Implications of New Accounting Standards for the Bank of Canada's Balance Sheet

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The Canadian Institute of Chartered Accountants (CICA) has implemented new accounting standards for the valuation and reporting of financial instruments. They are effective for the Bank of Canada in 2007. As a result of these changes, the Bank has begun valuing its holdings of Government of Canada treasury bills on a fair value basis and is carrying any unrealized valuation gains or losses on these investments in a new account (Accumulated Other Comprehensive Income) that forms part of its capital base. The Bank's capital base is likely to experience some volatility over time as the treasury bill portfolio records unrealized valuation gains or losses in response to movements in short-term interest rates. The Bank of Canada Act has been amended to allow the Bank's Board of Directors the right to establish a new special reserve fund that will form part of the Bank's capital base.