Bank of Canada becomes world champion in money printing as its assets grow by 456%YoY

The COVID-19 crisis has forced governments around the world to push monetary stimulus through interest rate cuts and open market operations. It appears that Canada has taken this to a whole new level.

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Open market operations consist of a central bank purchasing short-term bonds to create liquidity in the markets. Essentially, the bonds are purchased with newly created money by the central bank.

The more debt obligations a central government buys, the more money it adds into the money supply.

As a central bank purchase these bonds to stoke up liquidity, the balance sheet of the central bank expands.

Of course, governments cannot simply print money and buy as many short-term bonds as they would like to, – at least not in theory. When more money is added to the money supply than what is justified by economic growth (or GDP growth), inflation usually occurs.

Inflation occurs when the money supply grows too fast, dollars become more abundant and their purchasing power therefore diminishes. This is why a dollar could buy you a lot more in 1965 than it does today.

In the wake of COVID-19, most central banks have seen important asset growth of their balance sheet because of their open market operations. But most central banks of industrialized countries have managed to stay under a 150% asset growth, except for Canada.

Canada experienced in 2020 the highest asset growth of all G7 country central banks. Its assets grew 456%, with its steepest increase in treasury bills.

In March, the central bank of Canada held approximately 26,000 million dollars in treasury bills. By the end of June, it held over 140,000 million dollars in treasuries.

This means that the massive deficit from the Trudeau government is being gobbled up by the Bank of Canada and paid for with what is essentially “printed money”.

This massive and rapid growth in the money supply will most likely lead to high inflationary pressures on the Canadian dollar, therefore eroding the purchasing power of Canadians and the savings of the middle-class.

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