Canada’s Central Bank (AKA the Bank of Canada) is a tremendously powerful institution. It is in charge of money creation and setting interest rates, and has a big impact on all of our lives. Despite this, it is generally an opaque and secretive institution in its day-to-day functioning.
For that reason, it operates mostly out of the public eye.
The bank often casts itself as a rather distant and neutral observer of economic trends, able to tweak things only a bit at the margins. This belies the massive power the bank truly possesses.
Considering our economic struggles, particularly the decline of the middle class, job instability, and the loss of manufacturing jobs, it’s easy to forget that our central bank once took action to help Canadians and grow the economy.
Between 1944 and 1975, the Bank of Canada funded the Industrial Development Bank (IDB). The Bank created money (it really is that simple as it has the legal authority to do so) and put that money into the Industrial Development Bank so it could lend to Canadians.
According to Positive Money, here’s how it worked:
To promote the economic welfare of Canada by increasing the effectiveness of monetary action through ensuring the availability of credit to industrial enterprises which may reasonably be expected to prove successful if a high level of national income and employment is maintained, by supplementing the activities of other lenders and by providing capital assistance to industry with particular consideration to the financing problems of smaller enterprises.”
This money was used to support business when they could not get funding from the big banks. The IDB worked “to plug this financing gap and any business that requested funds would have to demonstrate that it could not attain them at reasonable rates from a commercial bank first.”
The IDB was quite successful, as employee E. Ritchie Clark has stated:
“The Bank assisted in just about every kind of business and program imaginable, from setting up a new pipe mill or refinery to helping a young lawyer acquire his own law library. It was active in every part of Canada, and in some remote areas such as the Yukon was a major factor in economic growth. The IDB was probably the most important source of financial support for commercial air services apart from the mainline operations, for motels and other kinds of tourist services, and for many kinds of manufacturing such as small and medium sized lumber operations and the production of hosiery”
The IDB helped the Canadian economy create tangible, real things, something that is often overlooked in today’s economy. As important as a digital economy is, a nation without any physical productive capacity is at extreme risk.
Time to bring back the Industrial Development Bank?
All the money in our economy comes from the Bank of Canada. The Bank of Canada is supposed to work for the benefit of our country. And yet, when the money finds its way into the banks, fees are extracted, and massive profits are reaped by the banking institutions that dominate our economic life.
Many of those banks, despite record profits, are hesitant to lend to Canadian businesses and companies.
When it was running, the Industrial Development Bank was a bank for Canadian businesses, designed to focus specifically on helping our country develop and grow. It put Canada first. That’s the kind of economic thinking and attitude we need now more than ever.
As we face increased international competition, cheating of the system by nations like China, and increased global financial corruption, it’s time for the government and Bank of Canada to put our country first and bring back the IDB.
It’s only logical.
Photos – Twitter