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The Bank of Canada. Objectives & Functions. The Bank of Canada. The Bank is Canada’s central bank established in 1934 as a private enterprise but became a “crown corporation” in 1938 not under direct jurisdiction of the federal department of finance, but coordinates policies together
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The Bank of Canada Objectives & Functions
The Bank of Canada • The Bank is Canada’s central bank • established in 1934 as a private enterprise but became a “crown corporation” in 1938 • not under direct jurisdiction of the federal department of finance, but coordinates policies together • managed by a Board of Directors that are appointed by the Federal Cabinet • B of D appoint a Governor and Deputy Govenor
Objectives of the Bank of Canada • (these are set out in the Bank Act) • To regulate credit and currency in the best interests of economic life of the nation • To control and protect the value of the Canadian dollar • To control by its influence, fluctuations in the general level of production, trade, prices and employment as much as possible through monetary action
Generally, to promote the economic and financial welfare of Canada In summary, the Bank of Canada is in charge of trying to provide stable prices, full employment, economic growth and a viable balance of payments.
Functions of the Bank of Canada • 1. Issues all currency • all paper money is signed by the Governor and Deputy Governor of the B of C. This bank is the only institution authorized to issue paper currency and coins • all money issued by the Bank is backed by some asset owned by the Federal Government
Functions of the Bank of Canada • 2. Acts as the Banker’s Bank • it holds the chartered banks deposits • chartered banks settle debts among one another by writing cheques on their deposits with the B of C. • makes loans to chartered banks and to the federal gov’t if such loans are condisered to be “good for the country” • sets the interest rate for loans to chartered banks “bank rate”. • Keeps a record of all chartered banks’ balance sheets -- to ensure they are properly managed
Functions of the Bank of Canada • 3. Serves as the Federal Governments Bank • provides expert advice • advises the government on financial matters (Federal Department of Finance) • - holds Fed. Gov’t Deposits • it receives all gov’t revenues and provides an account for paying all gov’t bills • most of the gov’t bank deposits are with the chartered banks
Functions of the Bank of Canada • - issues bonds • acts as the gov’t agent in the sale of gov’t securities (eg. Selling bonds to finance the deficit) • - sells treasury bills • weekly treasury bill (t-bill) sales are handled by the B of C. • T-bills have no stated rate of interest -- they are sold at auction at a discount (below face value) • T-bills are short-term securities that are sold to meet its’ short term borrowing requirements
P Canadian dollar S2 PE2 S1 S , Q , P $1.00U.S. = $.68Cdn PE1 $1.00U.S. = $.65Cdn D QE2 QE1 Q Functions of the Bank of Canada • 4. Controls Exchange Rates • controls the value of the dollar • to appreciate the dollar, the B of C buys Canadian dollars with its reserve of foreign currencies (causing less supply)
P Canadian dollar S1 PE1 S3 S , Q, P $1.00U.S. = $.65Cdn PE3 $1.00U.S. = $.63Cdn D QE1 QE3 Q Functions of the Bank of Canada • To depreciate the dollarthe B of C sells Canadian dollars and holds reserves of foreign currencies (more supply).
Functions of the Bank of Canada • 4. Controls the money supply • tries to regulate the supply of money to achieve full employment, stable prices, economic growth and viable balance of payments.
