Funds management

The pandemic had a major impact on the Bank’s funds management activities in 2020. One of the Bank’s top priorities was supporting the extraordinary market operations implemented to address the COVID‑19 crisis. As the Government of Canada’s fiscal agent, it also provided policy advice on managing debt in response to the Government of Canada’s significant domestic funding needs.

The Government of Canada increased its debt issuance to finance its COVID‑19 economic response plan.1 The total principal amount to be borrowed in 2020–21 is $627–692 billion, which is $370–435 billion higher than the amount issued for 2019–20.

At the onset of the crisis, a large part of the government’s extraordinary borrowings were short‑term instruments, mainly treasury bills. Large amounts of these instruments could be issued quickly to raise needed funding. Since then, as outlined in its debt management strategy for the 2020–21 fiscal year,2 the government has shifted to issue a larger proportion of debt in longer‑term bonds. This will:

• help manage rollover risk
• take advantage of the low interest rate environment

Providing funds management policy and advice

The Bank acts as fiscal agent and banker for the Government of Canada.

The Bank:

• administers and provides advice on the federal government’s debt and foreign reserves
• develops, in cooperation with the Department of Finance Canada, policies and programs to manage Canada’s borrowing and investment activities

The uncertainty around the record level of domestic funding needs, as well as the general volatility in the markets, made this work more challenging than usual in 2020.

The Bank provided funds management advice to the government that was flexible and appropriate given the context of the pandemic. The objectives were to:

• ensure the government could continue to raise significant funds in an orderly manner
• allow for funding that could be increased or decreased (as needed)
• keep market disruptions to a minimum

Improving systems by automating processes

To reinforce its funds management, monetary policy and financial system functions, the Bank continued to improve its systems for domestic market and fiscal agent operations.

This included automating several regular operations the Bank uses to manage its balance sheet and promote the orderly functioning of Canadian financial markets. For example, operations for term repos3 and overnight repos4 are now more efficient. Regular updates for both are posted with minimal manual intervention on the Bank’s website.

For both the Bank and market participants, these enhancements:

• increased operational scalability
• updated processes
• reduced operational risk

Phasing out Canada Savings Bonds

The Bank continued to take important steps to update operations. These steps respond to the Government of Canada’s 2017 announcement of its intention to discontinue Canada’s Retail Debt Program. As part of this announcement, the government indicated that it would no longer issue new Canada Savings Bonds or Canada Premium Bonds. The outstanding retail debt has declined from $4.996 billion in 2017 to $0.825 billion at the end of 2020.

Looking forward

In 2021, the Bank will continue to:

• enhance tools for providing strategic advice on managing the government’s debt and foreign reserves (including improving financial models for both)
• update processes for unclaimed bank balances and retail debt
• develop a strategy to support returning outsourced operations for retail debt to the Bank by 2023
• deliver key controls to help meet the Banking Operations Financial Crimes Policy and mitigate the Bank’s exposure to financial crimes risk
• focus on the strength and flexibility of banking operations