THE BANK OF CANADA
and
CANADIAN MONETARY POLICY
CANADIAN CURRENCY ACCOUNTING
and
THE BANK OF CANADA
John Hodgins, CA
What we’ll talk about ..
1. Context and definitions,
2. John’s pet peeves,
3. Bank of Canada notes in circulation,
4. Learning points:
a) reducing the annual deficit by $ billions,
b) reducing the net debt by $50 billion.
Context
• Constitutional responsibility of the Government of Canada,
• Responsibility of the Department of Finance and ....
a) The Bank of Canada,
b) The Royal Canadian Mint.
• Currency systems should be reviewed occasionally,
• Canada has never conducted a comprehensive review of its
currency system.
Definitions
• Coin Seigniorage
The difference between coin face value and ....
the costs associated with producing and distributing the
coin.
• Note Seigniorage
The difference between the interest the Bank of Canada
earns on a portfolio of Government of Canada
securities and ....
the costs of issuing, distributing, and replacing notes.
John’s Pet Peeves
The Penny
John’s Pet Peeves
The Nickel
John’s Pet Peeves
The $5 note vs a $5 coin
vs
Courtesy of the Bank of Canada
John’s Pet Peeves
The $100 note
Courtesy of the Bank of Canada
John’s Suggested Currency Mix
10¢
25¢
Courtesy of the Bank of Canada & the Royal Canadian Mint
$1
$2
$5
How can we reduce deficit by $B’s
• Scrap the penny ……….............……… $5M to $10M/year
• Introduce a $5 coin ............... $500M/yr for approx. 3 years
• Merge the Mint and the B of C …...............…... $??M/year
• Gains in the economy from
increased productivity resulting
…...........……….$??M/year
in increased taxation
Bank of Canada Notes in Circulation
• Government of Canada accounting for notes in
circulation issued by the Bank of Canada:
- in essence, a liability,
• Government of Canada accounting for coins in
circulation issued by the Royal Canadian Mint:
- in essence revenue; not a liability.
Bank Note Distribution System
Withdrawal
Deposit
Canadians
Note Exchange
System
The Banks
Unfit, surplus &
sample note
shipments
New and fit note
replenishments
Note
destructions
New note
deliveries
Bank of Canada
Government of Canada
Bonds, T Bills, Interest
Profits
Government of Canada
Snap shot of the B of C Balance Sheet
2010
2009
Current Notes in Circulation
Number of notes
•
•
•
•
•
$5:
$10:
$20:
$50:
$100:
207,688,000
115,978,500
840,499,900
168,873,300
289,649,560
Face Value
$1,038,440,000
$1,159,785,000
$16,808,199,000
$8,443,665,000
$28,964,856,000
Recently Retired Notes
Number of notes
• $1:
154,468,000
• $2:
107,404,000
• $1,000: 1,077,083
Face Value
$154,468,000
$214,808,000
$1,077,083,000
Other Interesting Notes
Number of notes
•
•
•
•
•
•
$25:
1,084
$500:
40
Chartered Banks:
812,0000
Dominion of Canada: 463,500
Provinces:
2,800
Defunct Banks:
8,000
Face Value
$46,000
$20,000
$8,120,000
$4,635,000
$28,000
$88,000
Grand Total
• 1,886,925,777
$57,874,242,000
• “If you stacked all of the Canadian bank notes
in circulation, they’d reach a height of over
110KM. That’s outer space!”
OR
• If you placed all of the Canadian bank notes in
circulation end to end, they’d wrap around the
world 7 times !
Are Notes in Circulation a Liability ?
• Of the Bank of Canada?
• By extension, of the Government of
Canada?
Are notes in circulation a liability of
the Government of Canada ?
• Why is a $5 note a liability and 2 toonies
and a loonie not a liability ?
• What is the present value of a liability that
is never repaid and bears interest at the rate
of 0% ?
How can we reduce the
Government’s Net Debt by $50B?
• If notes in circulation are not a liability,
government net debt would fall by approx.
$58B.
Questions?