The Bank of Canada is Canada’s central bank, whose current Governor is Mike Carney. It was founded in 1934 by the Bank of Canada Act of the same year. The country’s banking system was quite stable even before the Bank of Canada was established, mainly thanks to its branch banking structure, and showed little interest in central banking in the early 1900s. In addition, the banking system was somewhat being regulated by the Canadians Bankers’ Association. However, as the Great Depression took Canada by storm, talks about its then financial state were brewing. Some even questioned the country’s ability to meet larger demands. The central bank was formed from the Act in 1934, and starting running in 1935, but as a privately owned institution. Then, when William Mackenzie King was re-elected as Prime Minister after a full term by Richard Bennet, the new government made an amendment to the Bank of Canada Act, making the bank publicly owned by 1938, as it is today (Bank of Canada: History). Its primary objective was to be able to support financial and economic wellbeing of our country (Go Currency: Bank of Canada). In that way, it has many roles and functions as a central bank, which I will expand in the coming paragraphs.
To begin with, it is essential to know what the Bank of Canada’s objective is, as stated in the Bank of Canada Act of 1934, even if I’ve briefly mentioned it in the introductory paragraph. In the exact words:
“[…] it is desirable to establish a central bank in Canada 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 and to mitigate by its influence fluctuations in the general level of production, trade, prices and employment, so far as may be possible within the scope of monetary action, and generally to promote the economic and financial welfare of Canada.” (CanLII: Bank of Canada Act)
Before the inception of the Bank of Canada, money was printed by the chartered banks themselves, and all inter-bank transactions were taken care of by the Canadian Payment Association, but once the central bank came in, all currency was monopolized (Bank of Canada: History). Paper money, also known as legal tender, and coins are now printed at the Canadian Bank Note Company the Royal Canadian Mint, respectively (Wikipedia: Canadian Dollar). However, even at its creation, the Bank of Canada’s notes were still used as part of the currency, because the chartered banks kept issuing their own notes. This changed in 1945, when the chartered banks completely stopped issuing notes and the only recognized Canadian legal tender were notes distributed by the central bank (Course pack 129). This becomes one of the many of its roles. It could also be noted that the Canadian bills, made of cotton, will be replaced by synthetic polymer in a year or so (Vancouver Sun).
The monetary policies are quite possibly the most significant reason for the...