The Bank of Canada

1
The Bank of Canada
2
Founding of the Bank of Canada

• Bank Act of 1934 at the height of the Great
  Depression
• Why?

3
Founding of the Bank of Canada

• To stabilize the Canadian economy provide
  security for the banking system
• Prevent the previous mistakes and instill
  confidence
• Began as private corporation
• 1938 PM Mackenzie King bought all shares (Crown
  corporation)

4
Fears?

• Opposition from the chartered banks
• Manipulation by the government was feared
• Banks notes in danger?
• March 11, 1935 Dominion notes replaced with
  currency

5
Banks Original Mandate

• The bank was expected to regulate credit and
  currency in the best interests of the economic
  life of the nation, to control and protect the
  external value of the national monetary unit (the
  Canadian dollar) and to mitigate (reduce) by its
  influence fluctuations in the general level of
  production, trade, prices and employment
• - The Canadian Bank Act, 1934, Chapter B-2

6
Banks Original Mandate

• 1934 lowest levels of Canadian production,
  foreign trade, prices and employment of the
  century
• Much faith was placed in the new central bank

7
Functions of the Bank of Canada

• Director of monetary policy
• Controls the growth of the money supply by
• - regulating interest rates
• regulating credit
• Regulating currency

8
Functions of the Bank of Canada

• Banker to the chartered banks
• Chartered banks have deposit accounts with the
  Bank
• Bank lends to chartered banks for investments
  (short term)
• Cash advances for support

9
Functions of the Bank of Canada

• Banker to the federal government
• deposits are made to the Bank and chartered banks
  
• Buys and sells federal government bonds, makes
  interest payments to bondholders
• Handles foreign exchange reserves

10
Functions of the Bank of Canada

• Issuer of Currency
• Paper currency
• design
• gauges amount required _at_ certain times of the
  year (Christmas summer)
• tries to eliminate counterfeiting

11
The Banks Organization

• Run by a board of directors appointed by the
  government
• Governor deputy-governor appointed for 7
  year-term
• Must have approval of federal government
• Cannot be removed without special acts of
  Parliament passed by both House of Commons the
  Senate
• Signatures are on every bank note

12
Ensuring Accountability

• Finance minister meets regularly with governor
  (Mark Carney) to discuss economy
• Disagreement arises, a directive is issued by
  government
• Published for the general public and must be
  brought before Parliament within 15 days

13
Ensuring Accountability

• Resignation or revision of the Bank Act?
• Serious matter for a country
• Confidence shaken in the banking system and
  currency both at home and abroad

14
The Final Word

• Federal government has the ultimate power
• Governor of the Bank of Canada is ultimately an
  instrument of the government
• Arguably can be considered the most influential
  person in the Canadian economy