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ENGR 3360U Winter 2014
Unit 2.3
Money and the Bank of Canada
Dr. J. Michael Bennett, P. Eng., PMP,
UOIT,
Version 2014-I-01
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Unit 2.3 – Money and the Bank of Canada
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Chan%e Re&ord
2014--01 nitia' Creation
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Co(r)e *(t'ine for $art 2
2.1 Mi&roe&ono+i&)
2.2 Ma&roe&ono+i&)
2.3 Money and the Bank of Canada
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Unit 2.3 Road Ma,
2.3.1 Money
2.3.2 Centra' Bankin%
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2.3.1 Money and it) ()e)
Why do ,eo,'e ()e +oney
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Money
Money/ ny a))et that &an e ()ed a) a +ean) of ,ay+ent for ,(r&ha)e) and
to )ett'e det)
i)tori&a''y# +any for+) hae een ()ed )(&h a) %o'd &oin)# &orie
)he'')# (no,ened %in ott'e)# ,'ayin% &ard)# &a&ao ean).
n dee'o,ed &o(ntrie)# 5+oney i) ,ri+ari'y no C(rren&y andChe&kin% a&&o(nt a'an&e)
$rin&i,a' ()e)
Medi(+ of e7&han%e
Unit of a&&o(nt
8tore of a'(e
9ey ))(e – i) it %enera''y a&&e,ted in ,ay+ent
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Medi(+ of E7&han%e
Medi(+ of e7&han%e/
n a))et ()ed in ,(r&ha)in% %ood) ; )eri&e)
Red(&e) tran)a&tion &o)t)
Barter/
the dire&t trade of %ood) or )eri&e) for other %ood) or )eri&e)
E.%. te7t ook ritin% ; ho()e ,aintin% Car) for oran%e)
!i)adanta%e) of arter
ery hi%h tran)a&tion &o)t) (ire) do('e &oin&iden&e of ant) and i+,ede) ),e&ia'i?ation
n ena'in% %reater ),e&ia'i?ation# +oney in&rea)e) the ,rod(&tiity of the
entire e&ono+y
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Unit of &&o(nt and 8tore of Aa'(eUnit of a&&o(nt
a)i& +ea)(re yard)ti&k of e&ono+i& a'(e
n Canada - (nit of a&&o(nt i) Canadian do''ar
8tore of a'(e
n a))et that )ere) a) a +ean) of ho'din% ea'th By ho'din% &a)h rather than ),endin% it no# ho()eho'd) &an
tran)fer &on)(+,tion fro+ today to to+orro
Note – no intere)t i) ,aid on &(rren&y - )o hy do ,eo,'e ho'd
&a)h# other than eno(%h for &(rrent tran)a&tion) Conenien&e – (t a')o
ide a))et) fro+ the a(thoritie) – e.%. dr(%
f ,ri&e) are fa''in%
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Mea)(rin% the +o(nt of Money in the E&ono+y
Mea)(re) of +oney
M1
8(+ of &(rren&y o(t)tandin% and a'an&e) he'd in&he&kin% a&&o(nt) at &hartered ank)
Narro definition
M2
'' the a))et) in M1 ,'() noti&e ; )ain%) de,o)it)
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M1# M2# and M3# "an(ary 2004
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!eter+inin% the Money 8(,,'y
he +oney )(,,'y &on)i)t) of
C(rren&y
!e,o)it a'an&e) he'd y &o++er&ia' ank)he deter+ination of the +oney )(,,'y
de,end) in ,art on the ehaior of
&o++er&ia' ank)
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What deter+ine) the tota' a+o(nt of +oney
in &ir&('ation
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Unit 2.3 – Money and the Bank of Canada
Bank)
Credit----- &redo
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Wor'dF) *'de)t Bank
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BankF) Ba'an&e 8heet
))et) - What ank) on
iai'itie) - What ank) oe
Bank re)ere)Ca)h or )i+i'ar a))et) he'd y &o++er&ia'
ank) for the ,(r,o)e of +eetin% de,o)itor
ithdraa') and ,ay+ent) Not ,art of the +oney )(,,'y
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Re)ere Bankin%
100 ,er&ent re)ere ankin%Bank)F re)ere) 100 O of their de,o)it)
Bank) rea'i?ed 'on% a%o that they donFt need to kee, re)ere) 100 Ode,o)it)
*n'y a )+a'' fra&tion of de,o)it) are ithdran on any %ien day$rofit o,,ort(nity kee, P()t eno(%h re)ere) on hand to )ati)fy ithdraa') 'oan o(t the re)t ; &har%e intere)t +ake +oney fro+ intere)t rate differentia'
Ira&tiona'-re)ere ankin% )y)te+
ankin% )y)te+ in hi&h ank re)ere) are 'e)) than de,o)it) )o thatthe re)ere-de,o)it ratio i) 'e)) than 100ORe)ere-de,o)it ratio Bank re)ere) diided y de,o)it)
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Money Creation
When a ank 'end)# it &reate) a &he>(in% a&&o(nt – i.e. +oney
When a orroer ),end) the 'oan# the ,ro&eed) are de,o)ited at
another ank# &reatin% ank re)ere) at that ank
$ro&e)) of e7,an)ion of 'oan) and de,o)it) end) hen a'' e7&e))e7&e))re)ere)re)ere) are 'oaned o(t/
he a&t(a' ratio of ank re)ere) to de,o)it) then e>(a') the
de)ired re)ere-de,o)it ratio
i 2 3 d h k f C d
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2.3.2 Centra' Bankin%
What are the ),e&ia' f(n&tion) and ,oer)
of the Bank of Canada
U i 2 3 M d h B k f C d
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he Bank of Canada
*,ened in 1D3 - re),on)i'e for ad+ini)tration of
+onetary ,o'i&y
Monetary ,o'i&y de&i)ion) ty,i&a''y ino'e &han%e) to
intere)t rate)the key ,o'i&y rate i) anno(n&ed on @ ,re-),e&ified
date) ea&h year
8in&e 1D@@ - )o'e oPe&tie of Bank of Canada ha) een
kee,in% inf'ation 5'o and )ta'etar%et ran%e for 5Core inf'ation in C$ i) 1O - 3O
*n aera%e# C$ inf'ation 1.:O eteen 1DD2 ;
200
U i 2 3 M d h B k f C d
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nf'ation $erfor+an&e in Canada
8o(r&e/ http://www.bank-banque-canada.ca/en/indinf/cpi_graph_en.htm
U it 2 3 M d th B k f C d
http://www.bank-banque-canada.ca/en/indinf/cpi_graph_en.htmlhttp://www.bank-banque-canada.ca/en/indinf/cpi_graph_en.html
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era%e fro+ 2000 i) 2.1OCon)(+er $ri&e nde7# hi)tori&a' )(++ary
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he Bank of Canada
*ther f(n&tion) of the Bank of Canada
$roidin% &entra' ankin% )eri&e)
))(in% ank note)
d+ini)terin% the federa' det
Me+er) of the %oernin% &o(n&i' and oard of dire&tor) are
a,,ointed
Iedera' %oern+ent na+e) Goernor for : year ter+
a%ree) then on oPe&tie) – i.e. tar%et ran%e for inf'ation
Bank of Canada ha) inde,enden&e in +eetin% tho)e
oPe&tie)
U it 2 3 M d th B k f C d
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*ther Centra' Bank)
U.8. Iedera' Re)ere 8y)te+
Created in 1D13
12 re%iona' Iedera' Re)ere ank)
Iedera' *,en Market Co++ittee deter+ine) federa'f(nd) rate tar%et
No e7,'i&it inf'ation tar%et
E(ro,ean Centra' Bank
Created in 1DD@
Goernin% &o(n&i' deter+ine) the +ini+(+ id rate
Main oPe&tie i) 'o and )ta'e inf'ation
U it 2 3 M d th B k f C d
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More $re&i)e C$ !efinition)
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Core C$/ he C$ e7&'(din% ei%ht of the +o)t o'ati'e
&o+,onent)
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ri&kery
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Month
!ota "P#CoreC$ 1
Percentage change o$er % &ear ago'unad(usted)
ota'
C$
Core
C$ 1
'ternatie+ea)(re) of trendinf'ation
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Unit 2.3 – Money and the Bank of Canada
Rate) yo( )ho('d kno
*erni%ht 'endin% rate
$ri+e rate
Mort%a%e rateC$ – inf'ation
C!N
E
8E !-" 8;$ N8!EC I**8E !
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