Political union of Upper and Lower Canada to create the Province of Canada on 10 February 1841 led to a new standardized rating for coins in the newly united province that took effect in April 1842. The British gold sovereign was valued at one pound, four shillings, and four pence in local currency, while the US$10 gold eagle was valued at two pounds, ten shillings. Both coins were considered legal tender. Spanish (including Spanish colonial) and U.S. silver dollars with a minimum weight of 412 grains were also made legal tender with a value of five shillings and one pence—a valuation very similar to the old Halifax rating.
(Great Britain, sovereign, 1817
The image of St. George and the dragon, which appears on the reverse of this coin, was engraved by the famous Italian medallist Benedetto Pistrucci, who later became Chief Medallist (1828–55) at the Royal Mint in London.)
At this time, efforts also began to move to a decimal-based currency system and to introduce a government issue of paper currency. In 1841, Lord Sydenham, Governor General of the new united Province of Canada, proposed that the provincial legislature establish a provincial bank that would issue up to £1 million in provincial paper currency denominated in dollars, 25 per cent of which would be backed by gold, the remainder by government securities. He also recommended that notes issued by chartered banks be prohibited. In effect, Lord Sydenham’s proposal amounted to the establishment of a Canadian central bank.
(United States, $10, 1844
Called an "eagle,” after the prominent image appearing on the reverse, this coin was occasionally used in Canada for large transactions.)
While Lord Sydenham sought a paper currency with guaranteed convertibility, he was also strongly motivated by a desire to acquire funds to finance provincial public works and to obtain the seigniorage profits from the note issue. Seigniorage was estimated to be at least £30,000 per annum and had the potential to rise considerably as the currency issue increased (Breckenridge 1910).
The proposal was studied by a parliamentary select committee on banking and currency, headed by Francis Hincks, who strongly favoured the Governor General’s plan. The provincial assembly turned it down, however, because of widespread opposition, particularly from a strong bank lobby. Banks were concerned about the impact on their profits if they lost the right to issue paper currency. Interestingly, borrowers were also worried that government control of the bank note issue would lead to tighter credit conditions. There were also concerns that the government would gain too much power. Because of the assembly’s rejection of the Governor General’s proposal, a provincial issue of paper currency had to wait another 25 years. The establishment of a central bank was delayed almost 100 years.
Upon Confederation in 1867, there was another proposal to make the new federal government the sole issuer of legal tender paper money, with the seigniorage accruing to the government. Unlike the earlier Sydenham proposal, the money would be fiat-based; i.e., inconvertible into gold. Moreover, there was no specific reference to the establishment of a bank. Instead, control of the proposed new monetary system would be given to a small number of commissioners, of whom the
minister of finance would be an ex officio member. In apparent recognition of the potential perils of giving such authority to the government, ties to the government would be restricted to the minister of finance. While this proposal did not succeed, it foreshadowed key elements of modern central banking—a fiat currency, a government monopoly on the issuance of paper money, and independence for the issuer.