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The Governing Council judges that the risks to the Canadian financial system have decreased somewhat relative to the December FSR, but that the overall level of risk remains high. The key risks are similar to those highlighted in December, and emanate primarily from the external environment.

In this issue of the Financial System Review, the Bank of Canada’s Governing Council judges that the risks to the stability of Canada’s financial system are high and have increased markedly over the past six months, owing primarily to an escalation of the sovereign debt crisis in the euro area and a weaker global economic outlook.

Erratum: The data for Chart 7 on page 8 were plotted incorrectly. See revised chart.

International financial institutions, such as the International Monetary Fund, the World Bank and the Bank for International Settlements, are important players in the global financial system. This article provides an overview of the major international financial institutions to which Canada belongs. The paper highlights their activities and the nature of Canada's involvement, including that of the Bank of Canada. Recent initiatives coming out of the Halifax and Lyon Summits to improve the effectiveness of international financial institutions are also noted.

Governor Poloz speaks about how the Bank’s risk-management approach contributes to integrating financial stability concerns into monetary policy.

Cash use for payments has been steadily decreasing in many countries, including Canada and Sweden. This might suggest an evolution toward a cashless society. But in Canada, cash in circulation relative to GDP has been stable for decades and has even increased in recent years. By contrast, the cash-to-GDP ratio in Sweden has been falling steadily. What has caused this difference? Are there lessons to be learned from comparing the Canadian and Swedish experiences?

In 1991, Canada became the second country to adopt an inflation target as a central pillar of its monetary policy framework. The regime has proven much more successful than initially expected, both in achieving price stability and in stabilizing the real economy against a wide range of shocks.

The Canadian economy is once again growing robustly, and the recovery from COVID-19 continues. The Bank is forecasting growth of around 5 percent in 2021, 4 ¼ percent in 2022 and 3 ¾ percent in 2023.

External Deputy Governor Nicolas Vincent gives a behind the scenes look at the rigorous research, analysis and debate that go into every monetary policy decision.

We summarize the review and renewal process at four central banks (Reserve Bank of New Zealand, Bank of England, Sveriges Riksbank and the US Federal Reserve Bank) and compare them with the process at the Bank of Canada, which has been well-established since 2001.