The Bank of Canada

The Bank of Canada occupies a unique place in the Canadian financial system. As the central bank, it issues the nation's currency, is the banker to the federal government and holds responsibility for Canadian monetary policy.

Yet for most Canadians, their only contact with the Bank of Canada is through the purchase of Canada Savings Bonds. Canadians also become interested in their central bank when their mortgages come up for renewal—to see whether their monthly payments go up or down because of changes in interest rates.

The Bank of Canada was established in 1934 to regulate monetary affairs at the height of the Great Depression. Originally set up as a private corporation, ownership of the Bank of Canada passed to the Government of Canada in 1938.

Today, the Bank is central to the smooth functioning of the Canadian financial system. It runs the payments system, which allows the clearing of cheques and other payments between financial institutions, and is a lender of last resort to other financial institutions. As the federal government's fiscal agent, the Bank of Canada also manages the government's cash accounts, holds its gold reserves, controls Canada's foreign reserves and manages the federal government's debt.

The Bank of Canada Act states that the role of the Bank is ". . .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."

The Bank of Canada carries out this role by buying and selling securities in the financial markets and managing the cash in the banking system. It can also directly affect interest rates by manipulating the Bank of Canada rate—the interest rate it charges other banks. Any change in the Bank of Canada rate is usually reflected in other interest rates throughout the financial system.

Since 1993, the Bank of Canada and the federal government have jointly set targets for inflation. The Bank sets its monetary policy to meet these inflation targets and reports regularly on its success in achieving the target rate.