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The Canadian economy continues to adjust to major global developments.

There have been positive developments in the global financial system since the June Financial System Review, in part reflecting some encouraging signs about the global economy. At the same time, significant vulnerabilities remain. The Governing Council judges that the overall risk to the stability of Canada’s financial system has decreased from “high” to “elevated” over the past six months.

The Canadian economy is now clearly in excess demand, and inflation is high and broadening. The Bank is projecting inflation to decline to about 3% by the end of 2023, and to return to the 2% target by the end of 2024.

This issue features four articles that present research and analysis by Bank staff. The first focuses on reforming the international monetary system; the second on the role of collateral and haircut policy in central bank lending; and the third on the extraction of information from the Business Outlook Survey using principal-component analysis. The fourth reviews studies that model the counterfeiting of bank notes.

Growth in Canada’s economy is expected to reach 1.4 per cent this year and accelerate to 2.4 per cent in 2017.

The Bank of Canada has been around for over 70 years. Throughout this period, the Bank has had one over-arching mandate: to promote the economic and financial welfare of Canadians. Over the years, we have learned that the best contribution that monetary policy can make in this regard is to give Canadians confidence in the future value of their money.

Growth in the global economy began to slow in the fourth quarter of 2007 and the first quarter of 2008. This reflected the effects of the slowdown in the U.S. economy and ongoing dislocations in global financial markets.

The Bank expects Canada’s economy to grow by almost 4 percent on average in 2021 and 2022, following a decline of about 5 ½ percent in 2020.

Globalization is the opportunity and the challenge of our age. It has the potential to lift billions out of poverty, vastly expand economic prospects, and develop a more diverse and resilient global economy.

This issue of the Financial System Review reflects the Bank’s judgment that household indebtedness and housing market imbalances–the most important vulnerabilities for the Canadian financial system–have moved higher over the past six months. However, the financial system remains resilient, and macroeconomic conditions continue to improve. Other vulnerabilities discussed in this FSR are fragile fixed-income market liquidity and the capacity of an interconnected financial system to mitigate cyber threats.