Monetary Policy in Canada :: essays papers

Monetary Policy in CanadaThe Bank of Canadas Control Over the Money SupplyThe ability of the central depose to affect the money leave is critically related to its ability to mark the reserves of the commercial verifying governing body.One important tool that the Bank uses for influencing the supply of money is the purchase or sale of government securities on the capable market. These actions are known as open-market operations.Whenever the Bank is involved in every the purchase or sale of government securities, the reserves of the entire imprecateing system are altered, and this affects the money supply.When the Bank of Canada buys a treasury bill or a impound from a household or a firm, it pays for the bond with a bridle drawn on itself and payable to the seller. The seller deposits this cheque in a commercial coin swear, which then presents the cheque to the Bank of Canada for payment.The patois of Canada then makes a book entry, increasing the deposit of the commercial bevel at the central bank, which adds to the commercial banks reserves.Typically, when the Bank buys securities on the open market, the reserves of the commercial banks are increased. These banks can then aggrandise deposits, thereby increasing the money supply.When the Bank sells a security to a household or firm, it receives in return the buyers cheque drawn against a deposit in a bank. The Bank presents the cheque to the commercial bank for payment.Payment is made by a book entry that reduces the banks deposit at the central bank, and hence reduces its reserves.When the central bank sells securities on the open market, the reserves of the commercial banks are decreased. These banks must in turn contract deposits, thereby decreasing the money supply.Extension 29-1 hard currency management - the shifting of government deposits between the Bank of Canada and the chartered banks is a major tool used by the Bank of Canada in its everyday operations.When the Bank transfers govern ment deposits, it influences the reserves of the banking system relative to its target take aim of reserves, thereby inducing an expansion or contraction of commercial bank lending and thus an expansion or contraction of the money supply.Open-market operations and control of government deposits give the Bank of Canada potent weapons for affecting the sizing of commercial bank reserves and thus for affecting the money supply.though the details of an open-market operation differ from