Finances of the Nation: From Bonds to Banknotes—Central Banking and Public Finances in Canada

Abstract

This article presents a summary of the Bank of Canada's finances from 1935 to the present, highlighting the interplay between the central bank and the federal government's fiscal operations. It explores the historical, political, and economic factors that led to the establishment and subsequent nationalization of the Bank of Canada. It also presents new data and analysis on the central bank's impact on Canadian public finances. By examining the evolution of the Bank of Canada's balance sheet, revenue streams, and expenditures, the article underscores the importance of understanding these connections, particularly considering the COVID-19 pandemic and the subsequent implementation of quantitative easing. Understanding the financial position of the Bank of Canada separately from the broader consolidated position of the government of Canada is valuable. For example, it allows one to construct a broader measure of federal debt service costs, which today are materially larger than what is reported in the public accounts. It may also clarify the implications of monetary policy choices for the economic and financial welfare of the nation.