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Prior to the creation of the Bank of Canada, the Bank of Montreal, then the nation's largest bank, acted as the government's banker, and the federal Department of Finance was responsible for printing Canada's government notes.
In 1933, Prime Minister R.B. Bennett instituted the Royal Commission on Banking and Currency and it reported its policy recommendations in favour of the establishment of a central bank for Canada. The Royal Commission's members consisted of Scottish jurist Lord Macmillan, Bank of England director Sir Charles Addis, Canadian former Finance Minister William Thomas White, Banque Canadienne de Montréal general manager Beaudry Leman, and Premier of Alberta John Edward Brownlee. One of Bennett's motivations was to lessen Canada's dependence on American banks based in New York, which he felt had dominant influence on the value of the Canadian dollar.
The bank was chartered by and under the Bank of Canada Act on 3 July 1934, as a privately owned corporation, a move taken in order to ensure the bank would be free from partisan political influence. The bank's purpose was set out in the preamble to the act: "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 the Dominion". With the exception of the word "Canada" replacing "the Dominion", the wording today is identical to the 1934 legislation. On 11 March 1935, the Bank of Canada began operations, following the granting of royal assent to the Bank of Canada Act.
Upon its initial creation, the bank was primarily tasked with anchoring Canada's economy globally and managing foreign exchange. The bank was not tasked with managing inflation.
In 1938, while William Lyon Mackenzie King was serving as prime minister, the bank was legally designated a federal Crown corporation. The minister of finance holds the entire share capital issued by the bank. No changes were made in the purpose of the bank.
The government appointed a board of directors to manage the bank, under the leadership of a governor. Each director swore an oath of "fidelity and secrecy" before taking office.
In 1944, the Bank of Canada then became the sole issuer of legal tender banknotes in and under Canada.
During World War II, the Bank of Canada operated the Foreign Exchange Control Board and the War Finance Committee, which raised funds through Victory Bonds. After the war, the bank's role was expanded as it was mandated to encourage economic growth in Canada. An Act of Parliament in September 1944 established the subsidiary Business Development Bank of Canada (BDC) to stimulate investment in Canadian businesses. Prime Minister John Diefenbaker's central-bank monetary policy was directed towards increasing the money supply to generate low interest rates, and incentivize full employment. When inflation began to rise in the early 1960s, then-Governor James Coyne ordered a reduction in the Canadian money supply.
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Since the 1980s, the main priority of the Bank of Canada has been keeping inflation low. As part of that strategy, interest rates were kept at a low level for almost seven years in the 1990s.
Following the 2008 recession, the central Bank of Canada lowered interest rates to stimulate the economy, but did not practice quantitative easing, as it feared that dramatically increasing the money supply would lead to hyperinflation.
Between 2013 and early 2017, the Bank of Canada temporarily moved its offices to 234 Laurier Avenue West in Ottawa to allow major renovations to its headquarters building.
In mid 2017, inflation remained below the bank's 2% target, (at 1.6%), mostly because of reductions in the cost of energy, food and automobiles; as well, the economy was in a continuing spurt with a predicted GDP growth of 2.8 percent by year end. On 12 July 2017, the bank issued a statement that the benchmark rate would be increased to 0.75%. "The economy can handle very well this move we have today and of course you need to preface that with an acknowledgment that of course interest rates are still very low," Governor Stephen Poloz subsequently said. In its press release, the bank had confirmed that the rate would continue to be evaluated at least partly on the basis of inflation. "Future adjustments to the target for the overnight rate will be guided by incoming data as they inform the bank's inflation outlook, keeping in mind continued uncertainty and financial system vulnerabilities." Poloz refused to speculate on the future of the economy but said, "I don't doubt that interest rates will move higher, but there's no predetermined path in mind at this stage".
By the end of 2018, the Bank of Canada had raised rates up to 1.75% from a low of 0.5% in May 2017 in response to robust economic growth. Rates remained at 1.75% for the duration of 2019.
In March 2020, interest rates were quickly lowered to 0.25% in response to the economic conditions caused by the COVID-19 pandemic. Additionally, the Bank of Canada undertook the controversial practice of quantitative easing, whereby the Central Bank increases the money supply to create funds for government spending. The sudden increase in the money supply contributed to Canada's inflation rate reaching 4.8%, the highest in over 30 years.
By October 2021, the Central Bank stopped its practice of quantitative easing, and accelerated the timeline of increasing interest rates to pre-pandemic levels.
In March 2022, The Bank of Canada raised its benchmark interest rate for the first time in over three years, claiming that future rate increases are needed to fight inflationary pressures expected to worsen due to the Russian invasion of Ukraine. Canada's central bank raised its overnight rate goal by a quarter-percentage point to 0.50 percent. After the Bank of England, the Bank of Canada is the second Group of Seven central banks to raise rates since the outbreak began.
On 29 November 2022, the Bank of Canada reported its quarterly earnings for the third financial quarter of that year. It reported a loss of C$522 million. This was the first time in its history that it reported a loss. This loss was first reported on in a 12 September 2022 op-ed in the Toronto Star. The op-ed blamed the bank's emergency quantitative easing policy it took following the COVID-19 pandemic. The bank responded to the op-ed saying that they do expect to return a loss as "the bank's interest expense is growing because of increases in the interest rate that we pay on deposits."
From Wikipedia’s article on Bank of Canada, shared under CC BY-SA 4.0.3