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Canada has a very unique place among globally developed economies. It is ranked as the 10th largest economy by gross domestic product and the 17th largest by purchasing power parity. Like most first world economies, it is dominated by its services sector, which employs roughly 75% employed Canadians. However, Canada’s vast natural resources and small population means that it is an exporting behemoth for an especially important energy sector. Canada’s wealth of forest timber and oil reserves continue to safeguard the nation’s economy and ensure its global ranking as one of the world’s most important energy exporters. This article will cover Canada’s financial system, as well as a range of market information covering currency, futures, and stocks.
show moreThe Bank of Canada (BOC) is intended to promote the financial and economic welfare of Canada by promoting a stable and orderly financial system. The financial system of Canada encompasses such financial institutions as banks, financial markets, credit unions, all well as clearing and settlement systems. According to the Bank of Canada’s website, it delivers on this promise by:
While the monetary policies and regulation is left up to the Bank of Canada, everyday commerce is controlled by 5 major privately owned banks. The “big 5” dominate the Canadian market as giant financial conglomerates but also have an international presence that is felt beyond Canada’s borders. The 5 major banks in Canada are:
Canada has a second tier of notable banks that operate purely within the domestic confines of the energy giant’s economy, although some are merely subsidiaries of foreign banks operating under a different name.
Canada is widely recognized to possess one of the most secure payment and clearing systems on the globe – a result of their stable economy and technological advancements. Payments are regulated by Payments Canada, formerly known as CPA or Canada Payments Association. Payments Canada’s principle responsibility is to maintain and regulate bank routing numbers within Canada. This governing body also helps regulate the following payment instruments:
Canada’s bank notes have varied widely since it was first issued by the Royal Canadian Mint established in 1908. The Canadian Dollar (CAD), as it is currently called, has gone through a varied history depending on which country has been in control of the country’s borders. Currently the Canadian Dollar is also known as the loonie, the buck, or le dollare in French. The Bank of Canada took over the federal issuance of notes from the Dominion of Canada. It began issuing notes in denominations of $1, $2, $5, $10, $20, $25, $50, $100, $500 and $1,000. The coins issued are minted in 1¢, 5¢, 10¢, 25¢ and 50¢ denominations.
Canada’s usage of cheques is declining rapidly following the obvious global trend, but also at the behest of the Canadian Banking Association. The Canadian Payments Association reported that in 2012, cheque use in Canada accounted for only 40% of total financial transactions. Canada uses the Interac system, which allows instant fund transfers via chip, or magnetic strip and PIN, and is broadly accepted by merchants. Very few merchants today continue to accept cheques. Cheques are still used for government payments, payroll, rent, and utility bill payments, although direct deposits, online, and telephone bill payments are more widely and increasingly used. The Canadian government began phasing out all government cheques from April 2016.
Canada has a nationwide EFTPOS system, called Interac Direct Payment (IDP). Since its introduction in 1994, IDP has become the most popular payment method in the country. The system is touted to be one of the easiest to use electronic payment systems for transfer of funds for interbank accounts as well as direct deposit and bill pay options.
In Canada, the debit card is sometimes referred to as a bank card. This plastic card is issued by a bank that provides access to a specified account for checking balances, transferring funds, paying bills, or depositing funds. Additionally, these cards may serve as a point of access for transactions on the Interac network.
Debits cards have been in circulation for the Canadian public for ATM usage since the late 1980s. The Canadian provinces of Alberta as well as Saskatchewan were the first Canadian populations to network ATMs with the intention of utilizing the debit network, although at first it took some time to gain momentum with the general population.
Credit card programs are mildly popular within Canada as many users prefer to use the Interac debit system. The Canadian Government itself preserves a database of the nearly 200 credit card programs available in Canada. The database is updated multiple times per year and is supplied by the very companies that issue the credit cards themselves. This information is published every quarter on the Financial Consumer Agency of Canada’s website.
Canada is unique in the world of stock exchanges in that there are 6 different exchanges operating simultaneously. This section will briefly discuss the differences between them.
The largest exchange by market capitalization is the Toronto Stock Exchange (TSX). Dating as far back as 1861, the TSX is currently the 9th largest stock exchange in the world and has a listed equity value of around $2 trillion (USD). The TSX also lists ETFs, investment funds, as well as income trusts. The largest companies on this exchange come from diverse sectors including energy, oil, gas, and finance.
Second, after the TSX is the TSX Venture Exchange. Formerly known as the Canadian Venture Exchange, the TSX Venture Exchange was restructured after a merger and re-emerged as an investment pool for small cap growth-oriented companies that are too small to list on the Toronto Stock Exchange.
A relative newcomer to the markets is the Canadian Securities Exchange (CSE), formerly known as the Canadian National Stock Exchange. The CSE was founded in the early 2000’s as an alternative stock exchange targeted for alternative public companies that are too small to be traded on larger exchanges. The CSE lists approximately 200 companies and is sometimes referred to as the “exchange for entrepreneurs”.
The most minor exchange in Canada is the Montreal Exchange (MX). The MX lacks the might of other exchanges because it is a derivatives-only exchange, reserved solely for options and future contracts.
Much like the American NASDAQ, there is a Canadian equivalent aptly named NASDAQ Canada which is a subsidiary of the American NASDAQ Stock Market Inc. It was created to extend the United States’ market reach into northern territories and is somewhat mediocre among Canadian exchanges.
The newest exchange in the marketplace is the Aequitas Neo Exchange. This young exchange was launched in March 2015, and was only recognized by the Ontario Securities Commission later that year.
The Canadian Dollar (CAD), or Loonie, is the official currency of Canada. It is the 7th most traded currency in the world and is regarded as a commodity currency as much of its value is pegged to price fluctuations in the oil market. The Canadian Dollar is largely weighted against the USD as approximately 75% of Canada’s exports are traded exclusively with its southern neighbor. This helps make USD/CAD the 4th most traded pair on the market and is also highly regarded for its volatility.
While the Canadian stock markets offer exposure to several thousand companies, it is also regarded as a safe-haven economy. Canada’s economy is largely dependent on its services sector but its industrial and mining operations are what traders truly value as Canada is one of the largest energy exporters in the world. As such, stocks in these sectors tend to rank strongly among similar competitors from different countries. This allows traders to maintain a diverse portfolio which ensures the security of trader accounts.
There is a worthwhile notice in effect for the energy giant’s stock listings; as the world is paving the way towards renewable resources and becoming less dependent on fossil fuels. As a result, Canada may see a large turn to a bearish stock market. Overall, Canada is generally a safe place to grow a nest egg, but beware of the changing tides as the horizon may bring a new era to this country’s financial industry.
