The new legislation would give the Canadian central bank the means to restore positive equity on its balance sheet.
The BoC’s balance sheet is likely to slip into negative equity in the coming years, a position in which liabilities exceed assets, as it pays out a higher interest rate on settlement balances than it earns on the government bonds it bought to support the economy during the COVID-19 crisis.
Settlement balances, which stood at about C$200 billion ($149 billion) in December, are deposits at the central bank held by financial institutions. The rate on those deposits has climbed in lockstep with the BoC’s benchmark interest rate, which is up 425 basis points since March.
Several other major central banks that expanded their balance sheets, such as the Federal Reserve, also face negative equity issues.
“The Minister of Finance has recently communicated to me that the government intends to introduce legislative amendments that will allow…
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