What is the Bank of Canada?

• Enacting monetary policy: The bank uses monetary policy to control inflation. It does this by setting a target overnight rate, also referred to as the policy interest rate or benchmark rate. Other banks use this rate to set prices on their products, such as mortgage rates and guaranteed investment certificates (GICs). Canada’s floating exchange rate is a key component of the bank’s monetary policy. Because the Canadian economy is heavily resource-based, the currency increases in value when the global economy is strong and declines when economic conditions are weak.

• Supporting the financial system: To create a stable and efficient banking system, the BoC will act as lender of last resort to eligible financial institutions facing serious liquidity problems. It also conducts research and analysis to assess the financial stability of the Canadian banking system.
• Issuing currency: The BoC surveys Canadians before choosing new designs. Currency is then printed and distributed through retail banks.
• Providing funds management: The bank is the fiscal agent for the Government of Canada, managing public debt and foreign exchange reserves.
• Supervising retail payment providers: The Bank of Canada also supervises retail payment providers. These include payment processors, digital wallets, money transfer services and other companies offering retail payment services. The bank doesn’t deal with consumer complaints. Its responsibility is limited to ensuring providers comply with the Retail Payment Activities Act. Its goal is to build confidence and protect end users.

Example: “In 2024, after years of research, the Bank of Canada shelved its plan to issue a digital Canadian dollar, opting to focus on payment systems instead.”

How the Bank of Canada’s interest rate affects you

Read more about the Bank of Canada:

• What the Bank of Canada’s latest rate hike means for your finances
  The central bank’s overnight interest rate sets the tone for the prime rates offered by banks. We explain what changes in the policy rate mean for you.

• What an interest rate hike could mean for you
  Mortgage rates have been falling since the 1980s—but that trend can’t continue forever.

• I keep hearing interest rates may rise. What would that mean for my mortgage?
  A Certified Financial Planner helps a reader get clear on what a rise in interest rates would mean for their mortgage and personal finances.

• Guide to inflation: Price changes, the pandemic and your pocketbook
  This guide will help you understand what inflation is, how it’s calculated, and what it means for your personal finances.

About MoneySense Editors

MoneySense editors and journalists work closely with leading personal finance experts in Canada. Since 1999, our award-winning magazine has helped Canadians navigate money matters.

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