“Pinko Panic”: Budget Item Stirs Confusion between ‘Non-Legal Tender’ and ‘Demonetized’

This article is a reprint from two years ago.

An item quietly unveiled in this past week’s Federal budget has caused a notable tizzy among those old enough to remember Magnum PI and the Canadian Dollar Bill. Easily missed in the initial budget-coverage, I was informed by my philatelic colleagues on Wednesday – perhaps a little too gleefully – that the government had moved to axe the legal-tender status of several banknote denominations, namely the One, Two, Twenty-five, Five Hundred, and One Thousand Dollar denominations.

Admittedly, this policy enactment is both unprecedented and peculiar. Unprecedented, as I believe it is the first time, to my knowledge, that the Bank of Canada has moved to designate any previously-circulating banknote as “non-legal tender”. And most certainly peculiar, as with all the heady challenges facing our domestic economy, the government thought it necessary to devote thought and resources into the de-listing of Twenty-five and Five Hundred Dollar Banknotes – neither of which have actually been printed for more than 80 years, and currently cost a minimum of $1,000 and $30,000 respectively for “entry-level” collector samples. In short, if the government is concerned about any outstanding liability or nefarious use of these notes, this would be pure folly.

Their philosophy on the Thousand Dollar notes, or “Pinkos” as I’ve discovered they are called by those in the know, is somewhat more grounded. As with other highest-value notes in the global economy, there are some legitimate concerns in areas of both the funding of illicit activity (i.e. the drug trade), as well of counterfeiting itself. Production of the $1,000 note was discontinued in Canada almost 20 years ago for these very reasons, although as coin dealers, we continue to encounter the notes on a fairly regular basis – interestingly, often emerging from the farming community whose traditional bank-shy practices likely fostered more commerce using these notes in Canada than was ever the case with organized crime.

It is, however, the status of One and Two Dollar notes that are of more relevant concern. For unlike the three higher-denominations detailed above, the Ones and Twos of the past 60+ years remain extremely common, with the vast majority carrying no collector-value above their indicated face-value. Indeed, we handle thousands of these notes annually, with the majority being distributed from our till to mostly grateful customers.

So, precisely what is causing the telephones of likely every coin and banknote dealer in the country to ring this week? The culprit is semantics. Or more precisely, the inability to recognize the critical difference between the terms “non-legal-tender” and “demonetized”.

What the government has set into motion is the withdrawal of the legal-tender status of these five specified denominations, meaning their guarantee and backing for use in every day financial transactions is being revoked. In actual practice, however, this significant legal reclassification will have little impact on anyone’s daily lives, as the practical status of these notes for most of the past 20 years has essentially been as non-legal-tender items anyways. Just ask anyone in recent memory who has handed a dollar bill to the kid at the Tim Horton’s drive-through, or tried to buy a riding mower at Canadian Tire using a “Pinko”.

As scary as this can be spun to sound, however, it remains an entirely different issued compared to the dreaded “D” word – namely, demonetization. It’s in the fine-print of budget coverage, but the impending non-legal tender designation does not mean all these millions of notes will suddenly become worthless. Sure, while as indicated above, acceptance and validity of the notes in everyday transactions will cease, they can still be cashed in through the banking system for an initial period, and then ultimately redeemed through the Bank of Canada itself, after that. Thus, unlike for example the French 500 Franc note, which at one point could buy a lovely Parisian lunch for two, and yet is now totally and completely worthless due to demonetization, the integrity of these Canadian notes continues, albeit with a bit more legwork involved in cashing them in.

For our part, we’ll quite likely continue to hand out One and Two Dollar notes from our till well-beyond the cessation of their legal-tender status, as long as our customers continue to appreciate them (although as we all know, it only takes one pretentious crusader with too much time on his or her hands to spoil the broth for all).

So, what is our advice to those sitting on these notes, we are now asked on an almost hourly basis? Well, as I commented to a fellow of the rural gentry yesterday who confided he was keeping 15 of the Canadian Thousand Dollar notes among his savings: breath easy, let your kids know you have them, and at the very first breath of “demonetization” to leave the lips of any future Minister of Finance, get to the front of the redemption line-up and be prepared to give up some of your personal data in exchange for a final cash-out.

No “Pinko Panic” here, just an evolving business-as-usual in one of the world’s top first-world economies.

Sean Isaacs

Author’s note: see the Bank of Canada’s link for their excellent description of the impending changes.

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