Bank of Canada
According to them, it's not a mirror of the Fed and isn't there to fleece the Cdn people.
I just asked two questions... something to prod some more out of me to ask later.
I'd be curious to know who the original shareholders were, and if it was an IPO or
a private offering.
I'm doing some research on the Bank of Canada, and I was wondering two
1) Does the BoC lend money to the government WITH interest?
2) Who were the original owners/founders of the BoC prior to it becoming
a Crown asset?
Thanks for any help you can provide.
1)The following excerpt from our web site (see below) attempts to
explain what happens to the money the Bank of Canada earns through
seigniorage revenue (i.e. interest income) each year. Essentially, what
it is saying is that, as the sole issuer of Canada's paper money, the
Bank takes the money paid to it by financial institutions for the paper
money they receive and invests in interest-bearing government securities
(i.e. bonds, treasury bills) for the life of that paper money. When the
paper money is returned to the Bank of Canada (i.e. it has worn out),
the Bank repays the principal to the financial institution, and keeps
the interest as income, which is then turned over to the receiver
general (i.e. Federal government) at the end of the year.
So, in effect, the government has paid interest to the Bank on the
securities the Bank holds (about $48 billion), but has received that
interest back (minus Bank of Canada operating expenses) at the end of
the year - a net zero cost to the government for the use of that $48
If the Bank of Canada were not to exist, and some other entity (let's
say commercial banks) were to issue bank notes, the interest earned on
those government securities would go to them, and not back to the
government. Hence the government would have to use tax revenue to pay
that interest. By having a central bank issue bank notes, and return the
interest income to the government, in effect, the government finances
that portion of their expenditures without having to collect taxes.
For any information on the debt please contact Finance Canada at
EXCERPT from our website:
Seigniorage derived from notes
The Bank of Canada is responsible for issuing bank notes. Their life is
relatively short-ranging from seven years for $100 notes to two years or
less for $10 and $5 notes. Since deposit institutions are able to return
their surplus notes to the Bank of Canada for payment, these notes
represent a payable liability for the Bank. For this reason, the
accounting process for revenue and costs associated with the issuance of
bank notes differs from that for coins. In compensation for the issuing
of bank notes recorded as a liability, the Bank of Canada acquires
interest-bearing federal government securities (treasury bills and
Seigniorage is the difference between the interest earned on the
government's securities portfolio, and the costs of producing and
distributing bank notes. Unlike the seigniorage for coins, bank note
seigniorage is collected in installments over a period of years.
Take, for example, a $20 bill, which is the most highly used
denomination. At an average interest rate of 5 per cent, one $20 note in
circulation produces revenue of about $1 per year. The production cost
of this note is 6 cents for a life of about three years, which yields a
cost of 2 cents per year. If average annual distribution expenses of
about 2 cents are added to this cost, the result is an average annual
cost of approximately 4 cents to put this note in circulation and
replace it when it is worn. The Bank of Canada thus clears an annual net
revenue of about 96 cents for each $20 note in circulation.
Use of seigniorage revenue
In recent years, just over $48 billion in notes has been in circulation.
The interest revenue of the Bank of Canada has fluctuated between $1.7
and $2.2 billion per year. A small portion of this has been used to
finance the Bank's general operating expenses. The remainder has been
paid to the Receiver General. Seigniorage revenue thus allows the
federal government to finance a portion of its expenditures without
having to collect taxes.
2)The Bank of Canada is a crown corporation, with its share capital held
by the Minister of Finance on behalf of the Government of Canada, i.e.
it is publicly owned. In March 1935, the Bank of Canada opened its doors
as a privately owned institution, with shares sold to the public. Soon
after the Bank opened, a new government introduced an amendment to the
Bank of Canada Act to nationalize the institution. In 1938, the Bank
became publicly owned and remains that way today.
Bank of Canada