwest Territories), Hudson’s Bay Company, Go beyond Canada’s borders, however, and 1946, set of six aluminum tokens (1962.8.1 to 5; 1964.43.413) it’s another world of currencies, exchange In 1946, the Hudson’s Bay Company issued a series of six tokens made of aluminum rates and banking tools. for use in its Arctic District (Baffin Island). The large square token was worth one arctic fox; the other tokens were used as percentages. The purpose of the tokens was to familiarize the Inuit with the decimal system, which had been in common use in Canada since Confederation.

Bank of Canada Museum 5 Decoding E-Money Foreign Coins as Canadian Currency Prior to Confederation, Canada had little local and no national currency. As more merchants and settlers came to trade in the New World, a variety of gold, silver and copper coins that were legally approved as currency were circulated in the economy. Despite the confusing variety of coins, their legality and high quality ensured their acceptance. But people tended to hoard high- quality coins and their scarcity hampered the growth of the economy.

Bank of Canada Museum 6 Decoding E-Money Great Britain, George III, 1819, silver crown (1974.151.485) After 1763, when New France was ceded to Great Britain, the official unit of account used in the colony was the pound sterling. A British crown— the largest silver coin in circulation at the time—in good condition with full weight was worth 5 shillings/6 pence (20 shillings equalled 1 pound), or $1.10 when converted into Canadian dollars. Unlike with today’s floating exchange rates, the Canadian dollar was pegged to the British pound at a ratio of 1:0.25. That is, $1 was equal to 1/4 pound, or 4 dollars were equal to 1 pound. This exchange rate was in effect until the 1930s.

Spain, Charles III, 1771, silver pillar dollar (8 reales), Mexico City mint (1970.154.2) The Spanish-American dollar and its fractions were the workhorses of Canada’s monetary system from their first proclamation as currency in New France in 1662 until their last demonetization in 1872 in Prince Edward Island. The coins were accepted around the world because France, Louis XVI, 1789, of their high silver content and superior minting quality, which curbed silver ecu (1997.7.1) incidents of fraud and counterfeiting. Even under British rule, French coinage continued to pass as currency in From the time of Christopher Columbus in 1492 to 1927, about British North America. Many French coins that had been hoarded because 14.3 billion ounces of silver had been mined worldwide. Of that, of the disastrous bouts of inflation during the French regime were brought approximately 8.3 billion ounces (about 60 per cent) come from the out of hiding and circulated in Quebec. The older, more worn coins tended former Spanish colonies in Latin America. Spanish treasure fleets laden to circulate more than the nicer coins and were discounted in proportion to with gold and silver coins made thousands of transoceanic voyages from their weight. The presence of low-grade coins in circulation certainly the New World to Europe and the Far East. Spanish silver made its way to hindered the economy, but worn coins were better than no coins at all. Canada through trade between the United States and the Caribbean.

Bank of Canada Museum 7 Decoding E-Money USA, 1871, Spain, Charles IV, 1807, silver dollar (1966.98.913) gold doubloon (8 escudos), Mexico City mint (2011.6.3) After the adoption of Canadian decimal coins in 1870, American silver In the early 19th century, a Spanish-American 8-escudo coin was worth coins were still found in circulation because they were widely recognized 3 pounds/14 shillings, or 74 shillings. Considering that the typical wage of and accepted. In fact, there was so much American silver in circulation in a soldier in Canada in the early 1800s was about 2.5 shillings (50 cents) a Canada that it became known as the Silver Nuisance in Canadian economic month, this coin would have paid a soldier’s salary for about two and a half history, and the federal government proclaimed a cap on the value of the years. Clearly, a gold coin of this size was worth a lot of money. So much so coins as legal tender. It also readjusted their exchange rate by 20 per cent so that, even though they were legal tender in places like Halifax, Québec City that it was more in line with the coins’ intrinsic value. To avoid great unrest and Montréal, these coins were probably seldom handled by the average among holders of American coinage, the government backed the efforts of person. They most likely wound up in the vaults of a bank as part of its a prominent Montréal merchant, William Weir, who arranged to have large reserves that backed the bank notes it issued. amounts of American silver removed from circulation and shipped back to the United States. American silver dollars, however, were exempt from the program as Canada had no large coins in circulation.

France, Louis XV, 1742, gold louis (2014.28.6) The French gold louis was a real problem piece when it came to pegging Great Britain, Victoria, 1858, its currency value. From the first gold louis, or pistole, minted under Louis gold sovereign (1973.60.5) XIII in 1640, to those of Louis XVI in 1792, the coin’s value fluctuated The British sovereign was first minted under George III in 1820. The new coin constantly in response to inflation. In 1640, the pistole was worth 10 livres was introduced following a monetary reform that eliminated the impractically (about 21 shillings, or $4.25). After several re-evaluations, overstrikes valued guinea (worth 21 shillings) in favour of the more standard sovereign and eventually re-minting of entirely new coins, the value of the gold louis (worth 20 shillings, or one pound). Even after the adopted reached a high of 60 livres in 1720, at the height of the John Law fiasco, its own decimal coinage in 1858, the British sovereign, together with American when he ran the Banque Royale in France and issued notes backed with land of gold, continued to be legal tender in Canada. Canada minted sovereigns for a dubious value in Mississippi, before settling at 24 livres in the first years of the brief period between 1908 and 1919, until like most nations in the Western French Revolution (1789–92). Regardless of its value in France, the gold louis world it abandoned the gold standard during the First World War. was worth its weight in gold in New France and, later, British North America.

Bank of Canada Museum 8 Decoding E-Money Portugal, John V, 1749, gold 1/2 joe (6,400 reis), Rio de Janeiro mint (1993.43.1) Brazil was another hot spot of gold mining in the New World, with an USA, 1908, output of gold that was second only to the Spanish-governed colonies of gold eagle (10 dollars) Mexico and South America. The Portuguese went to Brazil to recruit slaves (1987.39.46) and discovered a vast area laden with gold deposits. For 200 years, the Portuguese relocated slaves from Africa and elsewhere in Brazil to the gold The United States minted gold coins until mine fields of Minas Gerais, an area about the size of Alberta, near São Paulo it went off the gold standard in 1933. in the south and Rio de Janeiro to the east. Portuguese gold was currency in The series of American gold coins were Canada because of its quality and abundance. known as “eagles”: the 10-dollar was an eagle, the 5-dollar a half-eagle and the 20-dollar a double eagle. Until Canada abandoned the gold standard at the outbreak of the First World War, American eagles were legal in Canada, along with British sovereigns. In 1910, an amendment to the Currency Act authorized the minting of Canadian Great Britain, George III, 1770, gold coins based on U.S. standards for copper 1/2 (2006.22.2) gold coinage. Gold coins in $5 and $10 All British coinage was legal tender in Canada. Copper coins were the most denominations were minted for only three common coins for the everyday user but they could only be used to pay a debt years, from 1912 to 1914, when the outbreak of up to the value of 1 shilling. Imposing limits on the amount of coinage that of war suspended payments in gold. can be presented in payment of a debt still happens today: according to the Currency Act, 25-cent coins are legal tender for a settlement of any debt up to $10. Since copper penny and half-penny coins were the most common coins in circulation, it is not surprising that they were found in extremely poor condition. Unlike gold or silver, the value of copper coins was not pro- rated based on their condition, which caused some problems, most commonly the issue of low-grade copper tokens.

Bank of Canada Museum 9 Decoding E-Money Canada, 1812 (c.1832), bronze 1/2 penny Tiffin token (1966.160.826) The shortage of copper coins from Britain, especially in the early 19th century, prompted merchants to order their own tokens to give Lower Canada, , 1837, out as change. Around 1832, Joseph Tiffin, a Montréal grocer, imported copper penny (2 sous) (1966.160.1976) a quantity of half-penny tokens that somewhat resembled British half- penny coins dated 1812. While the idea seemed sound, the inferior Low-grade tokens had become such a quality and weight of the tokens created more of a nuisance than a problem in Montréal that, in 1837, some convenience for local trade, and they were soon banned from commercial banks took the initiative to order and put use. The tokens were accepted only for their value as scrap metal. into circulation high-quality copper tokens to drive out the bogus coins. Following an order-in-council passed in 1838 by the legislature of Lower Canada, only official British coins and bank tokens were legal tender. A consortium of four banks issued half-penny and penny tokens: Bank of Montreal, City Bank, Quebec Bank and la Banque du Peuple. On the Canada, 1812 (c.1836), Bank of Montreal token, the bank’s name brass 1/2 penny imitation Tiffin token (1966.160.827) was inscribed on the ribbon in the Montreal The idea of issuing underweight copper tokens was taken a step further coat-of-arms on the reverse. A habitant, a when someone ordered tokens to be manufactured in the style of those typical French-Canadian farmer sporting imported by Joseph Tiffin but containing even more metal of inferior a tuque and an overcoat tied at the waist with quality. The imitation Tiffin tokens were brass and contained considerably a ceinture fléchée (French for an arrowed sash), less copper. Here’s how the distributor of these tokens was committing graced the obverse of the token. fraud. Since a pound of pure copper would yield 48 pieces, a single coin weighed about 10 grams. The fraudster would have ordered the manufacturer to produce 75 coins made of the copper alloy but weighing about the same as a real copper token, thus artificially creating an extra 27 coins.

Bank of Canada Museum 10 Decoding E-Money New Brunswick, Victoria, 1843, copper penny token (1964.147.4) Semi-official tokens, like this 1843 New Brunswick frigate token, were the precursors to the government-authorized decimal coins, which came into circulation between 1858 and 1865 in various Canadian provinces. The reason why governments could not issue coins before this was enshrined in constitutional law: the issue of official money was a Royal prerogative. Nova Scotia, New Brunswick, Lower Canada (Quebec) and, later, the Province of Canada (which was created from the union of () and Lower Canada) issued semi-official tokens. Eventually, the provinces were granted more autonomous powers from the British Government to manage their own finances and control their economic destiny. After Confederation, the federal government controlled the issue of coinage in the country.

be settled with the merchant giving you $1.12 in The coins in our pockets today coins to make up the difference. It’s easier for the serve an entirely different purpose from those merchant to settle the transaction immediately in circulation up to about 100 years ago. While than to remember that he or she owes you $1.12 the coins of yesteryear represented the actual the next time you buy something at their store. value against which all currencies were measured, While coins may have not retained the value and coins today are primarily used to make change. In purchasing power they once had, they still serve other words, if you present a $10 bill to pay for a very important purpose in daily commerce. an item that costs $8.88, the transaction must

Bank of Canada Museum 11 Decoding E-Money The Centralization of Money: Banking and Paper Money Paper currency was created to represent large amounts of coins—a convenience that avoided the risk of shipping coinage. Bills of exchange were used mostly for international transactions, and when banks were established in the early 1800s, they issued cash and cheques for local trade. Banks then opened clearing houses to settle paper-based transactions. The Bank of Canada was founded in 1935 with the mandate, in part, to oversee the stability of this increasingly complex financial system.

Bank of Canada Museum 12 Decoding E-Money Montréal (Quebec), 1763, bill of exchange for 2 pounds, 1 shilling and 1 penny, Quebec currency drawn on Philadelphia (1979.106.3) Before the advent of electronic payments and wire transfers, the payment instrument of choice for merchants who had a large payment to make to suppliers, especially those who were far away, was a bill of exchange, also known as a draft. Bills of exchange have been around for hundreds of years and were essentially used to settle transactions without the requirement of physically moving hard currency (gold and silver coins) all over the world. The Italians—the Venetians to be exact—came up with the idea, since Venice was a major trading hub between Europe and the Middle East.

Widespread usage and acceptance of bills of exchange necessitated the establishment of clearing systems to settle accounts and pay out the instruments in cash. Originally, bills of exchange were not intended to be transferable credit instruments. But, by the 16th century, they became useful tools for the issue of credit and the transfer of debt, and they allowed for the sale of goods against future payment. People could buy things without having to pay immediately, and bills of exchange could be used to settle debts or lend money. As the use of bills of exchange was increasingly extended beyond the purpose of a simple payment order, they were more and more widely accepted as circulating, transferable and negotiable instruments. Without a reliable and abundant currency in Canada, merchants and government Originally, bills officials relied heavily on bills of exchange to pay for goods and supplies. Coming from reliable sources, bills of exchange were transferable and negotiable and tended of exchange were to circulate. A market for bills of exchange grew out of the economic activities in British North America. Depending on supply and demand, bills of exchange could not intended to be trade at a premium or a discount. As part of an expansive network of payment devices transferable credit and clearing systems, bills of exchange were instrumental in Canadian economic development. This bill of exchange is valued in Quebec currency, which was a standard instruments. that valued the dollar at 6 shillings. At £262.1.1 Quebec currency, the draft would have been worth about $866 in silver or gold coins.

Bank of Canada Museum 13 Decoding E-Money Montréal (Canada East), 1848, bill of exchange for 110 pounds sterling drawn on Glasgow (Scotland) (1965.219.80) Early bills of exchange were handwritten and their acceptance largely rested on the acquaintance and reputation of the parties involved in the transaction. Their values could be denominated in almost any currency because agents responsible for paying out the instruments had access to charts showing conversion rates for a multitude of currencies.

So how does a bill of exchange work? It is a payment order written by one party (the drawer) instructing another party (the drawee) to pay a certain amount of money at a future date to a third party (the payee). The payee was usually located in the vicinity of the drawee, with whom the drawer had an account. Therefore, the person expecting payment in gold or silver coins could present the instrument to the account managers of the drawer and that party’s account would be debited the amount of the instrument. The balance could remain outstanding until a payment to the drawee was deposited into the drawer’s account. This way, all transactions would be settled, with the displacement of money occurring only when the draft was redeemed by the payee. Sometimes, bills of exchange were endorsed and transferred to another party, who would then become the payee. Ideally, issuers of bills of exchange and their agents tried to delay the payout in specie for as long as possible, because the drain of coin affected how much the agent could issue in extra drafts or notes.

Bills of exchange were often issued in triplicate, with the copies sent at different times, so that if the first one was lost, a reserve copy would still reach its destination. Once the draft was redeemed, the duplicates became worthless. This bill of exchange is the third copy and would have been redeemed if the first two had not been presented for redemption.

Bank of Canada Museum 14 Decoding E-Money Victoria (Vancouver Island), Bank of British Columbia, 1888, bill of exchange for $481 drawn on Hong Kong (1964.128.5) Bills of exchange were not available exclusively through commercial banks. Yet the banks controlled the majority of the commercial paper market, not only by issuing bills of exchange, but also by acting as agents of private issuers. Bank drafts were more widely used in international trade simply because of their recognition and reputation.

Rio de Janeiro (Brazil), Canadian Bank of Commerce, 1924, bill of exchange for 3,000 pounds drawn on London (2003.26.13) By the late 19th century, the major Canadian banks were gaining a foothold in foreign markets. The Bank of Montreal (BMO) had branches in the United States as early as 1859; BMO and the Bank of Upper Canada were in London, England in 1863; and the Merchants Bank of Halifax (later the ) made a foray into the Caribbean in 1880. By the 1930s, the major Canadian banks operated on four continents: North and South America, Europe, and Asia. This draft from the Rio de Janeiro branch of the Canadian Bank of Commerce (now CIBC), drawn on the office in London, England, illustrates the global expanse of financial institutions in the wake of increasing foreign trade and commerce. Today, in the age of globalization, Canadian banks have a physical presence almost everywhere, and, conversely, foreign banks have penetrated the Canadian market.

Bank of Canada Museum 15 Decoding E-Money Canada, Dominion Bank, c. 1910, bundle of cancelled cheques (1973.256.1) Clearing houses were set up in major trading centres and run by agents and bankers. Their main function was to streamline the clearing (determining the mutual claims parties had against each other) and settlement (confirmation that the transfer of payment has been made) of bills of exchange and, later, cheques. It was through clearing systems that the notion of central banks that would assume the function of clearing and settling payments came into being. Clearing houses were essentially the precursors to central banks.

Branch banking facilitated the growth of an adequate system of clearing houses in Canada. The first clearing house was established in Halifax in 1887. The role of clearing houses was to simplify and speed up the exchange of notes and other financial instruments with the various banks that came to them in the course of day-to-day banking. The banks that made up the several regional clearing associations in the major commercial centres maintained settlement accounts on the books of one of their members, designated as the “clearing bank.” Claims were settled through the adjustment of balances as a result of each day’s clearing.

The arrangements for clearing were formalized on a statutory basis and carried out by the Canadian Bankers Association (CBA), which was founded in 1891, following its recognition in the Bank Act of 1901 as an agency for the supervision and control of certain activities of Canadian banks, including the operations of six clearing houses located in Halifax, Saint John, Montréal, , Hamilton and Winnipeg. The function of holding settlement balances for the banks in each major city was undertaken on a rotating basis by one of the larger banks conducting business in that city. By the 1950s, there were hundreds of clearing houses located across Canada.

The number of cheques issued and cleared on a daily basis has never been measured, but it most likely ranged in the tens of thousands, and later into the millions with the advent of an automated system in the 1960s.

Bank of Canada Museum 16 Decoding E-Money Halifax (Nova Scotia), Halifax Banking Company, 1825, Montréal (Quebec), Molsons Bank cheque for 46 pounds, 5 shillings and 6 pence (1965.219.56) [La Banque Jacques-Cartier struck out], 1864, Cheque (“check” is the American spelling): A cheque is an order instructing the cheque for $214.13 (1974.276.39) drawee to pay the payee a specified sum from the account of the drawer. Cheques Cheque forms were so standardized that it did not even matter which were usually held for a period of time, waiting for the payment to clear before the bank issued them. Here, the name of the bank printed on the cheque, la funds were released to the payee. Cheques were not negotiable, but, when endorsed, Banque Jacques-Cartier (chartered 1861, failed 1900) was struck out, and they could be transferred to another party. While bills of exchange were more “Molsons Bank” (chartered 1855, acquired by BMO 1925) was printed over widely used for international payments, cheques were an essential payment device in it. Both were reputable banks in 1864 when this cheque was issued, but domestic transactions. Many private banks offered chequing services to clients, but the drawer likely preferred to pay the payee from his Molson’s account. all payments had to be remitted to a chartered bank for redemption and settlement. This 1825 cheque from the Halifax Banking Company is one of the earliest recorded Canadian bank cheques in existence. It is denominated in pounds, shilling and pence, which were the units of account in Halifax, Nova Scotia, at the time.

Ottawa (Ontario), Union [Crown struck out] Bank of Canada, Halifax (Nova Scotia), Royal Bank of Canada, 1943, Bank St. branch, 1912, cheque for $12.70 (2009.28.1) cheque for $90 (1997.19.1) The branch of the Crown Bank of Canada (chartered in 1902, amalgamated From 1915 to 1953, the federal government imposed an excise tax (a tax on with the Northern Bank to form Northern Crown Bank in 1908, subsequently taken the purchase of a good or service) on all domestic commercial paper as a way of over by RBC in 1918) was taken over by the Union Bank of Canada (chartered in generating revenue for the war effort. The amount of tax paid varied, depending on 1865 as the Union Bank of Lower Canada, acquired by RBC in 1925). The name the value of the instrument and the period. This cheque for $90 from the Halifax on this cheque was simply corrected by hand to reflect the name of the new bank. branch of the Royal Bank of Canada has a tax stamp worth 3 cents affixed to the If parties conducted business through different branches of the same bank, then top left corner. The stamp was proof that the excise tax had been paid and that the obviously the bank would not have to ship coinage from one branch to another cheque could be redeemed. to balance accounts. The bank simply needed to update its ledgers to show the transfer of funds from one account to another.

Bank of Canada Museum 17 Decoding E-Money Wyoming (Ontario), Fawcett’s Bank, 1878, Cheques and bank drafts cheque for $800 (1966.25.6) are still frequently used today, cheques Until about the 1920s, numerous private bankers located across Canada for more private transactions and bank provided banking and financial services, including cheques and drafts, in the more remote parts of the country. Private bankers would have drafts for large purchases. Although the accounts with commercial banks in larger centres and would rely on vast majority of payments made today are them for financial backing. Eventually, private banks disappeared as the electronic, there is still a need and demand commercial banks bought them out and took over their clientele. for paper-based financial instruments. What’s innovative about the way cheques and drafts are cleared and settled today is that the bearer is no longer required to present the instrument for payment. Some financial institutions now accept digital images of cheques for deposit Toronto (Ontario), Patterson Chocolates Ltd., 1952, draft ordering Bank of Montreal to pay Wm James Cook $298.51 and processing—a trend that all financial to his account at the Canadian Bank of Commerce (2015.3.1) institutions will surely follow. With the advent of other ways of sending money overseas, such as wire transfers, bills of exchange evolved to fulfill a more active role in domestic commercial trade. Drafts are more secure than cheques, since the instruments have to be prepaid, thus guaranteeing that the recipient receives the funds from his or her bank. Drafts present very low risk when large sums of money are being transferred. Banks still issue them today: chances are, if you purchase a house or a car, you will use a bank draft to make that purchase.

Bank of Canada Museum 18 Decoding E-Money Montréal (Lower Canada), Montreal Bank, 1819, 5 dollars, issued note (1973.134.3) Early bank notes resembled drafts or cheques and were payable to a specific individual or the bearer. The notes could be endorsed and transferred to another bearer before eventually being presented for redemption in gold or silver coin at the issuing bank. Over time, the identification of a specific payee was replaced with the term “bearer.” This allowed notes to be transferable from one party to another and to be put back into circulation when presented for redemption. Most often, bank notes tended to circulate and were seldom redeemed.

In 1817, the Montreal Bank, later the Bank of Montreal (chartered in 1822) was the first bank to issue notes in Canada. A bank by the name of the Canada Bank was set up in Montréal in 1792. However, it did not appear to have opened for business. Saint John (New Brunswick), Bank of New Brunswick, 1820, 5 shillings, issued note (1966.21.4) One way banks generated revenue was by discounting the notes of other banks that were Most often, bank notes presented to them for redemption. While banks redeemed their own notes at face value, tended to circulate and they had no interest in providing a free service to rival banks, so notes from rival banks were discounted—redeemed for less than their face value—with the difference representing were seldom redeemed. the fee for the cost of redemption. If you had a note from a bank that was located too far away for you to travel there to redeem it for gold or silver coin, you could simply go to your local bank. However, you would receive less than the full value of the note. The difference covered the cost of shipping the note to the issuing bank for redemption and earned the bank presenting the note a little profit.

The Bank of New Brunswick beat the Bank of Upper Canada by one year and the Bank of Montreal by two years to become Canada’s first chartered bank in 1820.

Bank of Canada Museum 19 Decoding E-Money Dominion of Canada, 1870, 2 dollars, issued note payable at Toronto (1963.14.111) Legislation was passed in 1868 that saw the issuing of bank notes slip away from the banks into the hands of the government. The law (31 Vict, c. 46) allowed banks to issue notes in values of no less than $5 and then in multiples ($10, $20, $50, etc…). The Dominion government issued $1, $2 and $4 notes. To facilitate the circulation of notes across the country, they were issued and redeemed at the local offices of the Receiver General of Canada in Victoria, Winnipeg, Toronto, Montréal, Saint John, Halifax and Ottawa, where the main office was located. With the introduction of government notes, the days of discounting notes were over.

The 1870 Dominion $2 note pictured here depicts the portraits of General Wolfe on the left and General Montcalm on the right: the leaders of the Toronto (Ontario), Bank of Upper Canada, 1861, English and French forces, respectively, who both perished at the Battle 4 dollars, face proof (1974.169.65) on the Plains of Abraham in Quebec City in 1759. By the 1850s, branch banking was on the rise in Canada, and banks such as the Bank of Upper Canada issued notes overprinted with the name of the branch where the notes could be redeemed. Legislation was passed in Bank notes were an important source of revenue for banks because they were issued as loans against a reserve of gold and silver, which made 1868 that saw the issuing up a bank’s capital stock. The ratio of notes to reserves was normally of bank notes slip away from regulated by policy and, for the most stable banks, it did not surpass three to five times their capital. As a bank’s capital stock increased, so did the banks into the hands its note-issuing capacities. There were many chartered banks in business throughout Canada at various times between 1817 and 1950. Many of the government. banks failed along the way, while others engaged in dubious practices. The ones that are still in business today steered a course of sound management and measured growth.

Bank of Canada Museum 20 Decoding E-Money Royal Bank of Canada, 1943, 5 dollars, issued note (1997.2.4) Between 1935 and 1944, some chartered banks continued to issue their own notes. The 1944 revision of the Bank Act, however, finally Bank of Canada, 1935, prohibited chartered banks from issuing or reissuing any notes after 1 dollar—English and French text—issued notes 1 January 1945. From 1 January 1950, the chartered banks’ liability for their outstanding notes was transferred to the Bank of Canada, in return (1989.32.10; 1989.32.18) for a like payment to the Bank by the chartered banks. To offset the The Bank of Canada Act (1934) provided Canada’s central bank with a liability of some $185 million, the Bank received from the government an monopoly on note issue in the country. The first Bank of Canada series of equivalent amount of gold ($69 million), silver ($1 million) and Dominion notes, dated 1935, were designed by the Canadian Bank Note Company securities ($115 million). The chartered banks surrendered their cash and its parent, the American Bank Note Company. The series was issued reserves, including gold ($37 million) and Dominion notes ($178 million) in denominations of $1, $2, $5, $10, $20, $25, $50, $100, $500 and to the Bank, receiving in exchange a corresponding amount of the Bank’s $1,000. What is particular about this first series is the issuing of separate deposits and notes. English and French notes. The Currency Act was amended in 1936 to make Bank of Canada notes bilingual.

Canadian bank notes have not been notes toward the payment of a debt. However, it’s redeemable in gold or silver for many years. Current just good business and basic customer service for Bank of Canada notes are legal tender in that they retailers and merchants to accept cash for purchases. are accepted without limit in the settlement of a Year after year, the amount of cash in circulation debt or an obligation to the government. In other rises, reflecting its convenience and trust as a words, only the government is obliged to accept the method of payment.

Bank of Canada Museum 21 Decoding E-Money Pioneers of Electronic Payments Encouraged by the growing popularity of payment cards, since the late 1960s financial institutions risked investing in emerging information technologies to improve efficiency and profitability. Magnetic stripes and microchips have radically changed the way we pay for purchases. Such technologies now dominate the Canadian consumer economy and are paving the way for new payment systems.

Bank of Canada Museum 22 Decoding E-Money Bank of Montreal, MasterCard, 1984, Canadian Imperial Bank of Commerce, Chargex/VISA, 1980, credit card (2005.83.22) credit card (2005.83.5) Payment cards have a long history in Canada, dating back to end of the In 1968, CIBC led an initiative to further investigate the success of Second World War. Yet their acceptance as a universal method of BankAmericard in the United States. Impressed with the results, it payment really occurred after the banks began issuing credit cards in purchased a licence to market the card in Canada. Unable to undertake the late 1960s and 1970s. In Canada, Chargex (later VISA) and Master the program alone, however, CIBC teamed with Royal Bank, TD Bank Charge (later MasterCard) were the major companies set up by the and la Banque Canadienne Nationale and founded Chargex under conglomeration of Canadian banks to process credit card transactions. licence from BankAmericard. The Bank of Nova Scotia joined Chargex in 1973. The first major technological innovation to affect the processing of credit cards was the use of the magnetic stripe, developed by In a push to gain more worldwide acceptance, Chargex joined Ibanco, International Business Machines (IBM) in the 1960s. Before the advent the international conglomeration of BankAmericard. In 1977, a year of the “magstripe,” credit card transactions were paper-based and were after Ibanco changed its name to Visa International, Visa replaced cleared and settled in the same manner as cheques and other paper the Chargex brand, but the Chargex name continued to appear on instruments. American Express was the first company to use credit credit cards until 1981. Le Mouvement Desjardins du Quebec joined cards with magstripes. Canadian credit cards did not feature a magstripe Visa in 1980. In 1989, the banks that formed Chargex established Visa until 1978-79. Canada as a separate entity to manage the credit card business and to further expand their clientele that used bank cards. However, when the magnetic stripe was added to the backs of plastic cards to enable electronic processing of payments, it opened the floodgates of electronic payments, and soon credit cards and debit cards came into daily use.

The Bank of Montreal was the first major financial institution to issue MasterCard credit cards in Canada.

Bank of Canada Museum 23 Decoding E-Money CIBC Aerogold VISA, 2015, credit card (2014.48.1) Concerns about fraud and identify theft forced the credit card industry to increase the security of the electronic devices through which information was captured and read. Although microchips had been around for a couple of decades, microchip technology was widely integrated into credit cards and other payment cards only toward the end of the first decade in the new millennium. Although current credit cards still carry the magstripe feature, most transactions today are processed using either the microchip or the new contactless Wi-Fi-embedded feature.

This CIBC Aerogold VISA card features all three applications for processing payments: the microchip on the front, the chip within the layers of plastic to activate the contactless feature and the magstripe on the back.

TD Bank, 2018, debit card (2014.48.4) Payment cards today are designed with ease of use and security in mind. In fact, payment cards are beginning to find multiple applications. In some countries, a single card may include an individual’s payment cards, health insurance, driver’s licence, transit pass and much more. Such a feature has yet to be introduced in Canada. This TD Bank debit card has limited functionality.

Bank of Canada Museum 24 Decoding E-Money , 2001, Canada, Mondex, 1997, debit card (2006.84.1) electronic wallet stored-value card (2009.53.3) Debit cards began as a form of identification card issued by banks While credit cards and debit cards have gained a major foothold in to quickly and conveniently link clients to their bank accounts. In the the payment industry in Canada, cash alternatives and e-money have growing environment of branch banking, debit cards enabled account suffered some growing pains. Mondex was a revolution in payment holders to do business at any branch of their bank upon presentation devices promising to replace cash. In 1995, the National Westminster of the card to the teller. Bank in the United Kingdom completed a pilot project to test Mondex, its new payment device. Through the use of smart card (microchip) In the age of automated banking machines (ABMs) in the 1980s-90s, technology, cardholders could pay for items in real time without using debit cards enabled consumers to access a variety of banking services cash. The system was unique in that no PIN (personal identification through these machines, including deposits, cash withdrawals and account number) was required, transactions were private, and reloading the balances. With Interac coming online in 1984 and the introduction of the card was simple and convenient. Direct Payment system in 1994, the use of debit cards grew rapidly. The electronic payment infrastructure meant that people could simply swipe On the heels of the successful launch of Mondex in other parts of their debit card, enter a PIN (personal identification number) and pay the world, the Royal Bank of Canada and CIBC purchased the rights to for their goods instantaneously. In the background, the debit card swipe license the new technology in Canada. Other major Canadian financial and transaction authorization set in motion a process that involved many institutions joined the program in hopes of a national rollout. But before actors to ensure that the transfer of funds occurred and the transaction investing large sums of money to overhaul the electronic payment settled in a timely and secure manner. system, pilot projects were conducted in Guelph, Ontario (1997), and Sherbrooke, Québec (1999), to test the equipment and to gauge the public’s acceptance of electronic cash. Within a couple of years, both pilot projects were cancelled because of lack of enrolment and limited public support. People apparently did not warm to the idea of a replacement for cash.

Bank of Canada Museum 25 Decoding E-Money Canada, MasterCard Vanilla, 2009, $200 prepaid card (2009.42.4) Riding on the success and universal acceptance of credit cards and debit cards, banks have sought new ways of exploiting the sophisticated electronic payment technology already in place for their benefit. They have expanded into the world of e-wallets and cashless payments. Outcomes of various pilot projects to introduce e-money smartcards were mixed. However, they did plant the seed for a generation of new prepaid cards issued by the major payment card processors: Interac, VISA, MasterCard and American Express.

Canada, VISA, 2009, $250 prepaid card (2014.48.13) There are virtually hundreds and maybe thousands of different retailers currently issuing gift/prepaid cards. Manufacturers of gift cards use various media for processing transactions, including bar codes, magstripes, microchips and Wi-Fi. Each processing method has its conveniences and shortcomings, but essentially they all function in the same way. The card is preloaded with funds by the cashier, and those funds are debited from the card as the user makes purchases. Once the funds on the cards are exhausted, the card is usually discarded. However, some cards can be reloaded and reused.

Bank of Canada Museum 26 Decoding E-Money Canada, Shell Company, 2002, Canada, American Express Company, 2009, Easy-Pay fuel tag (2003.47.3) $200 prepaid card (2014.48.10) Wi-Fi (wireless local area network) and Near Field Communication (NFC) While most gift cards are store-specific, some companies, such as the have made the need for payment cards almost obsolete. Key tags and fobs major credit card brands, issue gift cards that are accepted wherever their equipped with NFC technology now replace the process of swipe and credit cards are. Back in the early days of gift cards in the 2000s, there PIN. In the case of fuel tags, swiping the device in front of a sensor at the was much controversy over expiration dates and service charges. Various gas pump enables the user to “gas and dash” without having to present provincial jurisdictions have cracked down on some of the questionable payment. The fuel tag not only activates the pump, but also authorizes the charges and activities behind gift cards, and now the Consumer transaction to be processed onto the user’s credit card. The fuel tag is not Protection Act regulates the use of gift cards. the actual payment device because the charge is made to a credit card, but it certainly makes it easier to pay for gas.

Bank of Canada Museum 27 Decoding E-Money Bank of Montreal, 2012, Ottawa (Ontario), Metrolinx, 2014, MasterCard PayPass debit card (2012.18.1) re-usable transit fare card (2015.13.1) MasterCard Paypass (2003) and its peers, American Express Express Transit authorities across Canada have begun to adopt the trend for Pay (2005) and VISA PayWave (2007), pioneered the use of Wi-Fi for stored-value cards that was initiated and made popular in places like Hong contactless, or tap-and-go, payments. In 2012, the Bank of Montreal, in Kong (Octopus card) and London, England (Oyster card) almost 20 years partnership with MasterCard, went so far as to issue a debit card with a ago. Using contactless NFC technology, transit cards can be loaded with removable tag that could be adhered to a smartphone to make a payment. funds via the Internet. Is it only a matter of time before our transit cards The tap-and-go system is limited to small transactions, although will also allow us to pay for our morning coffee or purchase a pack of gum the amount varies by retailer, and no PIN is required to authorize the at the convenience store like the Octopus card does in Hong Kong? payment. All debit cards now have this feature, so the concept of issuing a card with a detachable fob, although novel, is not likely to find traction.

Regardless of the payment method Canadians use to pay for things, what each of these devices requires for its success is the trust and confidence of the user that, along with convenience and security, it will be readily accepted in almost every transaction. While a single payment device for all transactions does not yet exist in Canada, the flexibility and convenience of having many payment options is a great benefit to all consumers. If the technology of money had never evolved beyond gold and silver coinage, imagine how complicated it would have been to buy a cup of coffee using a Spanish-American gold coin that was paid to you for a year’s wage!

Bank of Canada Museum 28 Decoding E-Money