U. S. Grant Presidential Library
Sir John A. Macdonald Sir Alexander Tilloch Galt Sir Francis Hincks
the Jacksonian period moved the United States further from the Hamiltonian system than it already was. While the American Constitution did not mention banking, incorporation of banks or the issuance of paper currency, it is clear 250 years later that the theory of residual powers has been bent to necessity.
To explain what happened in colonial Canada, it is necessary to look at colonial bank regulation in 1858 and then examine the evolution in colonial thinking. From there, it is necessary to understand the dynamics of the American Civil War and the changes afoot in imperial thinking in regard to the colonies.
Imperial Control of Colonial Banking
What is missing from Shortt’ s and Hammond’ s analyses is reference to the controls that colonial banks operated under, and the growing independence of the colonial leaders on policy matters.
In 1841, the British Parliament passed an Act of Union which united Upper and Lower Canada into a single administration with equal representation for Canada West and Canada East. Debt consolidation and the creation of a single revenue fund were also important goals.
While colonial affairs were the purview of the Secretary of State for the Colonies, the Treasury, the Board of Trade and the Colonial Office cooperated in preparing rules for the guidance of colonial legislatures. In 1844, British Prime Minister Robert Peel’ s Bank Charter Act established strict controls over domestic banks. The Treasury and the Colonial Office used domestic legislation to guide their controls over colonial banks.
However, change was afoot. Responsible government was achieved in 1848 and the elected politicians, who were to become fathers of the Canadian Confederation, started to think in new and different ways. They were helped by governor generals, such as Thomas Bruce, the eighth Earl of Elgin. When told in 1851 of the delays caused by the Treasury and Board of Trade, Elgin wrote,“ I fear we shall have a great deal of difficulty in conducting this colony if the opinion of the Canadian Statesmen and Legislators on Currency and Banking’ s questions are to be wholly disregarded.”
In 1857, the colonists revised the Currency Act so that as of January 1, 1858, all provincial accounts would be kept in dollars, not pounds; this was the birth of a distinctive Canadian currency.
Evolution of Colonial Thinking( 1858 – 1864)
In 1849, Alexander Tilloch Galt, a successful Quebec businessman, entered Canadian politics as a Liberal. He was not happy with the Liberal leader, George Brown, and was enticed to join Macdonald’ s Conservatives in 1857 on the condition that there be a confederation of the British North American colonies. Furthermore, Galt presented a detailed proposal for confederation, including provisions that included both banking and currency as federal responsibilities.
In 1858, he became Minister of Finance of the United Province of Canada and journeyed to London with George Etienne Cartier, co-Premier of the United Province of Canada, to present the colonies’ proposal to the Colonial Secretary. While the proposal may have been premature, it began a process which within a decade would result in a British North American Dominion with the federal authority having responsibility for both currency and banking.
The timing of the proposal was unfortunate. After a period of economic boom stimulated by railway construction, there was an economic collapse that is often referred to as the first global depression. While the Panic of 1857 was not as severe in Canada as in the United Kingdom and the United States, banks, individual investors and governments were all in a difficult situation.
Not surprisingly, there was a political stalemate amidst the economic uncertainty that followed the 1858 depression. However, in June 1864, George Brown, the Liberal leader, made an offer to back a government that would remake the union. Thus, the Great Coalition was born, which led to confederation.
Banking Crises and Civil War in the US; Rethinking in the UK
Before turning to the Constitutional Conferences, which led to confederation, it is necessary to look at what was happening
www. MoAF. org | Spring / Summer 2026 | FINANCIAL HISTORY 53