The Bank of Canada (BoC) is Canada’s central bank and is located in Ottawa, the capital of Canada.
Its principal role is “to promote Canada's economic and financial welfare,” as defined in the Bank of Canada Act.
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.
What the Bank Does
The Bank of Canada is the nation's central bank. Its principal role is "to promote Canada's economic and financial welfare," as defined in the Bank of Canada Act. The Bank’s four primary 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 economic systems within Canada and internationally and conducts financial market transactions to support these objectives.
- Currency: The Bank designs, issues, and distributes Canada’s banknotes.
- Funds management: The Bank is the "fiscal agent" for the Government of Canada, managing its public debt programs and foreign exchange reserves.
Who Runs the Bank
The Governing Council
The Bank of Canada is led by the Governing Council, the policy-making body of the Bank, which is responsible for:
- conducting monetary policy
- promoting a safe and efficient financial system
The Governing Council comprises the Governor, the Senior Deputy Governor, and the Deputy Governors.
The Governing Council's primary tool for conducting monetary policy is the target for the overnight rate (also known as the key policy rate). This rate is usually set on eight fixed announcement dates per year. The Council makes its decisions about the speed by consensus—rather than by individual votes, as is the case at other central banks.
The Executive Council
The Bank’s Executive Council is made up of the Governing Council and the Chief Operating Officer. Together, they chart the strategic direction of the Bank.
As the Bank’s Chief Executive Officer, the Governor ultimately has complete control over the business of the Bank. His responsibilities include:
- chairing the Board of Directors;
- leading the Bank’s Governing Council; and
- conducting monetary policy to achieve an inflation target agreed upon by the Bank and the Government of Canada.
The independent directors appoint the Governor and the Senior Deputy Governor with the approval of the Governor in Council (the federal Cabinet) for a seven-year term. This allows the Governor to adopt the medium- and longer-term perspective essential to conducting effective monetary policy.
The Senior Deputy Governor
The Senior Deputy Governor is the deputy executive of the Bank of Canada, who:
- oversees the Bank’s strategic planning and operations;
- shares responsibility for the conduct of monetary policy as a member of the Bank’s Governing Council; and
- is a member of the Bank’s Board of Directors.
The Board of Directors
The Board of Directors is appointed by the Minister of Finance for a three-year term, subject to the approval of the Governor in Council. It is composed of the Governor, the Senior Deputy Governor, 12 outside directors, and the Deputy Minister of Finance (who has no vote). Their responsibilities include:
- providing general oversight of the management and administration of the Bank
- reviewing the Bank's available policies (on matters other than monetary policy and for approving the Bank's corporate objectives, plans, and annual budget)
- keeping the Bank informed about prevailing economic conditions in their respective regions
- appointing the Governor and Senior Deputy Governor
Monetary policy is neither formulated nor implemented by the outside directors.
Separate from the Political Process
The Bank of Canada is a particular 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 offer 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 the Cabinet on the recommendation of the Minister of Finance, not by the Auditor General of Canada.
Having an independent monetary institution allows for separating the power to spend money from the ability to create money. Unraveling the central bank from the political process enables it to adopt the medium- and long-term perspectives essential to effective monetary policy.