Bank of Canada

Established in 1934 Current governor is Mark Carney

Purpose of the Bank of Canada
1.Banker to commercial banks
  • Chartered banks keep a fraction of their reserve in the Bank of Canada
  • Lender of last resort( prime rates is 3%, the rate at which you can borrow, they are set by banks it is usually higher because the difference is the profit margin for the banks;the bank rate, the rate of interest the boc charges the commercial banks for loan it's 1.25%(always 0.25% more tan the over night rate) Over night target rate, is the recommende interest rate at which banks lend to each other. it is always 0.25% lower than the bank rate it's 1%)
  • **Set reserve requirements

2. Controller of the money supply
  • Too much money leads to inflation
  • Too little money leads to unemployment
  • Only institution in Canada allowed to print money
3. Banker to the federal government
    • The federal gov’t keeps a chequing account with the bank of Canada
    • If the gov’t needs to borrow money, it issues bonds which it sells to the bank of Canada(buys it with ex nihilo money)
    • Fiscal agent( involves in financial matters to the govt)
4. Manager of the country’s monetary policy(lower interest rate /increase money supply)
    • Subject to approval by the federal gov’t( they have always operated independent of the federal government but the govt of Canada can veto their decision)
    • Sets the bank rate and target overnight rate(but not the prime rate)
5. Supporter of the fiduciary monetary system
    • Fiduciary monetary system is based on trust or confidence(boc is legally obligated to maintain trust)
    • People accept currency because they are confident others will accept it from them
    • Bank of Canada acts to prevent a run on the bank(where bank runs out of money, when there customers need them)
    • CDIC (Canada Deposit Insurance Corporation; a crown corporation)- insures personal bank accounts up to $100,000 per account( in US is per person up to 250000) ( all federally chartered b anks purchase insurance from CDIC while the near banks can get insurance from anyother insurance)





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