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This paper presents a model of an over-the-counter bond market in which bond dealers and cash investors arrange repurchase agreements (repos) endogenously.

In this paper, we explore the link between stress in the domestic financial sector and the capital flight faced by countries in the 2008-9 global crisis. Both the timing of emergence of internal financial stress in developing economies, and the size of the peak-trough declines in the stock price indices was comparable to that in high income countries, indicating that there was no decoupling, even before Lehman Brothers’ demise.

Over the past 20 years, there has been a major shift away from the use of paper-based retail payment instruments, such as cash and cheques, toward electronic means of payment, such as debit cards and credit cards. Recent Bank of Canada research on consumers’ choice of payment instruments indicates that cash is frequently used for transactions with low values because of its speed, ease of use and wide acceptance, while debit and credit cards are more commonly used for transactions with higher values because of perceived attributes such as safety and record keeping. While innovations in retail payments currently being introduced into the Canadian marketplace could lead to a further reduction in the use of cash over the longer term, the implications for the use of cash of some of the structural and regulatory developments under way are less clear.

This issue features four articles that present research and analysis by Bank staff. The first focuses on financial transaction taxes; the second on the role of central counterparties in over-the-counter markets; and the third on monetary policy and the risk-taking channel, as seen in the lending behaviour of banks. The fourth article presents research findings on the use of retail payment instruments and discusses the implications of innovations in retail payments on the use of cash over the long term.

Governor Mark Carney discusses financial system reform in a speech to the Canadian Club of Montréal.

The Bank of Canada, on behalf of the Government of Canada, announces the addition of one new Government Securities Distributor for Government of Canada marketable bonds and treasury bills.