Why hasn't Canadian Tire Money displaced the Canadian dollar?

Canadians will all know what Canadian Tire Money is, but American and overseas readers might not. Canadian Tire, one of Canada's largest retailers, defies easy categorization, selling everything from tents to lawn furniture to hockey sticks to car tires. Since 1958, it has been issuing something called Canadian Tire Money (see picture above). These paper notes are printed in denominations of up to $2 and are redeemable at face value in kind at any Canadian Tire store.

Because there's a store in almost every sizable Canadian town, and the average Canadian make a couple visits each year, Canadian Tire money has become ubiquitous—everyone has some stashed in their cupboard somewhere. Many Canadians are quite fond of the stuff—there's even a collectors club devoted to it. I confess I'm not a big fan: Canadian Tire money is form of monetary pollution, say like bitcoin dust or the one-cent coin. I just throw it away.

It's the monetary oddities that teach us the most about monetary phenomena, which is why I find Canadian Tire money interesting. Here's an observation: despite the fact that it is ubiquitous, looks like money, trades at par, and is backed by a reputable issuer, Canadian Tire money doesn't circulate much. Stephen Williamson, a Canadian econ blogger, had an entertaining blog post a few years back recounting unsuccessful efforts to offload the coupons on Canadians. Sure, from time to time we might encounter the odd bar or charity that accepts it, or maybe a corner-store in Wawa. But apart from Canadian Tire stores, acceptability of Canadian Tire money is the exception, not the rule.

Why hasn't Canadian Tire money become a generally-accepted medium of exchange? One explanation is that Canadian law prevents it. Were the government to remove the strict rules that limit the ability of the private sector to issue paper money, bits of Canadian Tire paper would soon be circulating all across the nation, maybe even displacing the Bank of Canada's paper money.

A second hypothesis is that even if the law were to be loosened, Canadian Tire would remain an unpopular exchange medium. Some deficiency with Canadian Tire money, and not strict laws, drives their lack of liquidity. Nick Rowe, another Canadian econ blogger (notice a theme here?), once speculated that this had to do with network effects. Canadians have long since adopted the convention of using regular Bank of Canada-issued notes, and overturning that convention by accepting Canadian Tire money would be too costly. David Andolfatto (not another Canadian econ blogger!), would probably point to limited commitment as the deficiency. IOUs issued by Canadian Tire simply can't be trusted as much as government money, and so they inevitably fail as a medium of exchange.

In support of the first view, which is known in the economics literature as the legal restrictions hypothesis, Neil Wallace and Martin Eichenbaum (yep, another Canadian) recount an interesting anecdote. Back in 1983, competitor Ro-Na (since renamed RONA), a major hardware chain, started to accept Canadian Tire coupons at face value. I've found an old advertisement of the offer below:

RONA advertisement in La Presse, 1983 (source)

Eichenbaum and Wallace say that this is evidence that Canadian Tire money isn't just a mere coupon but readily serves as a competitive medium of exchange among Canadians. After all, if a major store like RONA accepted the coupons, then their acceptance wasn't just particular—it was general.

The story doesn't end there. Here is an interesting 1983 article from the Montreal Gazette:

The article mentions how in retaliation Canadian Tire sought an injunction against RONA to prevent it from accepting Canadian Tire money. We know this tactic must have been somewhat successful since RONA does not currently accept said coupons. Eichenbaum & Wallace slot this into their legal restrictions theory, noting that the injunction was probably motivated by Canadian Tire's desire to comply with legal prohibitions on the private issuance of currency, a damaging law suit helping to inhibit general use of their coupons. Remove these legal restrictions, however, and Canadian Tire would probably not have sued RONA, and usage of Canadian Tire coupons as a medium of exchange would have expanded. Presumably if Tim Horton's took up the baton from RONA and accepted Canadian Tire money, and then Couche-Tard joined in, you'd end up with a new national currency.

So we have two competing theories to explain Canadian Tire money's lack of acceptability. Which one is right? Let's introduce one more story arc. Zoom forward to 2009 when Canadian Tire lawyers sent a notice to a NAPA car parts dealer asking him to stop accepting Canadian Tire money. The reason cited by Canadian Tire: trademark infringement. As the article points out, Canadian Tire Money constitutes intellectual property, and if companies do not sufficiently police their trademarks against general usage, they may lose control of them. For instance, over the years Johnson & Johnson has had to vigorously defend its exclusive rights to the name "Band-Aid." If it hadn't, it might have lost claim to the name in the same way that Otis Elevator lost its trademark on the word "escalator" because the word fell into general use. That the 1983 RONA challenge probably had less to do with currency laws than trademark infringement damages Eichenbaum &Wallace's argument.

The last interesting Canadian factoid is the observation that a number of community currencies circulate in Canada. Salt Spring dollars, a currency issued by the Salt Spring Island Monetary Foundation, located off the coast of British Columbia, is one of these. Other examples include Calgary Dollars and Toronto Dollars. According to Johanna McBurnie, Salt Spring dollars are legal because they are classified as gift certificates. If so, I don't see why the use of Canadian Tire money as a medium of exchange wouldn't fall under the same rubric. This puts the final nail in Wallace & Eichenbaum's argument that restrictions on circulation of competing paper money have prevented broad usage of Canadian Tire paper. Rather, if laws are to blame for the minimal role of Canadian Tire Money's as currency, then it is the company's desire to protect its trademark that is at fault.

That local IOUs like Salt Spring dollars can legally circulate but lack wide acceptance (even in the locality in which they are issued) means we need something like the Nick Rowe's network effects or David Andolfatto's limited commitment to  explain why incumbent paper money tends to exclude competing paper money from circulation. Which isn't to say that Canadian Tire money would never circulate. As Larry White and George Selgin have pointed out, private paper money has circulated along with government paper money in places like Canada. But the bar for Canadian Tire money is probably a high one.

Tweet

Subscribe to receive free email updates: