Canada and the United States are the world’s largest trading partners, and they have been for many years. In 2015 alone, the two countries traded more than $670 billion in goods and services, or nearly $2 billion a day. With so much trade happening, are U.S. dollars accepted in Canada? Officially, the answer is no, but in practice, things are different.
The Canadian Dollar
Canada's official currency is the Canadian dollar. The Canadian Currency Act is a federal law that establishes the dollar as the official currency of Canada and defines the basic rules surrounding its usage. That same law establishes that all public accounts founded or maintained in Canada must be in Canadian dollars and that any reference to money or monetary value in any indictment or other legal proceedings must be stated in Canadian dollars. In this context, therefore, the U.S. dollar is not accepted.
Private Transactions
There are some nuances, however, when it comes to private contracts and transactions. The Currency Act first sets out a rule to the effect that "every contract, sale, payment, bill, note, instrument and security for money and every transaction, dealing, matter and thing relating to money or involving the payment of or the liability to pay money shall be made, executed, entered into, done or carried out in the currency of Canada."
However, that same section of the Currency Act immediately provides a very broad exception by adding "unless it is made, executed, entered into, done or carried out in the currency of a country other than Canada." In other words, other currencies, including the U.S. dollar, can be used in private contracts, but they need to be specifically chosen by the parties. The default currency is the Canadian dollar.
Practical Uses of the U.S. Dollar in Canada
There are many situations where U.S. dollars are used in everyday life in Canada. In the tourism industry, it is not uncommon for hotels, restaurants and gift shops to accept cash payments in U.S. dollars and to provide an exchange rate to their clients that is (often somewhat loosely) based on the official exchange rates. For this convenience, American tourists often pay a premium over the exchange rate that they would have received in a bank or by using a credit card.
On the other end of the spectrum, large corporate transactions are also often made in U.S. dollars and reported in the media in both currencies. The 2014 merger between Tim Horton's Inc. and Burger King Worldwide Inc. that created Restaurant Brands International Inc. (NYSE: QSR) is an example of this, where the merger was billed as a $12 billion (U.S.) dollar transaction but shareholders were paid in Canadian dollars. Of note, the stock of the new company also trades on the Toronto stock exchange, where it is denominated in Canadian dollars.
Impact on Cross-Border Businesses
The duality of currencies is an important element for all businesses with cross-border dealings. In 2016, the strength of the U.S. dollar relative to its Canadian counterpart has created incentives for Americans to invest in Canada. The tourism industry has seen a boost in American visitors, and there have been some acquisitions of Canadian businesses by Americans. A recent example that was highly debated in the province of Quebec is the acquisition by Lowe's Companies Inc. (NYSE: LOW) of the hardware store chain RONA Inc. for $2.4 billion.
Another field where the dual currencies have a major impact is sports and entertainment. Hockey, especially, is very important to Canadians, and there is a constant fear that teams may be relocated to the United States, which is what happened in the 1990s with the Winnipeg Jets and Quebec Nordiques. The argument, essentially, is that teams earn income from ticket and merchandise sales in Canadian dollars but pay their players in U.S. dollars. A falling Canadian dollar means a "double-whammy" of lower earnings and higher expenses.
In the end, while it can be said that the U.S. dollar is not officially accepted in Canada, there is no doubt that, due to the numerous interactions between the two country's economies, it plays an important role in Canadian monetary policy and even everyday life.
