(Disponible en français : Creux historique pour les réserves d’or du Canada)
Canada’s gold reserves have fallen to almost zero. As of 29 April 2016, the nation’s official gold reserves stood at a record low 55 ounces, valued at US$70,711.
This followed the sale of 95,839 ounces of gold, valued at US$107.1 million, between December 2015 and April 2016. Canada’s gold reserves peaked at just over 1,000 tonnes in 1965 and the government has been steadily selling off its reserves ever since (Figure 1).
There is little reason to continue holding gold, as Canada’s currency is no longer based on the gold standard. It does not earn interest; its price can fluctuate significantly; and it is costly to store.
Canada is the only G7 country to have recently sold almost all of its gold reserves.
Figure 1 – Canada’s Official Gold Reserves, 1890–2016 (metric tonnes)
Note: Data from 1890 to 1945 inclusively include gold reserves held by the federal Treasury as well as Canadian banks.
Sources: World Gold Council, Historical Data – Annual time series on World Official Gold Reserves since 1845, and Statistics: Foreign reserves statistics – Quarterly times series on World Official Gold Reserves since 2000 ; and Department of Finance Canada, Official International Reserves, 4 May 2016.
As shown in Table 1, the amount of Canada’s official gold reserves and its proportion of Canada’s total foreign reserves at the end of the calendar year 2015 were the lowest among the G7 nations. Gold reserves were highest in the United States, where its more than 8,133 tonnes of gold accounted for 72.2% of its foreign reserves.
Table 1 – G7’s Official Gold Reserves, 2000 and 2015
Source: Table prepared by the author using data from World Gold Council, Statistics: Foreign reserves statistics – Quarterly times series on World Official Gold Reserves since 2000.
Canada’s exchange fund account
Canada’s small holdings of gold are held in the Exchange Fund Account (EFA). This is a portfolio composed primarily of liquid foreign currency securities – denominated in U.S. dollars, euros, pound sterling and yen – as well as special drawing rights and Canada’s reserve position at the International Monetary Fund (IMF).
The EFA’s objective, as specified under the Currency Act, is “to aid in the control and protection of the external value of the monetary unit of Canada.”
Assets held in the EFA are managed “to ensure that the government can readily meet its foreign currency obligations (for example, to aid in the control and protection of the value of the Canadian dollar, and to aid in meeting foreign currency payments to the IMF).”
Under the Currency Act, the Minister of Finance has the authority to acquire, borrow, sell or lend assets held in the EFA, including gold, in accordance with the Statement of Investment Policy. However, the Department of Finance Canada shares responsibility for the strategic planning and operational management of the EFA with the Bank of Canada.
Diminishing importance of gold reserves
Under the gold standard, which was in place from 1854 to 1914 and from 1926 to 1931, the Canadian dollar – or Dominion notes – issued by the federal government were supported by gold reserves.
This meant that the value of the Canadian dollar was fixed in terms of the amount of gold held. The federal government sold gold reserves in exchange for Canadian dollars in an effort to maintain the dollar’s value relative to gold.
Canada’s gold reserves were also important under the Bretton Woods system, established at the end of the Second World War and in place until 1973. Under that system, exchange rates were fixed, but adjustable. International liquidity consisted primarily of stocks of gold or currencies convertible into gold.
Floating Canadian dollar
In 1970, the Minister of Finance announced that the Canadian Exchange Fund would cease purchasing sufficient U.S. dollars to keep the exchange rate of the Canadian dollar at a certain value with the U.S. dollar. This allowed the Canadian dollar to float. Since then, the value of the Canadian dollar has not been constant relative to the value of another currency, such as the U.S. dollar, or a commodity, such as gold.
From 1970 to August 1998, the Bank of Canada occasionally intervened in foreign exchange or currency markets, buying and selling gold and foreign reserves to affect the relative value of the Canadian dollar.
The Bank’s policy for that period was “to intervene systematically in the foreign exchange market to resist, in an automatic fashion, significant upward or downward pressure on the Canadian dollar.”
The Bank’s policy changed in September 1998 due to “the ineffectiveness of intervening to resist movements in the exchange rate caused by changes in fundamental factors”. The current policy is “to intervene in foreign exchange markets on a discretionary, rather than a systematic, basis and only in exceptional circumstances.”
In recent years, the Bank of Canada has not intervened in foreign exchange markets to affect the relative value of the Canadian dollar; its most recent intervention was in September 1998. Therefore, gold holdings in the asset composition of the EFA have not been as important as they used to be.
Georgette Boele, Precious Metals Weekly: Gold a Safe-haven?, Group Economics, Macro & Financial Markets Research, 26 August 2015.
James Powell, A History of the Canadian Dollar, Bank of Canada.
Department of Finance Canada, Report on the Management of Canada’s Official International Reserves – April 1, 2014 – March 31, 2015.
Author: Raphaëlle Deraspe, Library of Parliament