7Ce Chapter 10 Print Copy Ch 14 E-text
ANSWERS TO QUESTIONS
1. What political realities might explain the creation of the Bank of Canada in 1934?
The primary motivation for the formation of the Bank of Canada was political. As the Great
Depression undermined faith in the existing market economy and inflation was blamed on
the concentrated banking industry, support was given to the idea of a central bank.
2. In what ways can the government influence the conduct of monetary policy?
Under the “joint responsibility system,” the governor of the Bank of the Canada and the
minister of finance consult regularly about monetary policy. Also, in the event of a serious
policy conflict, the minister of finance can issue a directive that the Bank must follow.
5. How did the “Coyne Affair” motivate the current system of joint responsibility for monetary
policy?
After Governor Coyne tendered his resignation in 1961 and Louis Rasminsky became the
third governor of the Bank of Canada, upon assuming office he issued a public statement
making clear his views regarding the division of responsibility between the Bank and the
governor. The matter rested until 1967 when the Bank of Canada Act was amended to
confirm that the minister and the governor of the Bank of Canada should consult regularly
on monetary policy.
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