1. Ch. 12: Money & Banking
ECONOMICS 12:

2. MONEY
Money is anything that people are willing to accept as payment for goods & services
In the past cows, stones, beads, beaver pelts and playing cards have functioned as money
Canadian dollars are legal tender in Canada whereas credit cards and Canadian Tire bills do not have to be accepted as payment

3. MONEY
Cheque - order to pay an individual a specific amount of money from demand deposit or chequing account
Money supply (M1) = Currency + Chequing

4. BARTER
One good or service must be exchanged for another good or service
Problem of double coincidence of wants arises which wastes a lot of time
Problem of indivisibility of bartered goods and services also arises
Money solves both of these problems

5. USES OF MONEY Medium of exchange Generally acceptable Portable
Divisible
Unique
Uniform in value

6. USES OF MONEY
Measure of value
Store of value

7. BANKING
Chartered banks have a federal charter (e.g. Royal, CIBC, Montreal, TD Canada Trust, Nova Scotia)
Schedule 1 banks are the six largest banks in Canada and have immense financial power with over 95% of M1 (most an individual can own is 10%)

8. BANKING
Schedule 2 banks are subsidiaries of foreign banks and have little impact on the Canadian economy
Branch banking in Canada vs. unit banking in USA

9. BANK OF CANADA
Central bank of Canada founded in 1935 is now a Crown corporation
The bank of the banks supplies Canada with currency
Federal government uses B of C to manage its financial affairs (e.g. bonds)
Main function is controlling the money supply to meet the needs of the Canadian economy

10. OTHER FINANCIAL INSTITUTIONS
Trust companies
Mortgage companies
Credit unions and caisses populaires

11. MONEY CREATION loans by the banks of customer’s deposits creates money
Cash-reserve requirements or fractional reserves determine how much the money supply can be increased based on the amount of the deposits
The banks only need enough money for the daily needs of customers and can lend out the rest to earn interest and profits for the bank

12. REGULATION OF THE MONEY SUPPLY
Open market operations are the buying and selling of federal government bonds by B of C
Expansion of the money supply  B of C buys CSBs (Canada Savings Bonds)
Contraction of the money supply  B of C sells CSBs

13. REGULATION OF THE MONEY SUPPLY

14. REGULATION OF THE MONEY SUPPLY
Changes in the bank rate or lending rate to banks influences the prime lending rate to the banks’ best customers
Moral suasion  used by the Gov. of the B of C (Carney) to influence lending policies at banks