Banks Too The Credence Of Money: Tokens Of Lower Canada

One of the defining characteristics of money inward relatively modern societies is that it is accepted every bit such yesteryear banks. (Ancient societies had a somewhat to a greater extent than informal notion of banking.) Although at that spot could last other instruments used for transaction purposes, if they are non accepted yesteryear banks, their usage volition last limited. Acceptability yesteryear banks drove the usage of copper tokens inward the Canadian colonies. This article is a somewhat tangential response to around comments of Eric Lonergan on the previous "Money As Debt".

Historical Background

Lower Canada was the British colony that conk the Province of Québec after Confederation (1867). (Upper Canada became Ontario; the "Lower" referred to fact that it was downstream of Ontario on the St. Lawrence River.)

Although I was raised inward a patriotic pro-Empire immigrant family, it is prophylactic to state that the British colonial administrators did non e'er convey into line of piece of work organization human relationship inward the interests of the colonists. In the instance of the Canadian colonies, 1 of the ways that this showed upwardly was inward a lack of circulating coinage. Since the authorities did non provide coins, the individual sector stepped inward an copper tokens were used every bit money.

It should last noted that these tokens were for small-scale denomination purchases; large transactions would last inward the domain of the banking system. The Canadian banking organization has attracted involvement from the libertarian "Free Banking" schoolhouse (which believes that banking should largely non last regulated). There was no fundamental banking firm inside Canada; if whatever entity filled that role, it would cause got been the Bank of England. I am non familiar plenty alongside the literature to comment on how banks operated.


The monetary organization was metal-based, as well as the tokens were supposed to cause got the same copper content every bit British coins. This makes the token organization dissimilar from our fiat currency system. The issuers of tokens were individual entities, as well as inward around cases imported tokens from elsewhere inward the British Empire. (They are called tokens as well as labelled every bit such since they were privately issued; coins are government-sanctioned issues.)

(The residual of this department is based on information inward Canadian Colonial Tokens, yesteryear W.K. Cross, inward the department "Tokens of Lower Canada", page 87 of the Eight Edition.)

The coinage province of affairs varied across the colonies. However, inward Lower Canada, the province of affairs was by as well as large quite ugly after the Ordinance of 1764 which forbade the usage of former Castilian dollars (which had been cutting into pieces). In 1812, unusual tokens were imported, as well as and thus locally produced tokens started circulating.

The metallic content of these tokens decreased over time, as well as inward the words of W.K. Cross:

By 1837, anything the size of a halfpenny would move yesteryear for a token as well as the banks, inward the absence of activity yesteryear the government, refused to convey whatever of the so-called copper currency except yesteryear weight as well as issued their ain tokens.

The token pictured inward a higher house is 1 of the banking firm 1 penny tokens that was issued inward 1837. These banking firm tokens replaced all of the other tokens inward circulation. (However, the other issuers cause got had the final laugh. Those non-bank tokens are rare as well as valuable; whereas the banking firm token inward a higher house is to a greater extent than mutual as well as worth precisely $30 or so.)

(The Bank of Canada Museum has an first-class token collection; however, the museum is currently beingness renovated. Once it re-opens, it's worth a see after you lot cause got finished your protestation against the Bank's depression policy rate. The token prototype on the encompass of my ebook was licensed from the Museum.) 

The Lesson

@wonkmonk_ @RomanchukBrian if 1 goes dorsum to midpoint ages, kings used to default all the fourth dimension yesteryear crying downwards the currency

— Eric Tymoigne (@tymoignee) February 22, 2016

Broadly speaking, the average someone on the street is quite easy-going alongside honour to the credence of coins. As long every bit other people cause got it inward commerce, at that spot is trivial concern almost the actual metallic content behind them. This was non a particularly Canadian characteristic; the same is truthful of other countries that operated alongside coinage that was clipped or debased. As noted inward the Tweet inward a higher house yesteryear Eric Tymoigne, monarchs "cried down" their currency periodically. As a result, the belief that money is accepted exclusively based upon the utility value of the metallic behind it is debatable.

However, this credence of the underweight tokens ended 1 time the banks stopped taking them in. I am hardly an skillful on that catamenia of history, but breaking the linkage betwixt the nominal value of the token as well as the nominal value of banking firm accounts was plenty to displace them out of circulation.

Money As Debt

Eric Lonergan replied to my article:

I don't know if this is a legal right/obligation to United States of America of America citizens (or all holders of dollars) [to convert currency into reserves - BR] - but no 1 uses or holds them for this purpose. If inward doubt, inquire them. It is also non a right, that I am aware of - or assist almost - for whatever other currency which I (or anyone else) uses. Now, the holders of debt specifically practice thus to have income as well as repayment of principal. 

Like Wray, the lengths you lot need to conk to to homecoming dollar bills 'debts' proves the point, which is crystal clear: money is completely dissimilar to debt. Ask yourself this: what percentage does debt serve, as well as what percentage does money serve?

I cause got that the role of "money" tin give notice last idea of every bit dissimilar than the role of "debt"; however, it seems that (modern) money almost invariably takes the shape of debt instruments.

Although it is clear that most people would non sentiment dollar bills every bit beingness equivalent to reserves, they surely practice equate them to the dollars inward banking firm accounts. As my token money representative shows, non-acceptance yesteryear banks dooms something from beingness considered "money." Furthermore, banks are quite good aware of the equivalence betwixt reserves as well as currency notes.

The role of the banking organization driving money cannot last overlooked. The banking organization operates alongside a unit of measurement of line of piece of work organization human relationship (for example, the dollar), as well as at that spot is an expectation that "money" volition last accepted at par every bit a deposit. Given that adults by as well as large cause got bills as well as debts denominated inward that unit of measurement of account, it is hard to job other potential agency of exchange. Meanwhile. it is hard to encounter what banks would central at par value other than debt instruments. For example, 1 could imagine that trades could last denominated inward livestock (which happened inward many societies). However, you lot are non going to instruct also far attempting to deposit a squealer into your savings line of piece of work organization human relationship inward a banking firm branch inward downtown Toronto.

Are Tokens Debt?

My token representative appears to undercut the claim that money by as well as large consists of debt instruments. Are they non based on weights of copper?

Firstly, it should last noted that tokens were used for small-scale denomination transactions. Nobody would purchase a solid using a sack of tokens. Large transactions occurred inside the banking system, which is debt-based. Secondly, many tokens could last idea of every bit a shape of debt.

The issuing entity was oft inscribed onto the token. Even if the token was underweight, the issuer would last expected to cause got the token dorsum at human face upwardly value. Although you lot as well as your customers know your penny token is mainly brass, you lot cause got to cause got it central for goods worth a penny. The token tin give notice last viewed every bit a collateralised IOU; the metallic content of the money serves every bit collateral. People volition cause got collateral below the human face upwardly value of the IOU if your credit is good.

Anonymous tokens did circulate. These cannot last traced dorsum to whatever issuer, as well as thus practice non appear to last debts. However, their circulation was presumably aided yesteryear the credibility of the people using the coins. I am non an skillful on the social customs of the nineteenth century, but it strikes me that 1 would non telephone phone into query the validity of a token handed to you lot yesteryear an honourable gentleman. In other words, the acceptability of the token inward commerce was based on the credit of the users.

(c) Brian Romanchuk 2015