ADMS 1010 Lecture Notes - John Diefenbaker, Hard Currency, Quick Ratio

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Canadian Economy (Cyclical expansions of 3 stages)
Demand for consumer goods, infrastructure expenditures, housing, strong
immigration. Inflation , unemployment↑ ↓
Recession: government heavily invest in defence. Inflation , unemployment↑ ↑
Canadian dollar appreciated. Inflation , unemployment↓ ↑
Bank of Canada
The goal of monetary policy is to rising living standards for all Canadians
through low and stable inflation.
Graham Towers (governor) not actively pursue on monetary policy, he only
changed the bank rate twice.
Later took over by Coyne (governor), he changed the bank rate 6 times and
raising it each time.
Coyne (Liberal)
Coyne emphasized the impact of inflation, encouraged economic growth and
eliminated unemployment.
He continue to against inflation, because Inflation causes inefficiency,
injustice, produce recession.
To the bankers: He demanded the bank has to have 15% liquidity ratio and
8% cash reserve.
This high ratio made the bank become less flexible and led the central bank
to have full control of charter banks’ asset.
Later, he replaced the fixed bank rate with a floating rate, because 1) a rate
higher than market rate can discourage borrowing, 2) floating rate can
respond quickly to changes in market.
Also, he proposed that the banks have to create new saving banks to fund
long- term investment.
Although bankers opposed this implementation, they had little choice but to
comply.
Government changed to Conservative ( under John Diefenbaker)
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Document Summary

Canadian economy (cyclical expansions of 3 stages: demand for consumer goods, infrastructure expenditures, housing, strong immigration. The goal of monetary policy is to rising living standards for all canadians through low and stable inflation: graham towers changed the bank rate twice. (governor) not actively pursue on monetary policy, he only. Later took over by coyne (governor), he changed the bank rate 6 times and raising it each time. Coyne emphasized the impact of inflation, encouraged economic growth and eliminated unemployment: he continue to against inflation, because inflation causes inefficiency, injustice, produce recession. To the bankers: he demanded the bank has to have 15% liquidity ratio and. This high ratio made the bank become less flexible and led the central bank to have full control of charter banks" asset. Later, he replaced the fixed bank rate with a floating rate, because 1) a rate higher than market rate can discourage borrowing, 2) floating rate can respond quickly to changes in market.

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