COVID-19 is a deadly pandemic that shocked the whole earth in the 21st century. Over three million COVID-19 cases have been reported in Canada, with at least thirty thousand deaths. Additionally, the health, education, tourism, and transport sectors were massively hit, resulting in job losses and economic growth decline. To limit the repercussions of the pandemic, the Bank of Canada developed stimulus programs: Provincial Bond purchase Program (PBPP) and Provincial Money Market Purchase Program (MMPP). Hence this paper discusses the impacts of the stimulus programs.
PBPP is a Central Bank plan that aims at supporting provincial government funding by improving efficiency and liquidity by purchasing bonds via tender protocol in the secondary market (Jackson, 2021). On the contrary, PMMP is an asset purchase facility program that uses the primary issuance market to acquire money securities. Also, PMMP promotes liquid and short-term borrowing.
The approach is a quantitative easing example. This monetary policy allows Central Bank to buy long-term securities from the market. This increases the bank balance sheet and injects more money into the economy (Jackson, 2021). In a way, the central bank increases the money supply to the public, leading to reduced interest rates. When rates are reduced, banks can easily lend money with fair terms. The Central Bank has less influence on economic growth since rates are approaching zero.
Additionally, it increases liquidity in the financial market. The infusion helps prevent challenges in the economic structure. For instance, when loans decrease. On the contrary, quantitative easing can reduce the value of the domestic currency, which would, in turn, favor local manufacturers (Jackson, 2021). Additionally, the programs make it cheaper for the government to borrow from financial markets and can manage the fiscal policies.
Reference
Jackson, A. (2021, February 23). Quantitative easing explained. Forbes Advisor. https://www.forbes.com/advisor/investing/quantitative-easing-qe/
