Canadian Currency Vs. American Currency
Both the U.S. and Canada denominate their currency in dollars, though the Canadian dollar (CAD) and the American dollar (USD) are separate currencies produced by each country's national mint. The American dollar is the most traded currency in the world and the most common currency in nation's foreign reserves. The Canadian dollar is the seventh most traded.
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USD History
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The Coinage Act of 1792 established the U.S. dollar at $4.80 per sterling pound. The dollar was based largely on the Spanish dollar and was backed by the gold standard (meaning that the government held gold in reserve guaranteeing that every dollar could be exchanged for gold in a currency crisis) until 1971.
CAD History
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The Canadian dollar became Canada's official currency under the 1871 Uniform Currency Act, which ended 30 years of vacillating between the British pound sterling system and the American dollar system, and united the slightly different currencies in each province. With this act, Canada officially adopted a currency modeled after the United States, though the pound sterling was considered legal tender until the 1990s.
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Bilateral Trade
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Canada and the U.S. are major trading partners. The U.S. imports most of its oil from Canada -- 84% of Canada's total exports go to the U.S. -- and 57% of Canada's imports are American. The USD-CAD exchange rate affects this flow of trade, and though the Bank of Canada has no official target for the exchange rate, Canadian exporters benefit from the cheap price of the Canadian dollar in relation to the American dollar.
Exchange Rate
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Since the 1850s, the Canadian dollar has been worth slightly less than the American dollar, averaging around 1.1 CAD per USD for most of the 20th century. Both dollars are traded internationally at floating rates (meaning that supply and demand in the markets sets the exchange rate, not a government). In the 1950s and 1970s, the Canadian dollar hovered around 95 cents per American dollar, but in the following decades, the Canadian dollar fell against the U.S. dollar, reaching an all-time low of 61 American cents for a Canadian dollar in 2002. The CAD reached parity with the USD for the first time in three decades in 2007, later reaching a high of $1.10 USD per CAD. In 2008, however, the CAD was down to 98 USD cents.
International Use
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The U.S. dollar is the most widely-traded currency in the world and the most common reserve currency for both governments and commercial banks. The Canadian dollar is the seventh most-traded currency, and a common reserve currency in North, Central and South America.
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References
- Photo Credit Pennies on the Dollar - one dollar bill with pennies. image by Andy Dean from Fotolia.com
