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We discuss the competition and innovation arguments for issuing a central bank digital currency (CBDC). A CBDC could be an effective competition policy tool for payments. A CBDC could also support the vibrancy of the digital economy. It could help solve market failures and foster competition and innovation in new digital payments markets.

In early 1994, Canada's economic situation was not that favourable - our economy was facing some rather serious problems. Today, too, we face some challenges. But our overall economic and financial situation is much stronger now than it was seven years ago.

What is the role of central banks in financial stability? How has this role changed in recent years? Bank researchers share their insights on this matter and provide an overview of recent changes the Bank has made to its Emergency Lending Assistance Policy. Researchers also provide a history of four major commodity supercycles, dating back to the early 1900s. Finally, there is discussion about structural reforms in emerging-market economies, such as China, and how these reforms influence potential growth.

Central banks must cope with considerable uncertainty about what will happen in the economy when formulating monetary policy. This article describes the different types of uncertainty that arise and looks at examples of uncertainty that the Bank has recently encountered. It then reviews the strategies employed by the Bank to deal with this problem. The other articles in this special issue focus on three of these major strategies.

The global economy has suffered an intense, synchronous recession and considerable excess supply has opened up.

This report reviews the use of quantitative tools to gauge market participants’ assessment of banking system resilience. These measures complement traditional balance-sheet metrics and suggest that markets consider large Canadian banks to be better placed to weather adverse shocks than banks in other advanced economies. Compared with regulatory capital ratios, however, the measures suggest less improvement in banking system resilience since the pre-crisis period.

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.

Inflation can affect both the dispersion of commodity-specific price levels across locations (relative price variability, RPV) and the dispersion of inflation rates (relative inflation variability, RIV). Some menu-cost models and models of consumer search suggest that the RIV-inflation relationship could differ from the RPV-inflation relationship.

Higher interest rates are working to ease price pressures in Canada and inflation is coming down, though progress to the 2% target is slow. The Bank projects that inflation will stay around 3½% until the middle of 2024, returning to target in 2025.

I know that risk is ever-present in your work, as you fulfill your commitments to the beneficiaries and sponsors of your pension plans. Important risks surround the investment performance of those plans, as well as the value of pension liabilities.