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382 PA R T V Central Banking and the Conduct of Monetary Policy close to 20% The Great Depression involved not only the largest decline in the level of economic activity in the history of Canada, but was also followed by an extremely slow recovery Being such a cataclysmic event, the Great Depression contributed to significant changes in government policy, including fiscal policy, monetary policy, banking policy, and international policy In particular, as the depth of the Great Depression was blamed on the operation of the monetary system, in 1933 the federal Conservative government established a royal commission to study the problems of the Great Depression Based on a recommendation of the royal commission, Parliament passed the Bank of Canada Act in 1934 and the newly founded Bank of Canada started operations on March 11, 1935 By this time, most other countries already had a central bank (see the Global box, Establishment of Selected Central Banks) Although the primary motivation for the formation of the Bank of Canada was economic (or monetary), other motives within the government included the need for Canada to reflect its growing political independence from Britain and the need to coordinate its international economic policy Initially the Bank of Canada was a private institution but was nationalized in 1938, so it is now a national institution with headquarters in Ottawa The Bank also has regional offices in Toronto (for Ontario), Vancouver (for British Columbia and the Yukon), Calgary (for the Prairies, Northwest Territories, and Nunavut), Montreal (for Quebec), and Halifax (for Atlantic Canada), and in 2002 the Bank also established a post in New York to enhance communication with the world s largest financial community Unlike a private bank that operates in pursuit of profit, the Bank of Canada is responsible for the country s monetary policy and for the regulation of Canada s deposit-based financial institutions GLOBAL Establishment of Selected Central Banks Canada did not have a central bank for almost the first 70 years after Confederation By the time the Bank of Canada began operations in 1935, most other countries already had a central bank In fact, as you can see in the table, Sweden and the United Kingdom created their central banks back in the seventeenth century These early central banks, however, were initially privately owned and gradually evolved into modern publicly owned central banks Country Sweden United Kingdom France Belgium Germany Japan Italy Switzerland United States Canada Year central bank was established 1656 1694 1800 1850 1875 1882 1893 1905 1913 1935 Source: Forrest H Capie, Terence C Mills, and Geoffrey E Wood, Central Bank Dependence and Inflation Performance: An Exploratory Data Analysis, in Varieties of Monetary Reform: Lessons and Experiences on the Road to Monetary Union, ed Pierre L Siklos (Dordrecht, The Netherlands: Kluwer Academic Publishers, 1994), pp 95 132 Reprinted with permission of the publisher