Bank of Canada to buy 40% of new government bonds

Canada's central bank is opening the money tap wide. At the end of March, it announced a new Buyback program government bonds, which has led to an explosive increase in the balance sheet total. Since the launch of this new stimulus program in early April, the balance has risen from 155 to nearly 350 billion Canadian dollars. That's more than doubling in a month's time. The central bank is also buying much more government bonds now than during the 2008 credit crisis.

Canada's economy has been hit hard by a drop in the price of its main exports, namely crude oil and commodities. The Canadian automotive industry is also struggling, as many people are currently not buying a car due to the corona crisis. The government tries to compensate for these setbacks by means of tax incentives. To prevent the interest rate on the national debt from rising too much, the central bank is now buying government bonds on a large scale.

Monetary financing

Since the outbreak of the coronavirus and the ensuing economic crisis, several central banks have turned on the proverbial printing press. Canada's central bank is not only following the lead of other central banks, it is even going a step further. For example, the central bank buys government bonds not only on the secondary market, but also directly from the government. Earlier this month, Canada's central bank announced that it would temporarily cut up to 40% of new government bond issuance. monopolize.

Thus, Canada has officially begun monetary financing of government deficits, a practice that has ended with hyperinflation more than once in the past. It is a practice reminiscent of the Weimar Republic. The central bank then printed money to fill government deficits, which eventually made the money completely worthless.

It is to be hoped that this stimulus from the Bank of Canada is temporary, as it has nothing to fall back on. The central bank Sold At the beginning of 2016, her entire gold stock. This makes it one of the few countries that does not have a gold reserve. However, Canada does have a sizeable gold mining sector from which it can buy gold.

Bank of Canada launches new asset purchase program

Canada has run out of gold reserves 

Image above article: KMR Photography under Creative Commons 2.0

This contribution was made from Geotrendlines