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  • November 25, 2002

    Turnaround Time and Timing for Government of Canada Securities Auctions and Repurchase Operations

    Effective 9 December 2002, the turnaround time for Government of Canada securities auctions will be reduced from 15 minutes to 10 minutes, and the turnaround time for repurchase operations will be reduced from 30 minutes to 15 minutes. Coincident with these changes, the submission deadline for buybacks on a cash basis will be advanced from 1:15 p.m to 1:00 p.m.
    Content Type(s): Press, Market notices
  • November 21, 2002

    Is Canada Dollarized?

    Bank of Canada Review - Autumn 2002 John Murray, James Powell
    The sharp depreciation of the Canadian dollar and the successful launch of the euro have sparked a lively debate in Canada about the possible benefits of formally adopting the U.S. dollar as our national currency. Some observers have suggested that this debate is largely irrelevant, since Canada is already highly "dollarized." Canadian businesses and households, they assert, often use the U.S. dollar to perform standard money functions in preference to their own currency. Very little evidence has been provided, however, to support these claims. The authors review the available data with a view to drawing some tentative conclusions about the extent to which Canada has already been informally dollarized. The evidence suggests that many of the concerns that have been expressed about the imminent demise of the Canadian dollar have been misplaced. The Canadian dollar continues to be used as the principal unit of account, medium of exchange, and store of value within our borders. Moreover, there is no indication that dollarization is likely to take hold in the foreseeable future. Indeed, in many respects, the Canadian economy is less dollarized now than it was 20 years ago.
    Content Type(s): Publications, Bank of Canada Review articles Topic(s): Exchange rate regimes
  • November 20, 2002

    CLS Bank: Managing Foreign Exchange Settlement Risk

    Bank of Canada Review - Autumn 2002 Paul Miller, Carol Ann Northcott
    In the foreign exchange market, where average daily turnover is in trillions of dollars and trades span time zones, legal systems, and domestic payments systems, participants take on various risks. The most serious risk is credit risk—the risk that one party will fail to pay. Central banks, private sector financial institutions, and domestic payments systems operators laboured for more than a decade to develop a multi-currency settlement system to deal with these risks. The result, the CLS Bank, began operations in September 2002. It virtually eliminates the credit risk inherent in foreign exchange transactions by providing a payment-versus-payment arrangement for settlement. The CLS Bank is regulated by the Federal Reserve Board in consultation with the central banks that have currencies settling through its system. At present there are seven currencies, including the Canadian dollar. The Bank of Canada acts as banker for the CLS Bank, providing it with a settlement account and making and receiving payments on its behalf through the Large Value Transfer System. With the participation and support of the world's largest foreign-exchange-dealing institutions, and growing membership, the CLS Bank has the potential to become the dominant global mechanism for settling foreign exchange transactions.
    Content Type(s): Publications, Bank of Canada Review articles Topic(s): Payment clearing and settlement systems
  • November 19, 2002

    Purchasing-Power Parity: Definition, Measurement, and Interpretation

    Bank of Canada Review - Autumn 2002 Robert Lafrance, Lawrence L. Schembri
    This article examines the concept of purchasing-power parity (PPP) and its implications for the equilibrium value of the Canadian exchange rate. PPP has two main applications, as a theory of exchange rate determination and as a means to compare living standards across countries. Concerning exchange rate determination, PPP is mainly useful as a reminder that monetary policy has no long-run impact on the real exchange rate, since the exchange rate can deviate persistently from its PPP value in response to real shocks. To compare living standards across countries, PPP exchange rates constructed by comparing the prices of national consumption baskets are used to translate per capita national incomes into a common currency. These rates are useful because they offset differences in national price levels to obtain comparable measures of purchasing power, but they are not an accurate measure of the equilibrium value of the exchange rate. The authors conclude that the current deviation of the Canadian exchange rate from the PPP rate does not imply that the exchange rate is undervalued, but that this deviation reflects the impact of persistent real factors, in particular, lower commodity prices.
    Content Type(s): Publications, Bank of Canada Review articles Topic(s): Exchange rates
  • November 12, 2002

    Staying the Course

    Remarks David Dodge a panel discussion at the Banco de México Mexico City, Mexico
    The dramatic events of the last two years and growing concern about the near-term prospects for the global economy have created a climate in which policy-makers focus only on current economic developments and lose sight of longer-term goals.
    Content Type(s): Press, Speeches and appearances, Remarks
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