User:Mr Serjeant Buzfuz/Dominion Notes Act

The Dominion Notes Act was an act passed by the Parliament of Canada, originally in 1868 and then continued in force until its repeal in 1935 by the Bank of Canada Act. It authorised the federal government to issue banknotes, which would be legal tender and could be used by the chartered banks of Canada instead of banknotes issued by the banks themselves. The notes authorised by the Act were initially required to be backed in part by gold reserves held by the federal government. When the Bank of Canada was established in 1935, it was given the power to issue notes on behalf of the federal government and the Act was repealed.

The term "Dominion notes" comes from the term initially used to refer to the federal government, the Dominion government.

The Provincial Notes Act, 1866

Bank of Montreal four-dollar note, 1859, over-printed as a Province of Canada note

The immediate predecessor to the Dominion Notes Act was the Provincial Notes Act. That Act was passed by the former Province of Canada in 1866, the year before Canadian Confederation, and authorised the Province of Canada to issue banknotes. The proposal was to serve the dual concerns of providing stability to the Canadian dollar in light of several bank crashes, and also to provide a badly needed revenue source for the provincial government. The government initially hoped that the provincial notes would entirely replace banknotes issued by the banks, but the banks opposed that proposal, fearing the loss of profits if they could no longer issue banknotes. Instead, the Provincial Notes Act authorised the government of the Province of Canada to issue notes, which the banks could use instead of their own notes. If a bank ceased issuing its own notes, then it could issue notes on behalf of the provincial government. Only the Bank of Montreal accepted this option, effectively becoming the banker for the Province.

The Act provided that the government could issue notes up to a total amount of ten million dollars, backed by gold and silver. For the first five million dollars of notes, the government was required to hold reserves in specie (i.e. gold and silver coins) equal to twenty per cent of the value of the notes issued. For any notes over the initial five million dollars, the government had to hold reserves in specie equal to twenty-five per cent of the additional notes. "Specie" was defined to mean coins which were recognised as currency by the provincial Currency Act of 1853, namely British gold and silver coins, and the American gold eagle coins. The notes could be redeemed for specie at offices of the Receiver General in either Toronto or Montreal.

Enactment of the Dominion Notes Act

Canada was created on July 1, 1867, when the British North America Act, 1867 (now the Constitution Act, 1867) came into force. The Constitution gave the federal Parliament of Canada exclusive jurisdiction over "Currency and Coinage" and "Banks and Banking". The new federal government immediately addressed the issue of currency and banknotes in the first session of the first Parliament, elected in the summer and fall of 1867. In December, 1867, the Minister of Finance, John Rose, introduced a bill in the House of Commons.