Statistics -> Can the Government of Canada print money and spend it?
Can the Government of Canada Print Money and Spend it?
The Bank of Canada has been trying to stimulate the Canadian economy by continually lowering the target for the overnight rate, starting at 4.75% in 2007. It has not been over 1.75% since December 2008. It is now 0.25%, since March 2020. For various reasons, including the government shutdown of the economy, this has not worked.
The Bank of Canada is now implementing very risky policy called Quantitative Easing (QE). QE has been used by the US government since 2008, and by the European Central Bank (ECB) since 2015. This is not as risky for these two currencies, because they are the main reserve currencies for the world, and therefore they can use QE without significantly reducing the demand for their currencies.
The information below (pre-2020 information) was correct until the Bank of Canada started to implement QE, and started purchasing non-government and Government of Canada debt in 2020. The non-government debt, if it is high quality, should not be a major problem. However, the purchase of government of Canada debt is in effect allowing the government to print money and spend it. This is very dangerous because the value of the Canadian dollar will fall, especially versus the US dollar and the Euro.
Bank of Canada Resources
See how much the $145.6+ billion direct COVID-19 costs (federal only, doesn't include provincial) will increase the interest-bearing debt of Canada for every adult and child. Could this have been avoided?
Tax Tip: Diversify your investments among different currencies. Don't hold all your dollars in a Canadian basket!
If there is a demand for more coins, the Royal Canadian Mint will produce the coins and sell them to financial institutions. Payment for the coins is made to the Receiver General (Government of Canada). The federal government pays the mint for the costs of producing and distributing the coins, and keeps any net revenue. Financial institutions cannot return surplus coinage, but can return smooth or mutilated coins.
If there is a demand for more bank notes, the Bank of Canada distributes them to financial institutions. It is ordinary Canadians who determine the demand for bank notes, and the Bank of Canada meets whatever the demand is. People carry cash in their wallets and purses, and businesses hold cash "floats" so they can operate their businesses. Surplus bank notes can be deposited by financial institutions into their accounts at the Bank of Canada.
Financial institutions have accounts with the Bank of Canada chiefly so that they may participate in the clearing and settlement of payments in Canada. They seek to maintain sufficient balances in these accounts to be able to meet their daily payment obligations. Their accounts are debited when they make payments to other financial institutions or the government, or withdraw bank notes. Their accounts are credited when they receive payments from other financial institutions or the government, or deposit bank notes.
The amount of bank notes in circulation is approximately $40 billion. The Bank of Canada invests the proceeds from bank notes in government securities, and earns income on the securities. The net income of the Bank of Canada is paid to the Federal Government.
Thus, the answer to the question is NO, the Government of Canada cannot print money and spend it. Bank notes are produced and distributed by the Bank of Canada in response to a demand for those notes by Canadians. If too many bank notes are placed in circulation they are returned as surplus notes to the Bank of Canada.
The income of the Government of Canada consists of taxes, duties, interest and penalties collected. Out of this income they pay the operating expenses of the country. If they spend more than they collect, they have a deficit, and must borrow money. They borrow money by selling Government of Canada bonds. The total money owed by the government, resulting from continuing deficits, is the National Debt. If the government collects more than they spend, they have a surplus, and can pay down debt.
- owned by the government of Canada.
- pays a dividend to the government of Canada.
Duties and objectives:
- oversight of Canadian financial system.
- manage government of Canada debt.
- keep inflation between 1% and 3%.
- process the sale of government of Canada bonds and t-bills to chartered banks and brokerages, who then may resell to individuals and corporations.
- provide funds management services for themselves, the government of Canada, and other clients.
- provide banking services for chartered banks, including taking deposits, lending funds, and clearing large transactions.
- produce and distributes Canadian bank notes (paper currency) by selling them to chartered banks.
Bank notes issued by the Bank of Canada are only a small portion of the money supply. The majority of the money supply is already held by individuals and corporations, in the form of many different liquid financial assets such as cash, financial institution account balances, bonds, t-bills, etc. For more information see Bank of Canada Backgrounder - Canada's Money Supply (link below).
The Bank of Canada can influence the money supply by raising or lowering interest rates, which reduces or increases demand for money.
Other countries have tried to increase their money supply using quantitative easing (QE), but the Bank of Canada has not done this, according to all information we can find at this time (September 2, 2019).
Revised: May 20, 2021
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