By Ian S. Robertson
The new federal budget’s proposal for obsolete paper money bearing five no-longer-issued denominations to lose legal tender status quickly caused panic among some collectors.
Within hours of the budget’s release on Feb. 27—with a single line signalling the plan—dealers were receiving calls from customers who feared their $1,000 bills might no longer be worth the paper they were printed on.
But as Jasmine Ellen, of Gatewest Coin Ltd. in Winnipeg, said in an interview the following day, there’s no cause for alarm.
The Bank of Canada issued a detailed explanation, reassuring Canadians the value of old cash was not in peril.
“You’ll still be able to redeem them,” Ellen told Canadian Coin News. “You’ll just not be able to redeem them at a private bank.”
The budget reveals that officials in Ottawa are targeting five denominations of currency issued over the past 83 years. No timeline was given for the legal status of notes to be withdrawn.
“If that power is approved by Parliament, the plan would be to remove that designation from certain banknotes that are no longer being produced—the $1, $2, $25, $500 and $1,000 notes—and they would be officially taken out of circulation,” the Bank of Canada statement notes.
Collectors of Canadian banknotes do not have to worry about the legal tender status, said Jared Stapleton, former president of the Canadian Paper Money Society. “The bills will retain their face value and, “in many instances such as the example of a 1935 $25 note, that are mentioned in the government’s communication, will still have a collector premium easily many times the face value.”
However, added Stapleton who also owns Metro Coin & Banknote Company, many notes privately issued by banks are no longer redeemable, yet regularly traded among collectors for several times their face value.
“It is important not to confuse “legal tender status” with whether or not the bills are redeemable,” he said. “They are still redeemable at the Bank of Canada but in most cases are worth more to collectors.”
ENSURING QUALITY, SECURITY
By removing such currency from circulation, “we can ensure that our bank notes stay current, of high quality and secure. It also guarantees they are always easy to use.”
“Every bank note issued by the Bank of Canada since we opened our doors in 1935 is still redeemable at its face value,” the statement promised.
“Don’t worry, nothing will happen overnight,” it added. “If the legislation is changed, we will let you know what you can do with your older notes.
“For now, you can still redeem them at your financial institution, but after a period of time, you will have to send them to the Bank of Canada to redeem their value. Or, you can always decide to keep your notes.”
Despite worries by some people who have collected or hoarded old paper money, “these bank notes would not lose their face value,” the statement continued. “If you have one of them, you will still be able to take it to your financial institution or eventually send it to the Bank of Canada to redeem its value.”
“It’s the first time that Canada is doing it,” Ellen said of the federal banknote plan.
STILL IN CIRCULATION
On Feb. 28, Naomi Powell and Barbara Shecter reported in the Financial Post that “more than 740,000 of the $1,000 bills” were among $1,101,782,084 worth of still-circulating banknotes earmarked by the plan. They also quoted the federal banking agency revealing that 40 of the 1935 $500 banknotes “are still in circulation.” It is highly unlikely anyone has such a bill tucked in a wallet for a rainy day. With examples selling for thousands of dollars, chances are the few surviving examples are in the hands of collectors or dealers, although the Bank of Canada suggests others may have been destroyed in fires or rotted away in wet conditions.
As production costs rose and the buying value of $1 and $2 bills declined, they were withdrawn from circulation. Replaced by the loonie, the $1 bill went first in 1989, followed in 1996 by the $2 bill, which was replaced by the toonie. The Bank of Canada estimates 104 million $2 bills and about 151 million $1 notes were never turned in, suggesting most have been kept as souvenirs or in numismatic collections. Sheets of 40 of each denomination were snapped up by collectors and sentimental Canadians before they were phased out.
One of the reasons cited for targeting the five obsolete currencies is the government’s desire to maintain confidence in newer, more secure Bank of Canada polymer (plastic) banknotes, which have replaced older paper-based notes in recent years.
The complete story will be published in Issue No. 26 of Canadian Coin News.