The Banque of Canada is the Central bank Canada. It is set up and is controlled by the Law on the Bank of Canada. Its responsibilities are related to certain objectives such as:

• Garder a rate of Inflation low and stable (the Banque of Canada tries to keep a rate of inflation of 2%, that is to say the median between 1% and 3% of what is called the target fork);

• To preserve a sure currency;
• To preserve a financial stability;
• To manage the government stocks Canadian and its national Debt;
• To implement a monetary policy in order to preserve the confidence of the market in the value of the Canadian currency;
• To design and distribute Canadian banknotes;
• To contribute to the reliability and the efficiency of the Canadian financial system, like providing effective and efficient services as regards be;
• To deal with the accounts which are not claimed and whose owners remain untraceable during more than 10 years;
• To control the directing rate (or the rate targets financing at one day, in the past the bank rate);
• To manage monetary reserves;
• To emit the goods of saving of Canada.

The Banque of Canada is ensured to communicate openly and effectively its objectives and to give an account of its acts to the Gouvernement of Canada and the Canadian population. Its head office is located at Ottawa. Since the 2001 David Dodge is the governor of the bank. It is named for a seven years mandate.

History

The Banque of Canada began its activities in March 1935. It should be noted that there was a long process at the beginning of this Siècle to create a central bank. In 1913, W.F. MacLean suggested the creation of a central bank which would be deprived and which at the same time would be managed by the government. The proposal was disallowed. In the context of the time, Canada was a Pays rather Rural and the Population was very dispersed. One did not see the relevance to create a central bank. Contrary to the American , the Canadian financial system was influenced by the model Britannique which recommended a limitation of banking institutions. “The installation of a mode of banks with branches was the logical solution to meet the needs for a population disseminated in small villages on an immense territory”. This system functioned rather well during nearly one century, each branch issued tickets. The most important banks were also able to manage the bank accounts of the government. The economic crisis of 1929 changed the data.

This crisis was a decisive turn in the development of a central bank. The Prime Minister Richard Bedford Bennett, was amazed to notice that it was difficult for Canada to regulate the international accounts with this multitude of small banks which manage each one part of the accounts of the government. It desired to find a means more direct to regulate this problem. In 1933, it named a royal commission to inquire into the Canadian financial system in its least details. One week after the deposit of the final report, the first-minister announced his intention to create a central bank. “In fact, an appendix of the Commission Report Macmillan, entitled Suggestions as for some of the principal aspects of the constitution of a central bank in Canada, was used as groundwork for the drafting of the Law on the Bank of Canada, which accepted the royal sanction on July 3rd, 1934. Founded in the shape of a privately held company whose actions were sold with the public, the Banque of Canada opened its doors in March 1935”.

Since 1938, the Banque of Canada is an public institution. This new bank was seen entrusting functions exerted by other organizations and new functions: emission of tickets, the offices of general receiver became agencies of the Bank of Canada, department of research on the financial evolution and the economic conjuncture of Canada and outside, services of exchanges and values, service of national debt. The Law on the Banque of Canada often changed since 1934, but the raison d'être of the bank changed forever: “to regulate the credit and the currency in the interest of the economic life of the nation”.

Interaction with actors

The Banque of Canada concerns the Ministry for Finances, but has a certain independence opposite the government. As regards the interactions with other actors, the Banque of Canada is the banker of the banks with charters. It emits money and makes sure that these banks have sufficient liquidities to ensure the payments. It is also and especially agent and adviser of the Canadian federal government. “The Bank manages the accounts of the general receiver in whom almost all the payments and receipts of the government circulate. The Bank takes care that the accounts are sufficiently supplied so that the State can honor its daily obligations, and it places the surplus amounts in term deposits. ”.

It also supervises the Canadian financial system with like example the law of the banks. This bank can have bonds with other governments everywhere in the world, it can buy and to sell foreign currencies, it can also “buy and sell special drawing rights of the Fonds international currency”.

She agrees of the loans at institutions which are members of the Canadian Association of the payments. She lends for the Canadian government or a province “provided that, on the one hand, assembling it not refunded loans, to any moment, a certain fraction of the estimated receipts of the government in question for the current year does not exceed - a third in the case of Canada, a quarter in that of a province - and that, on the other hand, the loans are refunded before the end of the first quarter of the following exercise”.

The Banque of Canada accepts the deposits of the Canadian government and pours the interests which are owed to him. These deposits can be also made by a local or foreign bank if it is authorized to do it. It can also accept deposits of the companies or an organization of Federal state. The Banque of Canada can also open accounts outside, either in another central bank, or in an international agency like the Funds international currency, the Banque of the international payments, the international Banque for the rebuilding and the development, etc Enfin, the Bank can “acquire, rent and hold real buildings or, and have which it”.

Outline

The Banque of Canada was created to control the Canadian economy. The role of this bank on the national plan is important: she wants initially to promote the economic welfare of the Canadian citizens. She establishes a monetary policy to ensure the confidence of the Canadians. But the Banque of Canada is especially the financial agent of the federal government. “The Bank provides strategic councils to the State to ensure an efficient management of the debt, and it sells the titles within the framework of adjudications with distributers and brokers of the financial market. ”.

On the international plan the Banque of Canada is similar to very other Central bank (the United States, European Central bank), but it does not exploit part as large as the national plan. It can be implied in international agencies either by buying values or titles on other markets, or by accepting deposits of external banks. The Banque of Canada is addressed especially to the government and the banks with charters which ensure them to have a certain liquidity. The bank also provides councils about the debt. All that the bank made, it is to ensure the wellbeing of the Canadians and of the government, it acts not for itself but to ensure best possible economic health for Canada.

Policies and activities of the Bank of Canada

The monetary policy of the Banque of Canada consists in making so that the currency adequately fulfills its role, which is essential with the good performance of the Canadian economy. This is why the Banque of Canada gets busy, by the monetarist political measures which it takes, to protect the value from the Canadian currency by keeping a rate of low and stable inflation. The targets of control of inflation that the Bank of Canada and the federal government established for Canada constitute the central element of the monetary policy. The objective is to maintain inflation measured by the Consumer price index (IPC) in a fork which goes from 1 to 3%. It is mainly by the modifications which it makes toits target rate financing to one day that the Banque of Canada implements its monetary policy. This rate indicates to the great financial institutions of Canada with which average interest rate the Banque of Canada wishes that they lend themselves undergrounds for one one duration. The modifications that the Bank brings to the target rate financing to one day generally reflect on other interest rates, in particular the rates mortage and the basic rates of the loans of the trade banks. The variations of this influential rate on other interest rates and can act on the external value of the Canadian dollar. The level of interest rates and foreign exchange rate determine the monetary conditions which characterize the Canadian economic conjuncture. The changes of interest rates have an impact on the level of inflation. A fall of interest rates tends to involve an increase in the expenditure and a reduction in the saving, while a depreciation of the Canadian dollar can stimulate exports and contain the imports. Contrary, a rise of interest rates tends to slow down the domestic expenditure, while an appreciation of the dollar contributes to reduce exports and to support the imports. If Canada exports much more than it is essential, it is clear that a weak dollar supports it, because it makes enter of the funds external with the country. If Canada starts to import more than it exports the opposite would be preferable, so that the costs are reduced. Thus the rate of inflation remains low. It is while continuing to control inflation that the Canadian currency will remain a sure currency.

The Banque of Canada also deals with the not claimed balances. This program consists in making public the accounts of banks where no transaction took place during the ten last years (before the transfer to the Bank of Canada). The name of the holder of the account as well as the company to which it belonged, if it' takes place there, and assembling it transferred, are made public, so that the rightful owners can recover them.

It is also the Banque of Canada which manages the Obligations of saving of Canada, which are emitted obligations each year by the federal government of Canada. Thus the Canadians can lend money to their government so that this last can more easily manage the financing of its national debt. It is preferable to borrow its own citizens (who become thus customers of the Bank of Canada) to borrow from other countries.

The Banque of Canada also launched out in a vast program of sensitizing to detect the counterfeit bills of bank. The Banque of Canada collaborates with other central banks as with the Canadian police bodies of all the levels in order to make safe new banknotes, to inform the public and to repress the forgers.

The Banque of Canada offers also a service of refunding of the mutilated tickets. When a citizen damages his banknotes at the point to become unusable, the Banque of Canada uses its laboratories to detect the value of it, and refunds the citizens.

The organization of the Bank of Canada

The Banque of Canada owes its base and is always governed by the Law on the Bank of Canada. It is equipped with the legal entity. Its head office is located at Ottawa but the Law on the Banque of Canada enables him to establish branches in Canada everywhere when good seems to him, and even abroad, but in this case one needs the approval of the governor as a council. The Banque of Canada is directed by a board of directors made up of the governor, who is currently David Dodge, of the first deputy governor, which is currently Paul Jenkins, of four deputy governors (this number can be increased or decreased according to the needs for the Bank of Canada). The governor and the first deputy governor unite with the deputy minister of finances (which acts as member of office) and with 12 other administrators to train the board of directors of the Banque of Canada . It is this board of directors which directs the Bank of Canada. The governor and the first deputy governor are selected among the personalities having a recognized financial competence. They are devoted full-time to the load that the Law confers to them on the Banque of Canada or any other federal law. They are both named on a purely irremovable basis for a seven years mandate.

The Bank of Canada account ten departments:

• the department of the Research , has for principal responsibility to provide to the direction of the Bank an analysis of the Canadian economy.

• the department of the Financial markets assumes a combination of functions of a nature operational and analytical, that it is the implementation of the monetary policy, the casch management, to follow the market evolution financial in order to improve the implementation of the monetary policy, etc
• the department of the monetary and financial Études carries out research related to the financial sector, follows closely the activities of this one and produced reports/ratios to contribute with the formulation and the implementation of the monetary policy of the Bank of Canada.
• the department of the International relations carries out specific analyzes on the current evolution and envisaged economic situation abroad, it provides analyzes and councils on questions which interest the international financial institutions, like the Fonds International currency, and it undertakes studies on subjects related on the international financial markets and the economic situation abroad.
• the department of the Services to the Top management and the Legal departments takes part in the management of the Banque of Canada while bringing to the top management and to the board of directors a support for decision making. This department provides also legal departments to the Banque of Canada and represents the latter as a moral person.
• the department of the Bank transactions deals with the service of the services of the Banque of Canada as well as emission of the currency and service with the customers.
• the department of the Communications assistance the bank to show of opening and transparency. One of its great priorities east to support the board of management, which plays a central role in the communications relating to the monetary policy of the Bank of Canada.
• the department of the Vérification is charged to carry out evaluations independent of the operations with the Banque of Canada on behalf of the top management and of the board of directors of the bank.
• the department of management of the debt , or Office of the management of the debt, deals with ensuring of the efficient administrative services and providing opinions with regard to the control program of the debt of the government.
• the department of the general Services deal with almost all the remainder, that it is the management of the employees to the purchase of equipment.

The Canadian monetary policy

The Monetary policy Canadian has as an original intention make sure that inflation remains on a bottom and stable grade. Also, these measurements are established to protect the value from the currency. To keep the economy in health, the monetary policy must obligatorily have rate of a low and stable inflation, all that to support a normal expansion of the economy and a stressing of job creation. “The stress laid by the Bank on the control of inflation implies that the variation of production, either the difference between the potential production and the effective production of the economy, or reduced to the maximum”. Lastly, the Canadian monetary policy aims at controlling the Canadian economy to attenuate the recessions and the rises of unemployments. It is necessary at all costs for the Banque of Canada to prevent the inflationary rises which are harmful for the company. What is important in economy, it is the confidence of the consumers, that is possible with a rate of low inflation because that makes it possible to people to more invest, which at the same time allows a growing economic growth and a more constant job creation.

There are several components of the monetary policy. “The targets of control of inflation that the Bank of Canada and the federal government established for Canada constitute the central element of the monetary policy”. The objective is to maintain inflation in a range of 1% to 3%, this inflation is measured by the consumer price index. The Banque of Canada also makes modifications as for its target rate of financing to one day. The variations of this rate influence on interest rates and the value of the Canadian currency. The Bank also carries out actions on the free Marché, for example, it can sell (to decrease the money supply) or buy (to increase the money supply) titles of the federal government near the banks with charters. “The Bank implements the monetary policy while influencing short-term interest rates. With this intention, it raises and lowers the target rate of the financing to one day (also called the directing rate). It is about the interest rate to which the great financial institutions lend themselves undergrounds for one one duration. ”. The Banque of Canada can practice according to the circumstances, a monetary policy restrictive or expansionist, in the first case, it increases the discount rate and in the second case, it decreases it.

Two rates determine the monetary conditions: interest rate and foreign exchange rate. “Transmission of the monetary policy between concerned when the variations of the monetary conditions exert an influence on the request for goods and services. For example, a fall of interest rates tends to involve an increase in expenditure and a reduction in the saving, while a depreciation of the dollar can stimulate exports and contain the imports. Contrary, a rise of interest rates tends to slow down the domestic expenditure, while an appreciation of the Dollar contributes to reduce exports and to support the imports”. Lastly, it is only after 18-24 month that the effects of the monetary policy are visible in the company. After this time, a chain reaction occurs on all the actors and the economic indicators. Therefore, the monetary policy must envisage the risks of the future and to prevent the problems which will be able to cause recessions or a rise is unemployment or inflation.

Control of inflation

The control of the rate of inflation is the central point in a Canadian monetary policy. This rate must be established between 1 and 3% to support a healthy economic growth. The Banque of Canada makes use of interest rate to control this rate of inflation, it wants to support a stability in the prices. If the Bank sees that the rate is higher than 3%, it will raise interest rates thus to slow down the request of the goods and services. In the contrary case, if the rate of inflation tends to decrease dangerously, the Bank, to support the request, will decrease interest rates. Thus one can see that the bank acts according to stabilizing the rate of inflation in a fork between 1% and 3%. Why between 1-3%? , This increase according to the Bank is normal, it is a normal growth. This rate must be relatively low to support the investments in the medium and long term, these investments are important because they support an economic growth and an increase in the creation of employment. Thus one can include/understand the decisions of the Banque of Canada on inflation because it has direct effects on the investments which influence the economic growth. “One of the main advantages which the continuation of an explicit target of control of inflation comprises is the influence that this one exerts on waitings concerning the evolution of inflation. This influence results in decision making economic - by the private individuals, the companies and the public authorities - which tend to reinforce the capacity of the economy to post a sustained high growth not inflationist”.

Monetary conditions

These monetary conditions are the combined effects of the level of interest rate and Canadian foreign exchange rate. The variation of Canadian foreign exchange rate influences the request for goods and of services, if the value decreases, it supports an increase in exports, tourists (example, American who come to turn of films to Canada). But that also causes a rise in the prices of the imported products, which causes a reduction in the imports. Therefore, the Banque of Canada must take account of this foreign exchange rate when she wants to modify the rate targets one day financing, “because it is the combined effect of interest rates and the rate of exchange which determines the monetary conditions and which makes it possible to maintain the economy on a stable trajectory”. The Banque of Canada wants to support a good economic climate in the country with a rate of low inflation what will allow job creation, that is the main aim of the Canadian monetary policy.

To use in an adequate way the monetary policy, the Banque of Canada uses the index of the monetary conditions which integrates interest rate and foreign exchange rate. The variation of the foreign exchange rate of 3 points is equivalent to a variation of the interest rate of 1 point, therefore there is an important relation between these two indices. In reaction to the evolution of the economic situation, the Banque of Canada makes decisions which are guided by these indices. When that for example the Bank must act directly on the monetary policy, foreign exchange rate can be influenced by a modification of the target rate of the financing at one day. Thus a rise of interest rate often means increase in the investment from abroad in Canada, the dollar also takes a significant value. On the other hand a fall of interest rate involves in its wake a reduction in the value of the dollar. In end of line, the Banque of Canada tries to maintain conditions monetary compatible with the objectives of the monetary policy in the long run. One should not neglect the time of time that a monetary policy takes to be encrusted in the Canadian system: between 18 and 24 months. The multiple sequences constitute the cause of this time which is necessary so that the monetary conditions apply way circoncise for finally having an influence on the rate of inflation.

Transmission of the monetary policy

This point is important to include/understand the Canadian monetary policy: this policy has as a goal principal to protect the value from the currency thanks to a rate of stable and low inflation. With the modification of the rate of financing one day has, the monetary policy influences interest rate what at the same time has an influence on the expenditure of the consumers and the economic activity of the country. But, one should not be naive and think that a monetary policy is done and acts of the day at the following day, it is all the opposite. “The time of transmission of the monetary policy is long and one variable duration because it takes time for the economy to adjust itself with the modifications of the monetary conditions”.

It should well be understood that the times of transmission of a new monetary policy can reach between 18 and 24 months. This time is necessary to evaluate thereafter an influence on the economy and on the rate of inflation, there is an adjustment to make to adapt to this new policy. It should be understood that by adjusting interest rate, there is a variation in the expenditure and in the volume of the sales, which leads has a variation of the level of production, this last cheek a role on the variation of the prices and inflation. This anti-inflationary wheel is not done in a week, but rather in a fork between 18-24 month. The Banque of Canada must thus plan in advance what could occur inside this braquette so that this policy is placed in the system carefully and without apparent problem.

The Banque of Canada can modify the monetary conditions, if she sees that the economic situation is not favourable with the good progress of its monetary policy, the Bank can act to carry out some modifications. Amongst other things, if she saw that inflation does not cease increasing she would take measurements necessary to be readjusted (to harden the conditions monetarist) in a braquette target. In the same direction if the economy tends towards a deceleration, the Bank will make sleepy its monetary conditions by causing a fall of interest rates. The Banque of Canada must envisage and to estimate inflation in 18-24 month, with this intention this Bank uses economic indicators: “the strength of the application for credit, the monetary rate/rhythm of expansion and trend of prices and the costs”. Thus to summarize this transmission of the monetary policy, it should be understood, that it must be centered over the future and not the present, as the saying goes, it is better to prevent that to cure, it is this strategy which the Banque of Canada recommends for finally making it possible inflation to be low and stable.

Criticisms formulated at the place of the Bank of Canada and its economic policy

The critics expressed with regard to the monetary policy of the Banque of Canada say that the Bank should pursue other goals that of the price stability, or inflation. Moreover, some say that the Banque of Canada should help Canadian with understanding well that a monetary policy which is centered on the realization of targets of control of inflation does not disregard variation of employment and the production, and does not lead to an economy which functions systematically less although it would not owe it. The objective of price stability or of the maintenance of inflation on a very low level is that the continuation of this objective draws aside any possibility of recourse to negative interest rates real, which wants to say interest rates lower than the rate of inflation, to stimulate the economy, if that were to prove to be necessary. Thus, “it would have to be prevented aiming at a low level of inflation to preserve the increased room for maneuver that negative real interest rates would give the public decision makers in period of lifelessness of the economic activity”. A critical aspect of the policy on the inflation of the Banque of Canada is the rigidity of the wages. It seems that the wages are rather rigid with the country, except that so unutilised resources would make their appearance on the job market, wages could drop. Thus, the Canadian employees could be victims of a permanent monetary illusion of which could and be supposed profit the monetary authority, but the Banque of Canada does not have the policies to do it.

The monetary policy aims at controlling inflation, it is its principal goal there. It is defined besides by the Banque of Canada as follows: “waitings relating to inflation, therefore inflation itself”. Inflation any more is not included/understood solely like one macro-economic phenomenon of imbalance between two variables, it is directly included/understood in its dimension of anticipation. What a policy such that of the Banque of Canada takes along is that the going beyond of the nation's economies by a globalized economy weakens the institutions installation within the framework of the national markets of modernity. Also, the national currency whose value is guaranteed by the State-nation loses its credibility which was related to the health of the nation's economy. The value of its currency, internal and external, émancipe of the evolution of an nation's economy increasingly dissipated in global area networks to be attached strictly to its commercial value and nominal on the financial markets. Therefore, they are the opinions and perceptions of the operators inside the markets such as Canada which fix the value of the currency. It is on this level which must play the Banque of Canada to preserve the value of the currency, which is not made at present. It must anticipate anticipations and try to frame them. From where the importance for the Bank of Canada to communicate publicly at the same time targets of level of inflation and all to implement to maintain inflation inside these targets in order to be able, at the same time, to communicate the realization continues of its objective to keep the fork of the level of inflation between 1% and 3%. Moreover, the Banque of Canada saw some uncertainties. The first being that American interest rate could change in an unforeseeable way if the output of their economy has suddenly changed too quickly. The uncertainty of the Canadian market is closely related to that of American, and this uncertainty can easily increase when the private sector clearly does not see the objectives with long terms which the policies of the Bank of Canada aim at. Moreover, uncertainty is increased by the limits of the capacity of forecast of the Bank of Canada. “When it adopts its monetarist political measures, the central bank does not know either how the financial circle and the public will react to its declarations and its actions”. Moreover, when it adopts its monetarist political measures, the central bank does not know either how the financial circle and the public will react to its declarations or its actions. This, as well as the generalization of uncertainty testify that the Canadian financial system is not any more one closed system, where the central bank would be the center. The Banque of Canada became an opened system, as a market where it is different from the others by its specific function. This wants to thus say that the Banque of Canada cannot measure or control the liquidities existing in Canadian dollars at the time when she wishes it. In other words, one can say that the Banque of Canada lost control on the quantity of existing Canadian currency.

If the governor of the American Federal fund (U.S. Federal Reserve) became a specialist in the crises and landings carefully, reproaches were given rather often to its Canadian counterpart as of the end of the year 1990 and the beginning of the year 2000, to be not very sensitive to the real evolution of the economy and embourber in ideal models. The critic is made that the economic policy of the Banque of Canada is bad and that as the tradition wants it, the future governors are top-ranking executives of the Bank of Canada, if they are not already first deputy governor. Moreover, the Banque of Canada does not have a decentralized structure which is able to touch the pulse of the economy of the areas. Its monetary policy rises from the vision of only one named person every seven years, and which remains mandate in mandate, since the changing is ensured in closed universe, which prevents all changes in the economic policy of the Bank of Canada. The errors made by the governor of the Banque of Canada during years 1990 are numerous. One of criticisms is that during the Asian economic crisis, the Banque of Canada suddenly changed its economic policy of maintains inflation for that to defend the Canadian dollar. Moreover, it seems that the Banque of Canada is responsible for the fall of the dollar towards the end of the year 1990 because it awaited only the American Federal fund slackens the pressure on its own rates during the Asian crisis.

The Banque of Canada is also criticized to have maintained its rate directing at cost term in lower part of that of American. It is partly what maintained the weakness of the dollar and what reduced its room for maneuver while making it depend on the American Federal fund. Even if a weak dollar is beneficial for exports, in the long run the policy of the Banque of Canada camouflages inefficiency and the search of productivity gains and investment does not stimulate, and can thus seriously block the competitiveness of the Canadian multinational corporations. This could be caused owing to the fact that the companies, which benefit from the Canadian dollar in fall wait until this last drops even more to start to invest. One of large criticisms towards the economic policies of the Banque of Canada is that it should adopt is the American dollar or at least establish a parity between the Canadian dollar and the American dollar. Thus, like American buy more than 85% of our exports, that would make the standard of living of Canadian much higher. Moreover, the Canadian dollar has not ceased dropping compared with the American dollar for thirty years. As the Banque of Canada is often criticized to be influenced by the American Federal fund, some go until saying that a fixed exchange rate would put an end to any influence of the US government. So that the Banque of Canada can become more influential (or less influenced) towards American, the critics who want a foreign exchange rate fixed say that “this structure brings an important influence to the areas during the development of the monetary policy. Thus, a system where the Banque of Canada would become a thirteenth regional bank of the American network is extremely conceivable; Canada could even try to obtain a permanent headquarter within Federal Open Market Committee (FOMC)”.

Certain economists opposed the control of inflation on a level nearly zero, as Paul Krugman said: The rigidity of the money wages means that to try to obtain a rate of very low inflation deteriorates the flexibility of real wages and thus increases unemployment rate with long. In the case of Canada, where the Banque of Canada tries any possible sound to achieve its goal of the price stability, unemployment rate is remained much higher than in the United States. Canada suffers from an inflexibility of the wages and the problem is not only related on the microeconomic structure of Canada, but especially to the policy anti-inflation of the Bank of Canada. In short, therefore, the belief which the price stability is a great cause from of which all profit is not an obviousness, it is at most a belief largely spread by people of the Bank of Canada. The advantages of the price stability and of a level of low inflation are evasive, because the costs to arrive there are large and inflation on the level almost no one cannot be a long-term good thing.

See too

• List of the Canadian banks

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