If there is a demand for more coins, the Royal Canadian Mint will produce the coins and sell them to financial institutions. Payment for the coins is made to the Receiver General (Government of Canada). The federal government pays the mint for the costs of producing and distributing the coins, and keeps any net revenue. Financial institutions cannot return surplus coinage, but can return smooth or mutilated coins.

If there is a demand for more bank notes, the Bank of Canada distributes them to financial institutions. It is ordinary Canadians who determine the demand for bank notes, and the Bank of Canada meets whatever the demand is. People carry cash in their wallets and purses, and businesses hold cash "floats" so they can operate their businesses. Surplus bank notes can be deposited by financial institutions into their accounts at the Bank of Canada.

Financial institutions have accounts with the Bank of Canada chiefly so that they may participate in the clearing and settlement of payments in Canada. They seek to maintain sufficient balances in these accounts to be able to meet their daily payment obligations. Their accounts are debited when they make payments to other financial institutions or the government, or withdraw bank notes. Their accounts are credited when they receive payments from other financial institutions or the government, or deposit bank notes.

The amount of bank notes in circulation is approximately $40 billion. The Bank of Canada invests the proceeds from bank notes in government securities, and earns income on the securities. The net income of the Bank of Canada is paid to the Federal Government.

Thus, the answer to the question is NO, the Government of Canada cannot print money and spend it. Bank notes are produced and distributed by the Bank of Canada in response to a demand for those notes by Canadians. If too many bank notes are placed in circulation they are returned as surplus notes to the Bank of Canada.

The income of the Government of Canada consists of taxes, duties, interest and penalties collected. Out of this income they pay the operating expenses of the country. If they spend more than they collect, they have a deficit, and must borrow money. They borrow money by selling Government of Canada bonds. The total money owed by the government, resulting from continuing deficits, is the National Debt. If the government collects more than they spend, they have a surplus, and can pay down debt.

First published in "the Operator", March 2007