Bank of Canada

The Bank of Canada plays an important role in Canada’s economy. It was established in 1934 to play the role of the central bank to this country. “To promote the economic and financial happiness of Canada."

The bank has a number of responsibilities to full fill, such as it acts as a banker to all commercial banks across Canada. Some of these commercial banks include BMO, TD, Scotia, RBC and CIBC. The central bank also allows commercial banks to borrow money from it at a low interest rate, most commonly known as the bank rate. The current bank rate is 1.25%. Also the bank set target reserve requirements and is the lender of last resort to borrow money. This means the Bank of Canada encourages commercial banks to borrow funds from each other first, before asking the main bank. The target overnight rate allows banks to borrow from each other at a rate of 1%.

Another responsibility shares is it controls the money supplied through out the country this allows the central bank to help keep inflation down and keep a healthy natural rate of unemployment. It’s the only bank in Canada that is allowed to create and print money. It changes the money supplied through out Canada by lowering and raising interest rates, when there’s too much money in circuit it will lead in inflation and when there’s too little money it leads to a high unemployment level.

The Banks also manages the country’s monetary policy (interest rates) it also ensures your trust within the Canadian dollar is worth the same today has its worth tomorrow also known as fiduciary monetary system. The interest rates it controls is the target overnight rate and sets the bank rate. It stabilizes the Canadian dollar so it doesn’t fluctuate so much. This central bank does not get involved in commercial banking. The goal is for them to keep the inflation rate between 1 and 3% target range, the main purpose is to improve the standard of living and keep a stable economy.

The last important function that the bank plays is it’s a banker for the federal government. It is the bank which looks after the governments banking needs. When the government needs money they issue bonds which are then sold to the Bank of Canada. Having a separate institution from the federal government allows for the separation of the power to spend money from the power to create money.