Interests of the economic value of the national

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interests of the economic value of the national monetary unit and to mitigate by its influence fluctuations in the general level of production, trade, prices and employment, so far as may be possible within the scope of monetary action , and generally to promote the economic and financial welfare of the Dominion. Monetary action is the primary tool at the bank’s disposal, monetary policy The bank states: the goal of Canadian monetary policy is to contribute to rising living standards for all Canadian through low and stable inflation. Specially, the bank aims to keep the rate of inflation, as measured by annual rate of increase in the consumer price index, inside a target range established jointly with the government. Since 1995, the target range has been 1 to 3 per cent. The bank manages this by setting the overnight rate target, or the interest rate at which major financial institutions borrow and lend one-day (or ‘overnight’) funds among themselves. In the early stage the bank of Canada did not pursue an active monetary policy Coyne was the first governor of the bank actively pursue monetary policy using the bank rate Monetary Policy of the Day Coyne was focused on keeping inflation in check, and so he maintained a tight-money policy In a environment of prosperity, and at a time with a history of low, stable –almost static – interest rates, Coyne’s actions were shocking to the nation Coyne’s goal was to ‘encourage overall economic growth on a sound and sustainable basis, and to facilitate economic development with a view to increasing employment opportunities and eliminating unemployment or reducing it to the lowest possible level’ Coyne’s main preoccupation was inflation, which he saw as much more than a danger to economic growth Coyne’s against inflation view was contrary to the Keynesian school of thoughts Keynesian: low inflation was a small but necessary price to pay to achieve full employment
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Coyne also concerned about both the low saving rates of Canadians and the high rate of foreign investment in Canada, two factors he considered linked Coyne and the bankers Introduction of a minimum 15% liquidity ratio for the chartered bank holdings Designed to increase the effectiveness of monetary policy in moderating a too rapid expansion of credit, the new minimum was on top of the statutory requirement of a minimum 8% cash reserve Bankers thought: the ratio was too high, it would immobilize too many assets, rendering them inaccessible in the event of need, bank would become less flexible and less responsive to the markets, and the central bank would directly control a part of the chartered bank’s assets In late 1956 he replaced the fixed bank rate with a floating rate, set at 25 basis points above the 91-day treasury bills established at the weekly auction Reason for this change: 1. a rate slightly higher than market rate would discourage borrowing by the banks from the central bank 2. a floating rate would respond more quickly to changes in the market than would a fixed rate Bankers once again against it and their view is: floating rate obscured the direction of
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