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Text of major 1995 lecture by Bank Governor Gordon Thiessen, plus articles from Bank of Canada Review and other sources

In 1995, the broad aggregate M2+ grew at an annual rate of 4.5 per cent—almost twice the rate recorded in 1994—as competition from mutual funds drew less money from personal savings deposits. An adjusted M2+ aggregate, which internalizes the effect of close substitutes such as CSBs and certain mutual funds, grew by only 3.4 per cent. Gross M1 grew by 8.2 per cent during the year, reflecting an increased demand for transactions balances as market interest rates declined and as banks offered more attractive rates of interest on corporate current account balances. The robust growth of gross M1 in the second half of 1995 suggests a moderate expansion of economic activity in the first half of 1996, while moderate growth in the broad aggregates indicates a rate of monetary expansion consistent with continued low inflation. In this annual review of the monetary aggregates, the authors also introduce a new model, based on calculated deviations of M1 from its long-run demand, which suggests that inflation should remain just below the midpoint of the inflation-control target range over the next couple of years.

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Danzig: 20-gulden note, 1932

This note is part of the National Currency Collection, Bank of Canada.

Photography by James Zagon.

This article examines the changes that have occurred in the composition of funds raised by provincial borrowers during the 1990s. Higher financing requirements, coupled with the declining availability of funds from non-market sources such as the Canada Pension Plan, led provincial governments and their Crown corporations to broaden and to diversify their debt management programs. In particular, provincial borrowers expanded their presence in foreign bond markets, increased their issuance of floating-rate debt, and incorporated a wide variety of innovative debt instruments into their borrowing programs in order to minimize their borrowing costs and to manage the risks associated with the issuing of debt. As a result, the composition of funds raised by provincial borrowers during the 1990s differed markedly from that of the previous decade: between 1990 and 1995, provincial borrowing requirements were met almost entirely through the issuance of marketable debt, and net new foreign currency debt issues averaged nearly 50 per cent of funds raised, whereas between 1980 and 1989, non-market sources provided close to 30 per cent of funds raised, and net new foreign currency debt issues provided less than 20 per cent.

Swings in inventory investment have traditionally played a major role in Canadian business cycles. However, advances in inventory-control techniques and the reduced uncertainty associated with lower inflation have enabled firms to manage their inventories much more tightly and effectively. This article examines recent developments in the management of non-farm business inventories in Canada at both the aggregate and the sectoral level and looks at implications for the role of inventories as a source of economic fluctuation.

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Canada, gold Maple Leaf, 1985

The Maple Leaf, which is larger than the circulating dollar coin, is part of the National Currency Collection of the Bank of Canada.

Photography by James Zagon.

Trusteed pension funds are one of the most important sources of retirement income for Canadians. They have also been one of the fastest-growing sectors of the Canadian financial market. Trusteed pension funds play an important role in capital markets, channelling billions of dollars of their members' contributions into investments in financial and real assets. This article presents an overview of the trusteed pension funds sector. It provides a context for this overview by briefly presenting other sources of retirement income in Canada. It then examines the sources of the sector's rapid growth, including regulatory developments that have affected it, namely the increase in allowable foreign content and the adoption of the prudent person rule. Finally, it looks at the evolution of the sector's asset mix and how the sector interacts with capital markets.

Since 1983, the Bank of Canada has conducted a triennial survey of foreign exchange market activity in Canada. The latest survey was done in April 1995 and covered activity in both the foreign exchange market and in the derivatives markets. The central banks of most other industrialized countries with active foreign exchange and derivatives markets also conducted similar surveys. This was the first time that markets for over-the-counter (OTC) derivatives were surveyed by central banks in a systematic and comprehensive fashion. The average daily turnover in the Canadian foreign exchange market, including foreign exchange derivatives, has continued to grow rapidly (by approximately 36 per cent to about U.S.$30 billion) since the last survey, although at a slower pace than during the 1980s. Foreign exchange and interest rate derivatives contracts dominate derivatives market activity, with equity and commodity derivatives activity being almost negligible in comparison. Through April 1995, daily turnover volume in Canadian foreign exchange and interest rate derivatives markets averaged about U.S.$19 billion and U.S.$15 billion, respectively, mostly in forward and swap transactions.

This is the second in a series of semi-annual reports designed to increase the transparency and understanding of Canadian monetary policy.

This article focusses on a key component of the federal government's debt-management program, Government of Canada marketable bonds. It first provides a broad overview of the characteristics of these bonds and then discusses the workings of the domestic market, from the formulation of a debt-management strategy to the primary issuance of the bonds, the delivery and payment process, and transactions in the secondary market. Recent developments that have enhanced the overall efficiency of the market are also examined. This article is part of a series that describes and analyses features of the Canadian financial sector.