The Bank of Canada is the nation’s central bank. Its principal role is “to promote the economic and financial welfare of Canada,” as defined in the Bank of Canada Act. The Bank’s four main areas of responsibility are:
- Monetary policy: The Bank influences the supply of money circulating in the economy, using its monetary policy framework to keep inflation low and stable.
- Financial system: The Bank promotes safe, sound and efficient financial systems, within Canada and internationally, and conducts transactions in financial markets in support of these objectives.
- Currency: The Bank designs, issues and distributes Canada’s bank notes.
- Funds Management: The Bank is the “fiscal agent” for the Government of Canada, managing its public debt programs and foreign exchange reserves.
The Governing Council
The Bank of Canada is led by the Governing Council, the policy-making body of the Bank, which is responsible for:
- the conduct of monetary policy
- promoting a safe and efficient financial system
- charting the strategic direction of the Bank
The Governing Council is made up of the Governor, the Senior Deputy Governor and four Deputy Governors.
The Governing Council’s main tool for implementing monetary policy is the target for the overnight rate (also known as the key policy rate). This rate is normally set on eight fixed announcement dates per year. The Council arrives at its decisions about the rate by consensus, rather than by individual votes, as is the case at some other central banks.
Separate from the political process
The Bank of Canada is a special type of Crown corporation, owned by the federal government, but with considerable independence to carry out its responsibilities. For example:
- The Governor and Senior Deputy Governor are appointed by the Bank’s Board of Directors (with the approval of Cabinet), not by the federal government.
- The Deputy Minister of Finance sits on the Board of Directors but has no vote.
- The Bank submits its expenditures to its Board of Directors. Federal government departments submit theirs to the Treasury Board.
- Bank employees are regulated by the Bank itself, not by federal public service agencies.
- The Bank’s books are audited by external auditors appointed by Cabinet on the recommendation of the Minister of Finance, not by the Auditor General of Canada.
Having an independent monetary institution allows for the separation of the power to spend money from the power to create money. Separating the central bank from the political process enables it to adopt the medium- and long-term perspectives essential to conducting effective monetary policy.
The Bank is committed to publishing information about how it works.
- The Bank of Canada Act requires the Bank to submit its audited financial statements each year, accompanied by a report from the Governor to the Minister of Finance.
- The Payment Clearing and Settlement Act gives the Bank of Canada responsibility for the oversight of payments and other clearing and settlement systems in Canada, for the purpose of controlling systemic risk.
- The Bank of Canada’s Annual Report, including audited financial statements, and the Bank of Canada’s Quarterly Financial Reports.
The Bank’s History
Canada’s central bank was founded in 1934 and opened its doors in March 1935. In 1938, it became a Crown corporation belonging to the federal government. The Bank of Canada Act has been amended several times, but the preamble to the Act has not changed. The Bank still exists “to regulate credit and currency in the best interests of the economic life of the nation.”