Good evening, Mr. Chairman. Thanks for the invitation to discuss the proposed legislative changes to the Bank of Canada Act and the Currency Act.
These changes will allow the government to remove legal tender status from Canadian banknotes, and allow the Bank of Canada to more effectively manage the quality of notes in circulation. Notes issued by the Bank of Canada, together with coins issued by the Royal Canadian Mint, are what is known as legal tender, which means they are the money approved in the country for paying debts.
Removing legal tender status means that some banknotes can no longer be used for payment of debt.
Generally speaking, it will be more difficult to make purchases with banknotes that are no longer legal tender. They will be refused by retailers, who will not be able to use them to pay their debts. However, these banknotes will not lose their value. The Bank of Canada will continue to honour them.
The Bank of Canada supports this initiative because having the power to remove legal tender status from banknotes means that we can do a better job of keeping notes that are in circulation more secure. Newer banknotes have better security features that make them difficult to counterfeit, and they are in better condition overall. Keeping notes current means they work more efficiently for all of us.
To date, every note issued by the Bank of Canada since 1935 remains legal tender despite the fact that the security features on those older notes are either non-existent or easily simulated. Withdrawing older notes from circulation will contribute to the public's confidence in using banknotes and the systems in place to efficiently process them.
As stated in budget 2018, if the power to remove legal tender is granted by Parliament, the government's intention is to remove this status from the $1, $2, $25, $500, and $1,000 banknote bills. Legislative changes are required to both acts, because the powers for issuance of banknotes resides in the Bank of Canada Act, but the specifics of banknotes are in the Currency Act.
Many central banks have the authority to remove the legal tender status of older banknotes. At the Bank of England, for example, calling in legal tender is often part of the strategy for issuing banknotes. When a new banknote is issued, the old and new series circulate at the same time for a predetermined period of time. After that, the old notes must be redeemed by the central bank. For example, in September, the Bank of England issued a new 10-pound note, and in November it announced that the old note would cease to be legal tender four months later.
In Canada, however, the banknotes that will lose legal tender status are no longer in circulation. They are the $25 and $500 notes, which date back to the first issue of notes by the Bank of Canada in 1935; $1 and $2 notes, which stopped being issued in 1989 and 1996 respectively; and $1,000 notes, which have not been issued since 2000.
This decision should have no significant impact on Canadians. These banknotes have not been produced for decades and are rarely used in transactions.
If the government is granted this power, the bank will provide clear information to Canadians on how to redeem the affected banknotes. This will involve a period during which the notes can be redeemed through financial institutions, as Canadians can do today. After this period, the notes can be redeemed directly with the Bank of Canada.
I'm happy to answer any questions you may have.