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The Bank of Canada is the official central bank of the sovereign of Canada. It is a key player in determining the direction of Canada’s economy in both the short and long terms. It is also the bank through which Canada’s government maintains its finances. It is not privately owned.
Also known unofficially as the central Bank of Canada (CBC), the Bank of Canada is what is known as a crown corporation. Such corporations are owned and operated by the federal government. They can only be established by an act of Parliament or provincial legislation.
The Bank of Canada is similar to other central banks in its defined roles. There are two roles that comprise most of what it does. The first role is to develop and maintain monetary policy. In other words, the Bank of Canada establishes those policies that govern Canada’s money supply.
Federal law gives the bank authority to regulate how much cash is in circulation at any given time. Regulating the money supply has a direct impact on Canada’s economy. It also impacts the value of the Canadian dollar against other world reserves, like the US dollar and Chinese yuan.
The bank’s second primary role is to act as the banking institution through which Canada’s government conducts its business. The federal government pays its bills through the Bank of Canada. It manages its funds through the bank as well. Central banks are ideal for this sort of thing because they prevent mixing of public and private funds.
Both of the bank’s primary roles serve the greater purpose of managing economic growth and inflation. By fulfilling its primary roles, the Bank of Canada also influences Canada’s economy. The goal is to ensure economic stability while managing growth responsibly. The CBC is no different than any other central bank in this regard.
A good example to illustrate the principle is managing inflation. Inflation can be good or bad, depending on what it does to the economy. Inflation during times of economic expansion is good in the sense that it continually adds value to products and services. It is bad during times of economic downturn. When the economy isn’t going so well, inflation increases prices without also increasing value. That reduces buying power for both consumers and businesses.
It behooves the CBC to manage inflation under both kinds of scenarios so as to minimize the negative and maximize the positive. Properly managed inflation creates much-needed economic stability. It helps stabilize interest rates, consumer prices and even government debt management.
One last thing the Bank of Canada does is provide cash to chartered banks throughout Canada. The bank supplies all of the paper bank notes necessary to keep local banks liquid. They do not handle coins. The Royal Canadian Mint handles that responsibility. Note that the Bank of Canada is the only government entity with authority to issue bank notes.
In the world of government finance, central banks hold a lot of power. The Bank of Canada certainly does. Between its two primary roles and its authority over the money supply, the Bank of Canada has a direct hand in influencing nearly every aspect of the Canadian economy. The bank uses its authority to help maintain economic stability both domestically and abroad. If it were privately owned, its ability to do so would be significantly limited. That is why the bank exists as a crown corporation.
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