The Bank of Canada’s larger balance sheet may be with us for a while. Read on.
’s ballooning balance sheet has received lots of attention lately. From $120 billion in early March 2020 it grew over the next 12 months to $575 billion and it still stands at $414 billion today, more than three times what it was. That happened because in response to the pandemic the Bank purchased Government of Canada bonds from commercial banks.
it has aggressively raised its policy rate, it is not selling the bonds it purchased. Instead, it is letting them roll off its balance sheet as they mature.Article content Second, Canada is modernizing its systems for clearing both retail payments and wholesale payments . Transactions will now settle in real time, which means financial institutions will want to hold larger settlement balances at the Bank to facilitate these payments — which in turn means a larger Bank balance sheet.
Third, there may be a Bank of Canada digital currency in our future. If people hold more of it than they do cash today — for example, because they no longer need an ATM — the Bank’s liabilities will increase. The result? A larger Bank balance sheet. With these factors suggesting the Bank will continue to hold more assets, primarily in the form of federal government
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