the Bank of Canada is to promote the economic and financial well being of Canada (Archibald, 2001).
Significance of the Creation of the Bank of Canada
The Bank of Canada was a privately owned (by chartered banks) institution for three years immediately following its creation in 1935. A similar situation continues to exist in the United States, where the member banks of the Federal Reserve System own shares in the Federal Reserve Banks. The sitting government in Canada in 1938, however, nationalized the Bank of Canada. The Bank of Canada has been a publicly owned institution since 1938 (Bank of Canada, 2002).
In a modern market society (such as the Canadian economy), central banking provides a variety of functions. These functions range from the provision of transaction services to monitoring and intervening to maintain the integrity of banks and the banking system to efforts to stabilize the value of the currency and assuring the convertibility of bank issues to the implementation of policies designed to manipulate monetary aggregates in the pursuit of macroeconomic goals (Goodhart, 1988).
A major contemporary argument in relation to the role of central banking in modern economies concerns whether such a role is valid or whether the role should fall to the markets. Kevin Dowd (1989) argues generally for abolishing central banking in favour of a free banking system sans all governmental controls. Dowd (1989), essentially, rejects any kind of role for central banks. Charles Goodhart (1985), in contrast to Dowd, argues that many of the functions performed by central banks could be performed as well or better by other intermediaries, but that central banking continues to be required to maintain the integrity of banks and the banking system. Both Dowd (1989) and Goodhart (1985) agree that other intermediaries could provide transactions-services could as well (Goodhart) or better (Dowd) as central banks. Further, both Do...