Confederation on 1 July 1867 brought sweeping changes to banking and currency legislation in the provinces of Canada, Nova Scotia, and New Brunswick. Under the British North America Act, the government of the new Dominion was given jurisdiction over currency and banking. The Dominion Notes Act came into effect the following year. Under this legislation, the Dominion took over the various provincial note issues. Provincial notes issued in the Province of Canada were renamed "Dominion notes” and were made redeemable in Halifax and Saint John in addition to Montreal and Toronto. The Dominion Notes Act was subsequently extended to cover Prince Edward Island, Manitoba, British Columbia, and the Northwest Territories.
(Dominion of Canada, $1, 1870
Printed by the British American Bank Note Company and featuring a portrait of Jacques Cartier, this was part of the first series of notes engraved for the new Dominion. These notes were redeemable at the Office of the Receiver General in Ottawa or at the branch indicated on the back.)
Like earlier provincial notes, Dominion notes were partly backed by gold. The first $5 million issued were 20 per cent backed, and the next $3 million, 25 per cent backed. Over time, the size of the authorized note issue was increased. There were also some changes to the percentage of notes backed by gold. By 1913, the first $30 million had a 25 per cent gold backing.42 Issues in excess of $30 million had to be fully backed by gold.
Interestingly, although Dominion notes became redeemable in Halifax in 1868, Nova Scotia retained its own currency until April 1871, when the Dominion government passed the Uniform Currency Act. At that time, Nova Scotian currency, which was still rooted in the old Halifax rating, was converted into Canadian currency at a rate of 75 Nova Scotian cents to 73 Canadian cents.
The Uniform Currency Act also established that denominations of Canadian currency would be dollars, cents, and mills (a mill equalled onetenth of a cent). Moreover, the Canadian dollar’s value was fixed in terms of the British sovereign at a rate of $4.8666 and the US$10 gold eagle at a rate of $10—the same rates established in the 1853 Currency Act.
(Bank of Montreal, $4, 1871
In the late nineteenth century, banks regularly featured images of their senior officers on their notes. Pictured on the left is R.B. Angus, General Manager (1869–79), and on the right, E.H. King, President (1869–73).)
The Dominion government also passed the Bank Act in 1871, which repealed all provincial acts that were in conflict with federal jurisdiction over currency and banking. Consequently, chartered banks in the four provinces eventually came under common regulation. Chartered banks were allowed to issue notes with a minimum denomination of $4 (raised to $5 in 1880). Although banks, as a matter of course, held substantial reserves of Dominion notes and gold, they were not required to secure their note issues either by gold or by specific collateral. Note issues could not, however, exceed a bank’s paid-in capital. (Under the 1880
Bank Act revision, notes in circulation became a first lien on the issuing bank’s assets in the event of failure.) The government preserved the issuance of smaller notes for itself. It also issued notes in larger denominations to be used mainly for transactions between banks.