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Establishment of Selected Central Banks
Country Sweden United Kingdom France Belgium Germany Japan Italy Switzerland United States Canada
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Bank of Canada Independence
Factors making Bank of Canada independent 1. Bank has ‘operational’ (or ‘instrument’) independence 2. Bank has moved towards greater ‘transparency’ in its operations. The Bank’s Governing Council publishes the Monetary Policy Report (every May and November), since 1999 the Update to the Monetary Policy Report (every January and July), the Bank of Canada Review, and the Bank of Canada Banking and Financial Statistics. 3. Bank increased the number of press conferences, press releases, and speeches, and also reorganized its regional offices, with the objective of improving communication and its assessment of economic conditions across Canada.
Since the inception of the Bank of Canada there have been seven governors:
1935-1954, Graham Towers 1955-1961, James Coyne 1961-1973, Louis Rasminski 1973-1987, Gerald Bouey 1987-1994, John Crow 1994-2000, Gordon Thiessen 2001-, David Dodge
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Year central bank was established 1656 1694 1800 1850 1875 1882 1893 1905 1913 1935
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The Political Environment and the Bank of Canada
Chapter 14
Structure of Central Banks and the Bank of Canada
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The Bank of Canada (The Bank)
• • The Bank was created by the Bank of Canada Act in 1934 and started operations on March 11, 1935 Initially the Bank was a private institution but was nationalized in 1938, so is now a national institution with headquarters in Ottawa The Bank also has regional offices in Toronto, Vancouver, Calgary, Montreal, and Halifax Unlike a private bank that operates in pursuit of profit, the Bank of Canada is responsible for the country’s monetary policy and for the regulation of Canada’s deposit-based financial institutions.
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The Functions of the Bank
The functions of the Bank of Canada are • • • • bank note issue government debt and asset management services central banking services, and monetary policy management.
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Formal Structure of the Bank of Canada
Responsibility for the operation of the Bank rests with a Board of Directors, which consists of fifteen members • the governor (currently David Dodge, who is the chief executive officer and chairman of the Board of Directors) • the senior deputy governor, • the deputy minister of finance, and • twelve outside directors The Board appoints the governor and senior deputy governor with the government’s approval, for a renewable term of 7 years. The outside directors are appointed by the minister of finance, with cabinet approval, for a 3-year term.
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As Canada’s central bank, the Bank of Canada • serves as the lender of last resort if a bank faces a liquidity crisis, thereby preventing bank runs and panics. This lending is closely coordinated with the two federal regulatory agencies that are set up specifically to regulate financial institutions --- OSFI and CDIC • has explicit responsibility for the regulatory oversight of the national payments system, operated by the CPA • acts as the holder of deposit accounts of the federal government, the directly clearing members of the CPA, international organizations such as the IMF, and other central banks.
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Bank Note Issue
Before the creation of the Bank, the federal government and the early banks issued notes designed to circulate as currency. By 1945, however, the bank had a monopoly over note issue in the country. The Bank also conducts ongoing research, working closely with private sector partnerships and note-issuing authorities in other countries, in order to improve costeffectiveness, increase the durability of bank notes, and reduce counterfeiting.
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Government Debt and Asset Management Services
As the federal government’s fiscal agent, the Bank • provides debt-management services for the federal government such as advising on borrowings, managing new debt offerings, and servicing outstanding debt • manages the government’s foreign exchange reserves held by the Exchange Fund Account of the Department of Finance • engages in international financial transactions, on behalf of the government, in order to influence exchange rates