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The global economic outlook has been clouded by a high degree of uncertainty, accentuated most recently by the war in Iraq.

In the year just ended, the global economy faced a number of exceptional challenges, reflecting a wide range of economic, financial, and geopolitical risks and uncertainties. These included the fallout from the September 2001 terrorist attacks, corporate accounting scandals, stock market volatility, and developments in the Middle East. Despite this global backdrop, the Canadian economy outperformed virtually all other industrial economies, growing by about 3 1/4 per cent and creating 560,000 jobs, while inflation expectations remained well anchored to the Bank of Canada’s 2 per cent inflation-control target.

At the time of the October Monetary Policy Report, the Bank projected that core inflation would rise in the fourth quarter of 2002, reflecting a combination of one-off factors - including the rise in insurance premiums - and the “echo effect” from developments towards the end of 2001.

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A Nineteenth-Century Court Case

The note and court document shown on the cover form part of the National Currency Collection, Bank of Canada.

Photographed by Gord Carter, Ottawa

This report discusses the decision not to designate the Automated Clearing Settlement System as a systemically important system, as well as some of the research contributing to that decision.

The financial system, which consists of financial institutions, financial markets, and clearing and settlement systems, lays an important role in a nation’s economy. Sound and efficientfinancial systems can make a significant contribution to economic growth.