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soolkyut t1_iyb9utw wrote

It’s not a business. I’m not sure what this means

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WanderingPickles t1_iybcl2l wrote

So, the bank (BOC) owns assets upon which it gains income. Things like Canadian government bonds (when the government runs a deficit, it issues bonds and the bank buys them up) pay a fixed percentage yield. Other bonds held by the bank also pay a set rate of return.

So that is the positive revenue side of bank. Money coming in.

The other side are things that the bank has to pay out on. Apart from the typical things like salary, utilities, paper, etc. the bank has to pay interest on the funds deposited in its coffers.

For example, if Royal Bank of Canada (RBC) deposits its own funds into the BOC then the BOC owes interest to the customer. Just like how when you deposit funds I to your savings account and the bank pays you interest. They pay you for holding your money.

With the rise in interest rates, the amount owed on those deposits has increased. At the same time, the interest on the bonds BOC holds remain the same. Think of it like your salary remains the same but the interest rate on your credit card radically increases and now what was a $100/month bill is $200. The extra $100 pushes you into the red and, as a result, you have to draw on your savings in order to pay the bill.

That is, in a brief nutshell, what is happening to the BOC right now.

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Austoman t1_iycuayn wrote

This is exactly the situation. Its not some bs about politicians travelling or anything like that. Its interest rates to curb inflation vs standard revenue generation.

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