Funds management
As the fiscal agent and banker for the Government of Canada, the Bank of Canada carried out a variety of activities in 2023. These included:
- administering the government’s domestic cash balances
- conducting debt auctions and bond buyback operations
- managing the assets and liabilities of the Exchange Fund Account (EFA)
The Bank also provided banking, settlement and custodial services for other clients, such as financial market infrastructures and other central banks. At the same time, the Bank managed its own investments and liabilities as part of the ongoing normalization of its balance sheet.
The value of domestic Government of Canada bonds issued in 2023 was $179.8 billion. The total stock of domestic marketable debt was projected to reach $1,390 billion by the end of the 2023–24 fiscal year.
Supporting the Government of Canada’s domestic funding and liquidity needs
Bank staff worked closely with the Department of Finance Canada and consulted with financial market participants to:
- raise stable and low-cost funding for federal programs and services
- maintain a liquid and well-functioning market for Government of Canada securities
Advising the Government of Canada on its debt issuance
The Bank provided advice to the Government of Canada on discontinuing the issuance of bonds in the three-year sector and reallocating bonds to other tenors. This advice was based on findings from staff research and feedback from financial market participants.
The Bank also updated the methodology it uses to set medium-term targets for outstanding debt across different tenors. This will help in assessing the costs and risks associated with the government’s debt strategy.
Reviewing Canada’s prudential liquidity plan
The Bank contributed to a review of the Government of Canada’s prudential liquidity plan by analyzing various sources of liquidity. The Bank assesses the plan every five years to ensure the government can satisfy its payment obligations if normal access to funding markets is temporarily disrupted.
Managing the Exchange Fund Account
The Government of Canada’s reserves of foreign currency are held in the EFA to:
- promote orderly conditions in the Canadian-dollar foreign exchange market
- provide a source of liquidity for the Government of Canada
During the 2022–23 fiscal year, the Bank managed the growth of the EFA to about US$82 billion from US$75.5 billion, an increase of US$6.5 billion. Over the remainder of 2023, the Bank worked to grow the EFA to the target value of US$87.5 billion for 2023–24. Overall, about two‑thirds of the reserves were invested in US‑dollar assets, with the balance held in euros, British pounds sterling and Japanese yen.
The Bank also raised funds through short-term US-dollar securities and medium-term cross-currency swaps. These involved exchanging Canadian dollars for foreign currency to acquire liquid reserves.
In April, the Bank led the issuance of a five-year US$4 billion global bond, which was the largest issue size ever from Canada in foreign currency. Demand for the bond was very strong, as evidenced by:
- the large number of orders
- the quality of investors
- the tightening of pricing during execution
Managing Canada’s reserves in a world of reduced liquidity
The Bank also started to evaluate and improve liquidity in the EFA to guard against potential crises. This work has become increasingly necessary since the start of the COVID-19 pandemic because general market liquidity has declined—including liquidity from US government securities—while global macroeconomic and financial uncertainty remain elevated. This has prompted global reserve managers like the Bank to increase their focus on maintaining enough liquidity in their portfolios. Such liquidity may be required to intervene directly in foreign exchange markets to counter disruptive movements.
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Modernizing collateral management
In 2023, the Bank implemented the first release of a system that will enable seamless, flexible and resilient management of collateral through the full trade cycle—from initiation to settlement to reporting. This was a key milestone in the redesign of the technologies and processes that support the Bank’s domestic market operations and Canada’s payment systems.
The new system will improve:
- the efficiency and robustness of the Bank’s repurchase and securities lending operations
- the Bank’s ability to adjust or introduce liquidity operations in response to market stress
Repatriating retail debt operations
In 2023, the Bank repatriated operations for the Government of Canada’s Retail Debt Program. The Bank now services and redeems the government’s outstanding retail debt—roughly $452 million in Canada Savings Bonds and Canada Premium Bonds. These operations had been outsourced since 2001.
Looking forward
In 2024, the Bank will continue to:
- provide advice to the federal government on managing debt, reserves and liquidity
- build on technology and process improvements that support the Bank’s domestic market operations and Canada’s payment systems