Evidence of meeting #68 for Finance in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was inflation.
A video is available from Parliament.
5:05 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
So the big five Canadian banks would be included in that.
5:05 p.m.
Conservative
5:05 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
So they're getting paid more than what the bank is receiving. Who covers the delta on that? Do you just write them an IOU? Do you create more money to pay them? Where does the money come from to cover those losses?
5:05 p.m.
Governor, Bank of Canada
As the senior deputy governor was just explaining, there are different possible solutions to that problem. It's ultimately a decision of the government how that gets resolved.
The government could indemnify us—in other words, instead of us making a remittance, there would be a reverse remittance. The Fed uses a deferred asset accounting solution, and another solution would be to change our legislation and allow us to basically run a deficit for a period and then use the future surpluses to repay that deficit.
5:05 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
Barring a legislative change, the Government of Canada will have to bail out the Bank of Canada for its need to pay large financial institutions higher-interest payments.
5:05 p.m.
Governor, Bank of Canada
The Bank of Canada can continue to operate. There does need to be a solution to this problem, and we expect that one is coming.
5:05 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
When the bank was involved in the government bond purchase program, the bank was buying the bonds off the secondary market, but the government was selling them. As the bank was buying them, the government was selling them.
Who sells those bonds into the market?
5:05 p.m.
Governor, Bank of Canada
The Bank of Canada is the agent of the Government of Canada. The government issues the debt, so we issue it on behalf of the Government of Canada.
5:05 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
So the bank was selling it on behalf of the government and then buying it back.
Was the price identical between what the bank was selling the government's bond for and what they were buying it back for?
5:05 p.m.
Governor, Bank of Canada
The prices won't be identical, but they're pretty close because it's a competitive market. Both of these things are run in competitive auctions. There's strong competition, so the prices are.... Every auction is going to be a little bit different. Because of the competitive process, the prices will be close, but they're not going to be exactly the same.
5:10 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
Can you provide to this committee how much the total value would be on the difference between what the bank sold the bond for on behalf of the government and what they bought it back for?
You may talk about a small difference, but when we're talking about a scale of $400 billion, even half a percentage point would mean tens or hundreds of millions of dollars that would be going as a direct gift to the large financial institutions of Canada.
5:10 p.m.
Governor, Bank of Canada
We publish all the data on both our issuances and our buys. It's all on our website.
5:10 p.m.
Conservative
Andrew Scheer Conservative Regina—Qu'Appelle, SK
I have one tiny quick question. When was the last time the Bank of Canada lost money?
5:10 p.m.
Liberal
The Chair Liberal Peter Fonseca
Thank you, MP Scheer.
We're now moving to the Liberals with MP MacDonald for five minutes.
Go ahead, please.
November 23rd, 2022 / 5:10 p.m.
Liberal
Heath MacDonald Liberal Malpeque, PE
Thank you.
It's great having you here again, Governor and Deputy Governor.
I'm going to change it up a bit. After today in Parliament, I think there needs to be more of a discussion on cryptocurrency.
My question is for the governor. The last time you were here, the senior deputy governor confirmed that crypto is not a way to opt out of inflation. Would you agree with that point of view?
5:10 p.m.
Governor, Bank of Canada
I'm going to turn to the senior deputy in a second, but I would certainly agree that even the word “cryptocurrencies” is somewhat misleading. These are not currencies, in the sense that it's very difficult to buy your groceries with a cryptocurrency or to fill up your car.
The other nice feature you'd want in a currency is that its value is fairly stable. The value of these cryptocurrencies is anything but stable.
I'll allow the senior deputy governor to say a few more things on this and give a little more detail.
5:10 p.m.
Senior Deputy Governor, Bank of Canada
Did you have other questions on cryptocurrency?
5:10 p.m.
Liberal
Heath MacDonald Liberal Malpeque, PE
Yes, actually, I do.
Obviously, there's been a sharp downturn in recent months. I've even had people come up to me about the investments they made.
It's an interesting topic, obviously, but with these changes, what are these people facing today? Are they facing a total loss? Where is it at? Can you give us a bit of an insight?
5:10 p.m.
Senior Deputy Governor, Bank of Canada
I think you're talking specifically about FTX.
5:10 p.m.
Senior Deputy Governor, Bank of Canada
At this stage, I think we don't know for sure, but certainly, probably like you, I've been reading the coverage on this issue every day, and it doesn't look good. It does look like it will be potentially a total loss for people who were holding assets on that platform.
What is striking to me is that it's.... We follow cryptocurrency closely. We're trying to understand the role it plays in the economy and particularly in financial stability. I've always struggled to understand how they generate value, but as I read the description of how they have failed, it sounds quite familiar.
As I understand it, the trading platform was transferring assets to a more speculative part of the business, to an investment side, and it looks like that side of the business took a lot of losses, so those assets that were supposed to be held in custody for trading purposes in the platform have disappeared.
That's exactly the type of thing that more mainstream financial regulation has dealt with years ago.
5:10 p.m.
Liberal
Heath MacDonald Liberal Malpeque, PE
I know that billionaire Warren Buffet says it's basically putting people in a room who are handing cash around to each other and getting something in return.
How concerned are you about the destabilizing effects? What does that do to the markets? If this is so and if what we read is true—the fraud and so on—does it have any effect on our normal markets, our normal investments, in Canada?