Introduction
Bank of Canada
Monetarism
Unbelievable!
Believe It!
Ideology
Article 18
Ex. 1/Ex. 2
A Vision
Conclusion

Article 18

-In spite of what DR spokespeople might say, the Law is the Law! In this section, we refer to Article 18 of The BoC Act, listed under BUSINESS AND POWERS OF THE BANK. Our commentary is added in red; emphasis by underline.

We mentioned earlier that since 1938 the BoC has been owned entirely by the federal government. It is essential to understand what this means, in order to understand the full significance of the powers of the BoC.

In a word, the BoC may create the money to finance federal projects on a near interest-free basis. It may, if it wishes, lend money to the provinces and municipalities as well.

It works this way: the coupons paid on government debt held by the Bank of Canada find their way back to the federal treasury with the rest of the bank's earnings. In recent years this important function of the bank has been left, in large part, to rust.

Article 18 sets out the Bank's powers of lending to our governments.
Article 18 (c), dealing with funded debt- bonds or treasury bills- authorizes the Bank to "buy and sell securities issued or guaranteed by Canada or any province."

No restriction is set on such holdings; limits on these powers must then be sought in the real economy- whether or not further money supply created by such loans would add to the demand in an economy already employing all available resources. Were the Bank to go on increasing its lending to governments under such circumstances, it would indeed be inflationary. But such a state of affairs has not existed for decades.

(i) make loans or advances for periods not exceeding six months to the Government of Canada or the government of any province on the pledge or hypothecation of readily marketable securities issued or guaranteed by Canada or any province;

(j) make loans to the Government of Canada or the government of any province, but such loans outstanding at any one time shall not, in the case of the Government of Canada, exceed one-third of the estimated revenue of the Government of Canada for its fiscal year, and shall not, in the case of a provincial government, exceed one-fourth of that government's estimated revenue for its fiscal year, and such loans shall be repaid before the end of the first quarter after the end of the fiscal year of the government that has contracted the loan...
Article 18 (j) deals with unfunded loans to governments- ie, advances against their income not formalized in security issues.
The passage "but such loans outstanding at any one time shall not..." clearly implies that such unfunded debt may be rolled over when due.

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