Bank of Canada Operations and Policy
Book by University of Toronto Press, 1958

PREFACE
IN THE PREFACE to an earlier version of this book I noted that there had been a curious lack of interest in Canadian central banking and monetary policy. This is now much less true and it rightly indicates the importance of recent developments. The period of monetary restraint which began in 1955, and in which interest rates rose to levels higher than any since the years before the economic depression of the 1930's, was largely responsible for the renewed interest; but the newly formed short-term money market was also in part responsible for the change, because it brought the capital market into day-to-day contact with cash management of the central bank. Besides this the Bank of Canada introduced a number of changes and suggested others which periodically initiated public discussion of the central bank's operations and policy.

This book incorporates these developments while leaving the outline and much of the material of the earlier version relatively unchanged. Discussion of policy has been brought up to date, changes in the short-term money market and in the central bank's techniques have been noted and discussed, and some parts of the chapter on objectives have been clarified. The evidence of the Bank's second Governor on the subject of the constitutional position of the Bank before the House of Commons Banking and Commerce Committee is noted in the first chapter. Certain limitations and difficulties of monetary policy were clearly revealed in the period of monetary restraint which ended in late 1957 and these, together with some indication of the direction toward further improvement, are outlined briefly in the final chapter. My interest in money and banking began as an undergraduate at the University of Saskatchewan where I was guided and encouraged by Professor Mabel F. Timlin. At the London School of Economics and Political Science, Professor R. S. Sayers assisted me more than he knows by his sustained interest in my post-graduate work, much of which is embodied in this book. The Bank of Canada has always dealt kindly with my requests for information, while Professor V. W. Bladen and the Editors of the University of Toronto Press have helped me generously with problems of publication. My wife, by surviving the ordeal of many drafts of typescript and of charts, made it possible for this study to be completed. E. P. N.

CHAPTER ONE
The Bank of Canada and the Government
THE ASSUMPTION by contemporary governments of a greater and more direct responsibility for the economic welfare of their subjects and the vastly expanded importance, both financially and economically, of public debt management and fiscal policy, have demanded a close and continuous relationship between governments and their central banks. This has gone much beyond mere ownership of central banks by governments. The multiplication of public debt and expenditure has magnified the central bank's role as government banker and adviser and many government controls, funds, and agencies are now often administered by central banks. Today's hyper-sensitive public attitude toward unemployment has made governments acutely conscious of the necessity of using both monetary and fiscal tools in achieving their own objective of full employment at almost any price. On the other hand, the very tools which central banks use, as we shall see later, are often available only through direct co-operation with the government, while the policies which they pursue can in many instances be successful only if they are harmonized with those of other official authorities. More so than in previous years, especially those preceding the depression of the 1930's, it has become imprudent for governments to be uninterested in central bank policy and impossible for central bankers to dismiss the many-sided impact of government. Inevitably these two institutions have drawn much closer together.