Bank of Canada
The Bank of Canada is the country's central bank, responsible for monetary policy, issuing currency, and promoting a stable and efficient financial system. It conducts monetary policy to control inflation and promote economic stability, and it also acts as the government's fiscal agent, managing public debt and foreign exchange reserves.
7 Key excerpts on "Bank of Canada"
- Panicos Demetriades(Author)
- 2019(Publication Date)
- Agenda Publishing(Publisher)
...1 Central bank roles: historical context From financing wars to inflation targeting : a brief history of central banks Central banks are institutions that issue currency, provide banking services to governments and commercial banks and have responsibility over monetary policy, including setting short-term policy rates (at which they provide short-term liquidity to commercial banks through monetary operations). Often central banks have responsibilities relating to financial stability, which sometimes include regulating and supervising commercial banks and, more recently, resolving banks that are failing. Central bank legal frameworks vary considerably from country to country, largely reflecting differences in attitudes shaped by diverse historical experiences. A key feature of the European Central Bank (ECB), unlike the United Kingdom’s Bank of England (BoE) and the United States’ Federal Reserve (the Fed), is that it is explicitly prohibited by the Treaty on the Functioning of the European Union (article 123 – known as the monetary financing prohibition) from financing government deficits. Moreover, although all three central banks have mandates in which price stability is central, price stability is the ECB’s overarching objective: it can support other goals, including financial stability, growth and employment, only to the extent that they do not interfere with price stability. By contrast, the Fed has a dual mandate set in law: it aims to maximize employment and stabilize prices (as well as moderate long-term interest rates). The Bank of England’s objectives are set annually by the government, however. Ever since the bank was granted operational independence, in 1997, the main aim of monetary policy has been the achievement of low and stable inflation; other government objectives, including employment and growth, have been subordinated to price stability – very much like the ECB...
eBook - ePub- Anthony J. Makin(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...This system is essentially a network of financial institutions, which, by and large, act as intermediaries, or go-betweens, for savers and investors in the economy. Though included as one of the institutional sectors in the flow of funds accounts, financial institutions do not themselves contribute to the demand for, or supply of, saving, acting instead to channel funds between lenders and borrowers. FIGURE 8.1 The financial and monetary system The central bank is at the apex of the financial system. Its main functions include printing the notes that circulate as money, ensuring overall financial stability, and acting as major banker to the government to the commercial banks. At the international level, the central bank manages the nation’s official reserves of gold and foreign exchange and intervenes in the foreign exchange market. The extent of its foreign exchange market intervention depends on the exchange rate regime that the economy has in place. The main liability of the central bank is the supply of currency on issue, which is backed on its balance sheet (Table 8.1) by its holdings of government bonds and foreign exchange reserves. The balance sheet of the commercial banks is given in Table 8.2. The consolidated balance sheet of the banking system as a whole, consisting of the central bank and the commercial banks, is shown in Table 8.3. Here we see how the liabilities of the banking system reconcile with the definition of the money supply provided in Chapter 2. Central banks are also responsible for prudential supervision of the banking and financial system to ensure financial stability...
eBook - ePubCountry Analysis
Understanding Economic and Political Performance
- David M. Currie(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...CHAPTER 6 Evaluating Monetary Policy Besides the government, the other major institution influencing economic conditions in a country is the central bank. Each nation’s government defines the objectives of the central bank, but generally a central bank is responsible for controlling the rate of inflation, which it accomplishes by influencing monetary conditions such as the level of interest rates. A central bank also may be responsible for influencing the level of employment, the value of the nation’s currency on the international currency market, and safety of the financial system, among other functions. In most cases, you can identify a nation’s central bank by filling in the blank in Bank of _______ with the name of a country: Bank of England, Nippon Ginko (Bank of Japan), Banque de France, or Banco Central do Brasil. In some countries, the central bank is called a reserve bank for reasons we discuss in this chapter: Reserve Bank of India, Reserve Bank of Australia, or Federal Reserve System in the US. When several of the countries of Europe decided to adopt a single currency, the euro, it was necessary for the countries to create a central bank, the European Central Bank. Learning Objectives After studying this chapter, you should be able to: 1. explain what money is and how it is created; 2. explain the purpose of a nation’s central bank; 3. explain how a central bank influences interest rates in an economy; 4. discuss the economic conditions that would cause a central bank to adjust interest rates upward or downward; 5. explain the consequences of a central bank adjusting interest rates upward or downward. What is Money? At first, the answer to this question seems obvious: money is what you buy things with. But in a developed country such as the US, people buy things with currency, checks, debit cards, credit cards, traveler’s checks, PayPal accounts, electronic transfers, and numerous other methods...
eBook - ePubUnderstanding Central Banking
The New Era of Activism
- David Jones(Author)
- 2014(Publication Date)
- Routledge(Publisher)
...1 History and Purpose of Central Banking Reduced to its essence, central banking is critical in maintaining an orderly modern economy, but it has proved to be more art than science. No matter how sophisticated the analysis of the impact of monetary policy on the financial markets and how they, in turn, influence spending, output, employment, and inflation, central banking comes down to a process of trial and error, observation and adjustment. To be sure, only central banks have the special power to increase aggregate liquidity in their respective financial systems. Moreover, reasonably independent central banks like our Federal Reserve (the Fed) can react more promptly to financial crises than slow-moving legislatures or other government agencies on the fiscal side. Nevertheless, when fighting financial crises, it has been the Bernanke Fed’s artful innovation, timing, and the unexpectedly large scale of its actions that have saved the day, steering us away from a second Great Depression while rebuilding shattered market confidence. In short, it was Fed chairman Ben Bernanke’s willingness “to do whatever it takes” that kept the U.S. economy afloat, as emphasized by David Wessel in his excellent book, In FED We Trust: Ben Bernanke’s War on The Great Panic (2009). L ENDER OF L AST R ESORT Traditionally, central banks have been viewed as lenders of last resort. The central bank is the institution that your commercial bank turns to in a financial crisis when it is under assault by depositors and short-term bank debt holders demanding immediate cash in return for these bank liabilities. The Bank of England—founded in 1694 as the nation’s official bank, early debt manager, and clearinghouse—has successfully refined its role as a lender of last resort over the years and thus could be considered the bloodline ancestor of modern central banking. The Bank of England was nationalized in 1946, and subsequently became an independent public organization in 1997...
eBook - ePubFinancial Stability and Prudential Regulation
A Comparative Approach to the UK, US, Canada, Australia and Germany
- Alison Lui(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...Modern central banks are primarily occupied with monetary-policy matters (Bank for International Settlements 2009) since confidence in price stability and the currency is crucial for a healthy economy. With time, the combination of economic crises, wars and the breakdown of the gold standard transformed central banks from government banks into public agencies. This shift to a public-policy dimension meant that central banks are now working towards the interests of the financial system as a whole, rather than for commercial objectives. Like most concepts in finance, financial stability is not absolute and it changes with time. It has many facets, embracing rule-making, policy development and supervision. The lender-of-last-resort role is a way for central banks to sustain financial stability by assisting individual banks rather than monitoring liquidity for the general financial system. In exceptional circumstances such as the global financial crisis, the general liquidity and specific liquidity lending under the lender-of-last-resort principle merge. It is interesting to note that only 20 per cent of the 146 central banks have express objectives for financial stability and that around 50 per cent of the world’s central banks have more generic objectives regarding financial stability. Since the global financial crisis, the Reserve Bank of Australia, Federal Reserve, Bank of Canada, Bank of England and ECB have all had the wide objective of promoting, enhancing and contributing to financial stability. Macro-prudential regulation and supervision contribute to financial stability by involving the relevant regulatory authority in monitoring systemic risks holistically. Effective central-bank regulation is of practical importance because it can affect the quality of bank regulation and supervision (Koetter et al. 2014). The ultimate aim of macro-prudential regulation is to avoid macro-economic costs linked to financial stability (Galati and Moessner 2010)...
eBook - ePubThe Great Inflation
The Rebirth of Modern Central Banking
- Michael D. Bordo, Athanasios Orphanides(Authors)
- 2013(Publication Date)
- University of Chicago Press(Publisher)
...This meant that we needed to test further the meaning of the phrase “high priority.” What Happened After? Monetary policy for several years after 1987 affords some contrast with the earlier period. The bank set out its stall early, and pursued the objective of inflation reduction with consistent focus—a single-mindedness that at the time seemed praiseworthy to some and noxious to many. Inflation did come down significantly (though not easily), and from about 1992 inflation in Canada, as measured by the Consumer Price Index (CPI), has stayed around 2 percent. That is to say, there have been no further reductions in inflation, and therefore the subsequent years lie outside the mandate for this review. Bank of Canada’s Authority to Act This is territory that is both tricky and sensitive. Judging by its statutory mandate as set out in the preamble to the Bank of Canada Act, the bank has considerable scope to set the course of monetary policy. This scope is subject to “regular consultation” with the minister of finance and, ultimately, a ministerial directive. However, it should be emphasized that regular consultation is not the same as taking instructions, although it surely does mean listening very carefully. And if it did mean taking instructions, there would be no need for the explicit provisions in the Bank of Canada Act under which the minister may issue a directive to the bank on the specific policy to be followed, provided the directive is published forthwith. No directive has ever been issued. (For specifics regarding the bank’s mandate as set out in the preamble to the Bank of Canada Act, and also the consultation/directive provisions in the act, see the appendix.) That being said, it can be taken for granted that however these provisions are read, the governor will always wish to get along with the minister of finance and his officials, and in particular to find common ground regarding the monetary policy to be pursued...
eBook - ePub- Thomas Crump(Author)
- 2011(Publication Date)
- Routledge(Publisher)
...In selling krugerrands, D-marks, Japanese yen—or for that matter Honduran lempiras if it has any in stock—the High Street bank is merely reverting to type, that is to being a money-changer, which is where banking started in the first place. The banking operations of the central bank Whatever its special position in relation to the national note issue or the ultimate reserves of the banking system, a central bank is still a bank, whose balance sheet and profit and loss account can be presented in the form given on p. 147. 25 If it differs from other banks it is because of the identity of its clients and the transactions which it carries out on their behalf. The central bank is always the bankers’ banker and the government’s banker. As the bankers’ banker it is at the top of the clearing pyramid, so that any giro-transactions involving two separate clearing banks will pass through its accounts, in the manner explained on p. 151. The Bank of England insists that the accounts of the clearing banks be kept always in credit, which gives it a measure of direct control over the reserves of the banking system as a whole (Clapham, 1970, vol. ii, p. 213). This in turn ties up with the role of the Bank as a lender of last resort (Sayers, 1967, p. 112). There is, however, nothing essential in the practice of the Bank of England: there is no reason why the banking system as a whole should not generally be overdrawn at the central bank (which is the normal position in the Netherlands, for instance), although in this case the central bank will have to use other measures for controlling the money supply. 26 At one level, the central bank, as the government’s banker, is concerned only with the management of an account 27 according to normal banking practice (Clapham, 1970, vol. ii, p. 132)...
