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Paper Abstract: Reviews the bank's history and development. Motivations for creating a central bank. The legislated roles of the Bank of Canada. Specific roles for the institution. Significance of the Bank's creation. Assessment of the Bank in fulfilling its public policy purpose. The Bank's variety of functions. Critics of the Bank of Canada. Paper Introduction: THE BANK OF CANADA: A REVIEW OF THE HISTORY AND DEVELOPMENT OF CANADA’S CENTRAL BANK Introduction This research reviews the history and development of the Bank of Canada. The review addresses motivations for creating the central bank, the legislated roles of the Bank of Canada, the significance of the central bank’s creation, and the functioning of the Bank of Canada. The review concludes with an assessment of the success of the Bank of Canada in fulfilling its public policy purpose. Motivations for Creating the Bank of Canada The Bank of Canada Act of 1934 provided for the creation of the Bank of Canada. The central motivation for the creation of the Bank of Canada, which occurred in 1935, was to mobilize a Ca Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Retrieved from the Internet 2 2- 3- 7 at: http://www.bank-banque-canada.ca/en/histor.htm Bank of Canada Act of 1934. National Institute Economic Review,35-6 . Canadian Journal of PoliticalScience, 24(4), 711-734. Incontrast, in the United States, the Board of Governors makes monetarypolicy decisions, although, the operating head of the American central bank(the Federal Reserve) is the Chair of the Board of Governors (Archibald,2 1). Consolidated statutes andregulations. The sitting federal government controls appointments to thegoverning structure of the Bank of Canada; however, the institution(constitutionally) is independent of the government in the development andapplication of monetary policy (Coleman, 1991). The Board of Directorsoversees the performance of the Governor and the Governing Council of theBank of Canada in their operation of the institution (Archibald, 2 1). In essence, the argument is thatthe price of high interest rates that benefit investors is higher rates ofunemployment and tight government budgets that dictate reductions in socialservices (Crowell, 1995). (Bank of Canada Act of 1934) Legislated Roles of the Bank of Canada The Bank of Canada Act specifies that the institution will promote theeconomic well being of the country. (1996,September). Banks, according to Goodhart(1985), offer fixed-value liability, while collective-investment fundsoffer market-value liability. In another policy change, the Bank of Canada began encouraging foreigninvestors to buy more Canadian government debt. In the post-war era, the Bank of Canada maintained a low interest ratepolicy that fostered an economic boom. Functioning of the Bank of Canada The Bank of Canada is independent of the country's politicalestablishment. Significance of the Creation of the Bank of Canada The Bank of Canada was a privately owned (by chartered banks)institution for three years immediately following its creation in 1935. This criticism centres on theinflation targeting policy implemented by the Bank of Canada that tradeshigh levels of unemployment for low inflation rates. It is little wonder that theBank of Canada has lost the support of the Canadian public, while endearingthe institution to business economists and international investors. Goodhart (1985) has little to say on the role assigned to centralbanking in some countries (Canada is a good example) of promotingmacroeconomic objectives related to growth and stability. (2 1, April). Previously, the Bank ofCanada held as much as 2 percent of Canadian government debt. The Bank of Canada is free to pursue itslegislated mission regardless of pressures for policy changes to supportshort-term political objectives (Meyer, 2 1). Canadian forum, 75(852), 1 -12. Incontrast, Goodhart (1985) argues that central banking is necessary topreclude the development of adverse economic consequences stemming from theflow of funds from weak banks to stronger banks. The Governor of the Bank of Canada typically makes monetarypolicy decisions, as opposed to a decision by the Board of Directors. Both Dowd (1989) and Goodhart (1985) agree that otherintermediaries could provide transactions-services could as well (Goodhart)or better (Dowd) as central banks. Montreal, Quebec:Bank of Canada. Dowd, K. In this role, the institutionis to be in a position to furnish additional funds to banks during periodsof financial crisis. Retrieved from the Internet 2 2- 3- 7 at:http://lois.justice.gc.ca/en/B-2/5625.html Coleman, W. (1993, October 4). the bank of canada: a review of the history and development of canada's central bank Introduction This research reviews the history and development of the Bank ofCanada. References Archibald, J. (1985). The plummeting dollarbecame the focal point for criticism of the effectiveness of the Bank ofCanada. 1 1-1 2). While Dowd (1989) acceptsthe Friedman argument for the dissolution of central banks, he rejects theFriedman argument for the continued regulation of banking. A call for central bank reform. Freedman, C. The Minister of Finance inthe federal government makes the appointment. There would be no pondering, guesses, or delays withautomatic rules. (2 2). The Bank of Canada has been a publicly owned institutionsince 1938 (Bank of Canada, 2 2). New York: St.Martin's Press. The Preamble of the Bank of Canada Act of 1934 expresses motivationsfor creation of the Bank of Canada, as well as specifying societal rolesfor the institution. The Governor andBoard of Directors of the Bank of Canada, while acknowledging an inflationtargeting policy, reject the contention that they accept high rates ofunemployment. Reforming the Bank of Canada.Canadian Dimension, 29(5), 35-39. it is desirable to establish a central bank in Canada to regulate credit and currency in the best interests of the economic life of the nation, to control and protect the external value of the national monetary unit and 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. Goodhart, C. Asimilar situation continues to exist in the United States, where the memberbanks of the Federal Reserve System own shares in the Federal ReserveBanks. In pursuing this objective, the Bankof Canada exercises responsibilities for job creation and economic growth(Krehm, 1993). Applying the theory of the natural rate ofunemployment, however, the Bank of Canada views a nine percent rate ofunemployment as acceptable (Crowell, 1995). The centralbank pursues other objectives after attaining the price stability objective(Meyer, 2 1). Motivations for Creating the Bank of Canada The Bank of Canada Act of 1934 provided for the creation of the Bankof Canada. A major contemporary argument in relation to the role of centralbanking in modern economies concerns whether such a role is valid orwhether the role should fall to the markets. Rather, he opposes all banking regulation. Dowd (1989), while agreeing on abolishing central banking, sees nouseful role for the regulation of banking activity through automatic rules. Goodhart (1985), thus, accepts the role for central banking that isinvolved in two aspects of the mandate of the Bank of Canada. 1 2). Thus,interest costs for the federal government increased thereby exacerbatingthe budget deficit (Crowell, 1995). The Board of Directors also appoints the institution'sGoverning Council. Some critics of theinstitution, however, contend that in practice the Bank of Canada paysgreater heed to the demands of business interests and wealthy investorsthan to the needs of ordinary Canadians. Business Economics,36(4), 52-56. Charles Goodhart (1985), in contrast to Dowd,argues that many of the functions performed by central banks could beperformed as well or better by other intermediaries, but that centralbanking continues to be required to maintain the integrity of banks and thebanking system. Canadian Forum, 72(824),16-19. Overthis period, however, the value of the Canadian dollar in internationalexchange plummeted ("The World Economy," 2 1). Friedmanopposes the discretionary authority of central banks to act in the face ofchanging macroeconomic aggregates, preferring instead a system of automaticrules. The government has the power to appoint the 12 members ofthe Board of Directors of the Bank of Canada. Give us back our central bank! At that time, the Bank of Canada did not exist. Thislatter approach is the type of monetary control practiced in Canada by theBank of Canada. The Bank ofCanada is to act as a lender of last resort. H. As a central bank, the Bank of Canada occupies a unique institutionalstatus. (1995, October-November). Assessment of the Success of the Bank of Canada in Fulfilling Its Public Policy Purpose In the early years of its existence, the Bank of Canada was highlyeffective in developing financial resources and implementing monetarypolicies that allowed the country to emerge from economic depression beforethe beginning of the Second World War. In functioning, the Bank of Canada observes a hierarchical mandate inwhich the maintenance of price stability receives precedence. These functions range from theprovision of transaction services to monitoring and intervening to maintainthe integrity of banks and the banking system to efforts to stabilize thevalue of the currency and assuring the convertibility of bank issues to theimplementation of policies designed to manipulate monetary aggregates inthe pursuit of macroeconomic goals (Goodhart, 1988). ACall for Central bank Reform," 1996). On the other hand,Canadians must pay more for necessary imported goods. Monetary policy formulation: the processin Canada; Inflation targeting has been successful. (2 2). The Bank of Canada is to act to carefully implementbank supervision in the country. As an example, an x rise in the rate of inflation over ytime would trigger a z change in reserve requirements. " (p. Goodhart (1985) arguesfurther that a central bank will "aim to prevent, or if that fails, torecycle such flows, subject to such safeguards as it can achieve to limitmoral hazard and to penalize inadequate or improper managerial behavior"(pp. E. On the one hand, Canadian exports are cheap. Dowd (1989), incontrast, accepts Milton Friedman's contention that the role of centralbanking exacerbates macroeconomic problems, as opposed to assuringmacroeconomic stability and growth. Most Canadians likely would accept a fourpercent unemployment rate as tolerable and view a nine percent unemploymentrate as unacceptably high. Once the war started, the Bank ofCanada provided low cost loans to the Canadian government to support thecountry's war effort (Crowell, 1995). Dowd (1989), essentially, rejects any kindof role for central banks. Bank of Canada. By 199 , theofficial interest rate in Canada was 14 percent and the interest rate forordinary Canadians was much higher. The actions of the Bank of Canadadrove the country into recession at a time when the country already wasdealing with the problems of created by the Canada-United States Free TradeAgreement. (1991, December). The Board of Directorsappoints the Governor of the Bank of Canada on the recommendation of thesitting government. The situation led to the ouster of the Mulrooney Government;however, the Governor and Board of Directors of the Bank of Canada retainedtheir protected positions. Dowd (1989) thinks that mistakes made by the governors of the FederalReserve in the United States and the Bank of England in the United Kingdomin the 193 s caused the Great Depression to be both more severe and longerthan was necessary. Newman, P. The Bank plays a central role in the lives of all Canadians throughits influence on the functioning of the economy. The source of the disagreement, of course, is the definition of a"high rate of unemployment. London:London School of Economics. Although Canada was not the only country mired in economicdepression, it was an industrial country without a central bank to support,promote, and facilitate domestic economic development (Crowell, 1995). From 1987 through 1994, the Bank of Canada sought a zero inflationrate (much more stringent than a low inflation rate). (2 1, October). Monetary policy, accountability, andlegitimacy: A review of the issues in Canada. Crowell, G. (2 1, September). During the second half of the 199 s, Canada's economy soared. The sitting government in Canada in 1938, however, nationalized theBank of Canada. Bank of Canada: Its history. The Bank of Canada exercises operational control over monetary policyto pursue a goal agreed to by the Bank of Canada and the sittingGovernment. Meyer, L. The economic boom lifted the valueof the Canadian dollar above that of the United States dollar ininternational currency exchange and funded the creation of the country'sexemplary social welfare system, including health care (Crowell, 1995). It's time to bounce Crow out on his ear.Maclean's, 1 6(4 ), 44-45. Further, both Dowd (1989) and Goodhart(1985) agree that no overriding need exists to stabilize currency values orassure the convertibility of bank issues through central bank(governmental) intervention. Independent review of the operationof monetary policy: Final outcomes. Goodhart (1985) contends that such action on the part of acentral bank is required because of the "important distinction betweenbanks and other financial intermediaries ... The Preamble states in part: ... The central motivation for the creation of the Bank of Canada,which occurred in 1935, was to mobilize a Canadian economy mired indepression. D. Business Economics, 36(4), 43-49. Krehm, W. Comparative central banking and thepolitics of monetary policy: The relationship between governments andcentral banks must be balanced and defined. The world economy. The evolution of central banks. Dowd (1989) argues that banks should be allowed to fail, and that boththe banking system and the economy will be stronger over the long-term. in the characteristics oftheir asset portfolio, which, in turn, largely determines what kind ofliability they can offer ... Critics of the Bank of Canada contend, however, that the institutionhas lost its way and strayed from its original mandate to promote a stateof economic well being for all Canadians ("Give Us Back Our Central Bank! Consequently, Dowd (1989) arguesstrongly for the dissolution of central banks. Once the Governor of the Bank of Canada and its Board of Directors arein place, however, the administration of the central bank is independent ofthe sitting government in Ottawa. A. Reserve Bank of New Zealand, 64(3), 4-14. The primary legislative mandate of the Bank of Canada is topromote the economic and financial well being of Canada (Archibald, 2 1). For ordinary Canadians, however, the rate ofunemployment increased to 11.9 percent in the early-199 s. The Deputy Minister of Finance is a non-voting memberof the Board of Directors of the Bank of Canada. In a modern market society (such as the Canadian economy), centralbanking provides a variety of functions. The reviewconcludes with an assessment of the success of the Bank of Canada infulfilling its public policy purpose. Better banking. Automatic rules contrast with the development and implementation ofactions by an independent monetary authority on an ad hoc basis. (2 1, October). Dowd(1989), therefore, holds that central banking should be abolished, not justdiscretionary central banking. Under a system of automatic rules, predetermined actions triggered bythe occurrence of predetermined macroeconomic developments regulate thefinancial system. (1993, November). (1989). The review addresses motivations for creating the central bank,the legislated roles of the Bank of Canada, the significance of the centralbank's creation, and the functioning of the Bank of Canada. Kevin Dowd (1989) arguesgenerally for abolishing central banking in favour of a free banking systemsans all governmental controls. The state and the monetary system. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.