In a country, the central bank plays a very important role in the financial governance of the country’s economy, one of the central banks is the Bank of Canada, otherwise known as the BoC. This is Canada’s central bank, founded in 1934, and open in March 1935.
The Bank of Canada emerging as a result of the global great depression so that a banking system was needed that could be a solution. Thus the idea of forming the Bank of Canada, which began to open its doors in March 1935 as a private bank offering shares to the public.
- 1 Bank of Canada overview
- 2 What does the bank of Canada do?
- 3 How does the bank of Canada work?
- 4 Bank of Canada interest rate
- 5 Will the bank of Canada raise rates in 2021?
- 6 Bank of Canada digital currency
- 7 Role Bank of Canada to Canadian Dollar
- 8 Bottom line
Bank of Canada overview
The Bank of Canada is Canada’s central bank, which is separate in principle from the political process. The Bank of Canada has an important role in managing and achieving Canada’s economic and financial well-being. This central bank has four important responsibilities in managing economic and financial welfare.
- Monetary policy. The Bank of Canada is responsible for stabilizing the economy and regulating the money supply, in an effort to keep inflation low, through monetary policy to control the exchange rates and target inflation.
- Financial system. The Bank of Canada is responsible for maintaining the financial system. Through measures to provide banking services including liquidity and lenders. As a financial authority, analysis and research institution, and helps implement policies.
- Currency Governance. The Bank of Canada is also responsible for money governance by designing, issuing, and distributing Canadian banknotes. Central banks design money that is hard to counterfeit, and guard against counterfeiting.
- Fund management, the Bank of Canada is responsible as the “fiscal agent” of the Government of Canada, which plays a role in managing the public debt program and the country’s foreign exchange reserves.
In carrying out its responsibilities, Canada’s central bank is run by several stakeholders who have different tasks. The Governing Council, The Executive Council.
The governing council consists of the Governor, the Senior Deputy Governor, and four Deputy Governors. While the executive council is made up of the Governing Council and the Chief Operating Officer.
Who owns the bank of Canada?
The Bank of Canada is the central bank of Canada, although it was originally a private central bank selling shares to the public, but is now a state-owned bank. The Bank of Canada has been a federal Crown bank since 1938 whose shares are owned by the Canadian government.
Although the BoC belongs to the government, the appointment of governors is through the cabinet, not through the federal government.
What does the bank of Canada do?
As the central bank, the BoC makes and implementing monetary policy, regulates and oversees financial institutions including commercial banks, and prints and circulates the CAD currency.
The most important role is to make monetary policy to achieve certain targets, including setting interest rates and inflation targets.
All monetary policies are taken with the aim of maintaining the stability of Canada’s economic growth and in particular the welfare of Canadian citizens.
In order to meet this target, the central bank regulates the financial system and credit system to maintain the purchasing power of the Canadian Dollar currency which is ideal for economic conditions.
How does the bank of Canada work?
The Bank of Canada plays an important role in maintaining economic stability for the welfare of its people, carrying out its functions as it is their responsibility. Especially for the core functions of financial policy, financial system, currency, and managing finances.
Each official in the central bank carries out his responsibilities in the field he handles.
In relation to monetary policy, the Bank of Canada focuses a lot on controlling the inflation rate to remain low, stable, and under control. Because the inflation rate is low and the economy is stable, the performance of the economy will be able to improve, as will the standard of living of the Canadian population.
In terms of the economic policy function, the BoC acts to control inflation and target inflation, between 1 to 3% on each target. This target will be evaluated every five years with the federal government.
Inflation control is the responsibility of the BoC by controlling interest rates, which aims to control the money supply and create a stable economic environment in the medium term.
If inflation is higher above the target, the BoC will raise interest rates, it aims to reduce the money supply. High-interest rates can encourage people to save money in banks in the hope of earning interest overnight. Monetary policy is taken six to seven quarters, by looking at the long-term inflation target.
In terms of currency, the BoC is responsible for the design and distribution of currencies including controlling e-money. They have a team that researches the development of e-money or digital currency, makes regulations that aim to control the whole monetary.
In relation as fund management, the BoC becomes an agent that provides services to the government, and others, as well as to the bank itself.
In terms of the function of the financial system, the BoC is a source of liquidity and serves as a lender of last resort. The BoC also conducts research and publishes reports on research developments which are the focus of analysis.
Bank of Canada interest rate
The Canadian Benchmark Interest Rate is reported at 0.25% in 2021-03. This figure remains compared to the previous 0.25% for 2021-02. Canadian Benchmark Interest Rate data is updated monthly, averaging 2.50% from 1992-12 to 2021-03, with 340 observations. These data hit a record high of 8.13% pa in 1995-02 and a record low of 0.25% in 2021-03.
Upcoming interest rate announcement BoC will be released on 9 June 2021, 14 July 2021, 8 September 2021, 27 October 2021, and 8 December 2021.
Historically, the BoC’s interest rate method has changed, from early March 1935 to November 1956 the interest rate was set by the bank rate. Then the interest rate became a floating rate from November 1956 to June 1962 which was set at 25 basis points.
The interest rate was changed to fixed again in June 1962 to March 1980. Then it became a floating rate again from March 1980 to February 1996. And since 22 February 1996 until now the interest rate is set by the central bank.
When is a bank of Canada interest rate announcement?
Within a year, the BoC will announce interest rates eight times on different dates and months, in which the announcement is accompanied by the reasons underlying the decision to set interest rates.
In 2021 it has been announced three times on April 2, 2021, March 10, 2021, and January 20, 2021. There is no change in interest rates on the release of the announcement and the BoC is still setting the interest rate remain at 0.25%.
The next interest rate announcement schedule will release on the dates mentioned above. It’s in 9 June 2021, 14 July 2021, 8 September 2021, 27 October 2021, and 8 December 2021. This refers to the upcoming event report on the BoC official website.
Will the bank of Canada raise rates in 2021?
In 2021, it is forecasting that the BoC will not increase interest rates, although, in the event of a spike in inflation, it may allow the BoC to raise interest rates. Referring to the Financial post report, an increase in interest rates may be carried out in mid- half in 2022.
In July, where the release of the interest rate announcement on June 9, 2021. The forecasting release still remains low at 0.25%, and forecasting in July is still at the same figure.
Seeing the development of the possibility of the BoC increasing interest rates next year. It makes investors looking for stocks that are inflationary fluctuations and rising interest rates not affect to the portfolio.
One of the investors, Michael White, a portfolio manager at Picton Mahoney Asset Management, suggested that commodities such as metals and energy are more profitable when the economy grows, accompanied by rising inflation.
Bank of Canada economic forecast 2021?
On report. Bank of Canada in 2021 the economy forecast will grow and push real GDP to reach 6.5%. He continued, the 2022 forecast decreased to around 3.75%. and 3.25% in 2023.
Meanwhile, inflation is target to be at 1-3% for several months in 2021. Banks will continue to monitor economic developments as well as mortgage prices.
In the first quarter, Canada got more economic growth than forecast in January. Job substance increased employees in February. BoC already revises the economic forecast in light of the impact of the pandemic and accelerated digitization.
Lockdowns and viruses have had different impacts across sectors, businesses, and workgroups, leaving uncertainty about the weakening economy and how long it will take to absorb.
The revision refers to a broad spectrum of indicators, thus providing conclusions on a more comprehensive forecast.
Bank of Canada digital currency
In its report release, the Bank of Canada, which is the central bank. Also has a goal in establishing a CBDC or Central Bank Digital Currency.
To begin with, they conducting research in relation to financial technology, its advantages, and disadvantages. And has started a project for digital currency development.
One of the projects that are starting to develop is the Jasper project. This is an industrial payment project that uses distributed ledger technology (DLT) in collaboration with the private sector.
The project schedule will apply in 4 phases, for the development phase from the first to the fourth phase through a planned schedule.
Although it is still in the research process. It is possible that the BoC will issue an official digital currency through the CBDC in the future. And it’s already the start of the Jasper project is the beginning of the development of a decentralized ledger-based payment system.
Does the National Bank of Canada accept Cryptocurrency?
Some banks in Canada may be cryptocurrency-friendly. But there is no official report from the central bank that the BoC accepts cryptocurrencies.
The banks in Canada that are cryptocurrency-friendly such as the National Bank of Canada which is Bitcoin-friendly. Also, there is Versa Bank which according to Coindesk has launched a stable coin with the ticker VCAD.
Although central banks in various countries reject cryptocurrency as a means of payment. The government recognizes that the legitimate currency is the one issued by the central bank.
However, it is undeniable that the growth of cryptocurrencies after the emergence of Bitcoin in the last ten years will be a concern for central banks.
We think that the Canadian government through the central bank can make regulations on the use of cryptocurrencies. Because the potential for taxes that can be applied to crypto exchanges can increase state reserves.
Role Bank of Canada to Canadian Dollar
One of the core functions of the BoC is the currency, like central banks in general. They will control the exchange rate of the currency by adjusting the needs of economic growth.
The BoC’s monetary policy can have an influence on the strengthening or weakening of the currency. Usually, in relation, they will look at inflation to increase interest rates or cut interest rates. If the BoC hikes the interest rate, the value could lead to the currency going up. But if the interest rate cuts, the CAD value may drops.
Most fundamental-based forex traders take advantage of news releases about interest rate announcements. Because it can cause the Canadian Dollar to rise or fall.
Besides the interest rate announcements that cause the CAD to rise or fall. The market also responds to speeches from the central bank governor. Depends on the content of the speech stated. If it is more than forecast it can cause the CAD to rise. On the other hand, if the market does not expect it, it can give negative sentiment to the CAD.
The Bank of Canada is the central bank of Canada which has four main functions in running the monetary system. The role is for monetary policy, financial system, currency, and fund management.
In carrying out its duties, the BoC has a working team, consisting of the Governor of the Central Bank. The Senior Deputy Governor, and a Board of Directors consisting of 12 members.
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