Evidence of meeting #154 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was bank.

A video is available from Parliament.

On the agenda

MPs speaking

Also speaking

Grahame Johnson  Managing Director, Funds Management and Banking Department, Bank of Canada
Nicolas Marion  Chief, Capital Markets and International Affairs, Securities Policies Division, Department of Finance
Marie-Josée Lambert  Director, Crown Corporations and Currency, Financial Sector Policy Branch, Department of Finance
Richard Wall  Managing Director, Currency, Bank of Canada
Justin Brown  Director, Financial Stability, Financial Sector Policy Branch, Department of Finance
Léticia Villeneuve  Economist, Trade Rules, International Trade and Finance Branch, Department of Finance
Michèle Govier  Senior Director, Trade Rules, International Trade and Finance Branch, Department of Finance
Annie Moulin  Acting Director, Arctic Science Policy Integration, Department of Indian Affairs and Northern Development
Patrick Barthold  Director, Northern Governance and Partnerships Directorate, Northern Governance Branch, Northern Affairs, Department of Indian Affairs and Northern Development
Christian Sylvain  Director General, Corporate and Government Affairs, Canadian Institutes of Health Research
Jeannine Ritchot  Executive Director, Regulatory Cooperation, Regulatory Affairs Secretariat, Treasury Board Secretariat
Don Parker  Director, Strategic Policy, Communications Security Establishment
Julie Lalonde-Goldenberg  Director General, Partnerships Development and Management Directorate, Department of Employment and Social Development
Andrew Brown  Acting Director General, Employment Insurance Policy, Skills and Employment Branch, Department of Employment and Social Development
Cara Scales  Director, Policy Analysis and Initiatives, Employment and Insurance Policy, Department of Employment and Social Development
Catherine McKinnon  Senior Counsel, Judicial Affairs, Courts and Tribunal Policy, Department of Justice
Anna Dekker  Counsel, Judicial Affairs, Courts and Tribunal Policy, Public Law Sector, Department of Justice
Manuel Dussault  Senior Director, Framework Policy, Financial Sector Policy Branch, Department of Finance
Julien Brazeau  Senior Director, Framework Policy, Financial Sector Policy Branch, Department of Finance
Jeremy Weil  Senior Project Leader, Financial Sector Policy Branch, Department of Finance
Saskia Tolsma  Senior Economist, Sectoral Policy Analysis, Economic Development and Corporate Finance, Department of Finance
David Dewar  Director, Strategic Policy & Government Affairs, Policy & Strategic Direction, Department of Western Economic Diversification
Selena Beattie  Director of Operations, Cabinet Affairs, Legislation and House Planning, Privy Council Office
Marianna Giordano  Director, CPP Policy and Legislation, Income Security and Social Development Branch, Department of Employment and Social Development
Ann Sheppard  Senior Counsel, Criminal Law Policy Section, Department of Justice

6:45 p.m.

Conservative

Tom Kmiec Conservative Calgary Shepard, AB

Good.

6:45 p.m.

Liberal

The Chair Liberal Wayne Easter

Mr. Poilievre.

6:45 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

Is the total value of the exchange currency fund considered on the balance sheet of the Government of Canada?

6:45 p.m.

Chief, Capital Markets and International Affairs, Securities Policies Division, Department of Finance

Nicolas Marion

We have to report the assets on the balance sheet, but the fund is held in the name of the Minister of Finance and is reported on the balance sheet. It is managed with an asset-liability framework. For every dollar of asset, there's an equal liability. From a net position, it effectively neutralizes one with the other.

6:45 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

The market debt of the Government of Canada is about $1 trillion, and the net debt that Finance Canada reports is $669 billion this year. Is this exchange fund one of the assets that explains the difference?

6:45 p.m.

Chief, Capital Markets and International Affairs, Securities Policies Division, Department of Finance

Nicolas Marion

It's both an asset and a liability, so to fund the assets in the EFA, the predominant mechanism is to issue government debt in the domestic market and then synthetically convert it into a foreign currency funding tool through a cross-currency swap. From a debt issuance perspective, the portion that is issued in domestic debt would be part of those $600 or so billion.

6:45 p.m.

Liberal

The Chair Liberal Wayne Easter

However, it zeroes itself out, right?

6:45 p.m.

Chief, Capital Markets and International Affairs, Securities Policies Division, Department of Finance

Nicolas Marion

Correct, with the asset.

6:45 p.m.

Managing Director, Funds Management and Banking Department, Bank of Canada

Grahame Johnson

These are financial assets. Translated to Canadian dollars, they represent over $100 billion in financial assets that would be an offset to come to the net debt amount.

6:45 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

It is one of the assets that explains the difference between the $1 trillion in market debt and the $669 billion of net debt.

6:45 p.m.

Managing Director, Funds Management and Banking Department, Bank of Canada

6:45 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

You say it's $75 billion U.S. and $100-something billion—

6:45 p.m.

Managing Director, Funds Management and Banking Department, Bank of Canada

Grahame Johnson

Yes, it's $105 billion Canadian equivalent.

6:45 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

You were just explaining to my colleague that you update the transactions monthly.

6:45 p.m.

Managing Director, Funds Management and Banking Department, Bank of Canada

Grahame Johnson

On the Bank of Canada's website, we publish weekly, high-level updates of the size and currency composition. Monthly, more detailed reports are published on the Department of Finance's website, and on an annual basis there's the official report on the international reserves, which gives a much more fulsome and detailed explanation of the holdings and activities.

6:45 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

Obviously, the value in Canadian dollars of these currencies fluctuates, so do those fluctuations not affect the balance sheet of the Government of Canada?

6:45 p.m.

Managing Director, Funds Management and Banking Department, Bank of Canada

Grahame Johnson

No, they don't, because the beauty of the way we manage the reserves—and we're somewhat unique in this way—is, as Mr. Marion mentioned, by doing an asset and liability hedge. If we own a 10-year U.S. treasury, for example, that is funded with a 10-year U.S. dollar obligation, so the currencies are matched. We are long U.S. dollars owned in the treasury, and we are short U.S. dollars in the funding of that, so the currencies are matched.

The interest rate exposure is matched, so movements in either exchange rates or interest rates have no net impact on the fiscal position of the Government of Canada. We do manage to earn a small positive return, because—happily—the interest rate we pay to fund these reserves is a little bit lower than the interest rate we receive on the assets.

6:45 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

That's because other governments are paying higher yields than we are at present.

6:45 p.m.

Managing Director, Funds Management and Banking Department, Bank of Canada

6:45 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

Not to stray, but do we expect that to continue?

6:50 p.m.

Managing Director, Funds Management and Banking Department, Bank of Canada

Grahame Johnson

It has been the case for some time, and I'm extremely reluctant to forecast interest rates, because that's a bit of a losing game. However, we are setting the portfolio up. It has maturities out to ten and a half years, and we lock the funding in. I think, as portfolio managers, we're reasonably confident that we can continue to earn a small but positive return for our forecast horizon, which I would say would be two to four years.

6:50 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

When was the last time the Bank of Canada owned, as part of this portfolio, precious metal like gold?

6:50 p.m.

Managing Director, Funds Management and Banking Department, Bank of Canada

Grahame Johnson

Just to remind you, the portfolio is held in the name of the Minister of Finance. We do manage it, but it is the property of the Minister of Finance of the Government of Canada. It has been a while since we've held gold. I don't know exactly. We can confirm. I believe it was 2001 when the last of the gold was sold.

6:50 p.m.

Conservative

Pierre Poilievre Conservative Carleton, ON

I have one final question. Does the Bank of Canada—the governor, for example—have any authority to restrain a finance minister's ability to draw on these exchange funds? As you pointed out multiple times, this is funded in the name of the Minister of Finance. Does he have absolute discretion?

6:50 p.m.

Managing Director, Funds Management and Banking Department, Bank of Canada

Grahame Johnson

It is held in the name of the Minister of Finance, and he has discretion to use the funds.