This paper provides a general understanding of the process by which the
Bank of Canada creates money through large scale asset purchases. It
analyzes a wide assortment of asset purchase programs conducted by the
Bank of Canada to determine whether these programs result in an increase
in the money supply, as is often claimed. It concludes that the vast majority
of these programs result only in an increase in bank reserves, and
not an increase in the broad money supply*.
* Update [June 13 2020]: Since the original date of publication, the Bank of Canada has vastly increased the broad money supply through its expansion of the Treasury Bill Purchase Program (referred to as GTPP in this article). The conclusion of this paper, while correct at the time of writing, has therefore largely been overtaken by events and no longer holds true. The main purpose of this paper, however, was to provide a better understanding of the process by which the Bank of Canada creates money. As this process is unchanged, the remainder of this paper has been left in its original form.