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EC223 (81)
Chapter 15

Chapter 15 EC223.docx

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Department
Economics
Course
EC223
Professor
Angela Trimarchi
Semester
Winter

Description
EC223 Chapter 15 – Central Banks and the Bank of Canada Week 9 Origins of the Bank of Canada -The Great Depression contributed to significant changes in government policy, including fiscal policy, monetary policy, banking policy, and international policy -Initially, the Bank of Canada was a private institution but was nationalized in 1938, so it is now a national institution with headquarters in Ottawa, the bank also has regional offices -Unlike a private bank that operates in pursuit of profit, the Bank of Canada is responsible for the country’s monetary policy and the regulation of Canada’s deposit-based financial institutions Formal Structure of the Bank of Canada -The overall responsibility for the operation of the Bank of Canada rests with a Board of Directors, which consists of 15 members – the governor, 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 -Currently, the governor of the Bank of Canada is Mark Carney -The Governing council is chaired by the governor and is composed of the senior deputy governor and four deputy governors -This system of “collective responsibility” ensures that the Bank’s governor is not personally identified with the Bank’s policy The Functions of the Bank of Canada -Four functions of the Bank of Canada: bank issue note, government debt and asset management services, central banking services, and monetary policy management Bank Issue Note -The Bank’s overall objective is to preserve the integrity and safety of Canadian currency in the most economical and efficient manner possible Government Debt and Asset Management Services -In its role as the federal government’s fiscal agent, the Bank of Canada provides debt-management services for the federal government such as advising on borrowings, managing new debt offerings, and servicing outstanding debt -In its role as fiscal agent, the Bank of Canada also manages the government’s foreign exchange reserves held by the Exchange Fund Account of the Department of Finance Central Banking Services -Because of its unique power to create base money, the Bank can ease the liquidity problems of any financial institution by extending advances, and therefore deter bank runs and panics -Base money consists of the monetary liabilities of the central bank and, is an important part of the money supply, because changes in it lead to multiple changes in the money supply -The Bank’s main concern is whether problems that affect one participant in the clearing and settlement system will spread to other participants -The Bank shifts government balances between the government’s transactions account with the Bank and the government’s non-transaction accounts with the banks, using twice-daily auctions of government
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