Vol. 134, No. 11— May 24, 2000

Registration
SOR/2000-174 4 May, 2000

BANK OF CANADA ACT

Regulations Amending the Bank of Canada Notes Regulations

P.C. 2000-623 4 May, 2000

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 25(3) of the Bank of Canada Act, hereby makes the annexed Regulations Amending the Bank of Canada Notes Regulations.

REGULATIONS AMENDING THE BANK OF CANADA NOTES REGULATIONS

AMENDMENT

1. Section 2 of the Bank of Canada Notes Regulations (see footnote 1) is amended by striking out the word "and" at the end of paragraph (f), by adding the word "and" at the end of paragraph (e) and by repealing paragraph (g).

COMING INTO FORCE

2. These Regulations come into force on May 12, 2000.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Description

This Regulation is to have the Bank of Canada cease issuing the one thousand dollar bank note. Information from Canadian law enforcement agencies indicates that this note is used disproportionately for illegitimate purposes, in particular money laundering. Large value bank notes are attractive for money laundering because they have less bulk than other denominations, thus facilitating concealment and movement of currency, both within Canada and across borders. It is estimated that between $5 billion and $17 billion in funds are laundered in Canada every year.

The Bank of Canada will also proceed with the orderly withdrawal of existing one thousand dollar notes from circulation with the assistance of Canadian financial institutions. Nevertheless, any notes remaining in circulation will retain their nominal value, and individuals wishing to retain and use these notes can do so.

Alternatives

No other alternatives were deemed as effective for dealing with the concerns raised by law enforcement officials.

Benefits and Costs

The Regulation, coupled with a withdrawal of existing one thousand dollar notes from circulation, is expected to render more difficult the laundering of the proceeds of crime. This initiative is in accordance with the commitment, made by the Government in the Speech from the Throne, to combat criminal activity, including money laundering. It also complements other government initiatives, such as the proposed Proceeds of Crime (Money Laundering) Act (C-22), to combat money laundering and organized crime.

This Regulation should have no tangible impact on the efficiency of the Canadian currency system. The one thousand dollar notes only account for approximately 1/3 of 1 per cent of the total volume of all notes in circulation, or approximately 10 per cent of the total value of all notes in circulation. The original purpose of the thousand dollar note (i.e., large fund transfers between financial institutions) no longer applies, and reasonable alternatives (cheques, bank drafts, bills of other denominations, debit/credit cards, wire transfers) are available to effect payments. The resulting currency structure would be comparable to that of other industrialized countries.

There are potential costs to this initiative, primarily due to the loss of seigniorage revenues. These costs would depend on the reaction of Canadians to the initiative. A low rate of conversion of $1,000 notes to smaller denominations would result in higher costs.

Consultation

Officials from the Canadian law enforcement community and the Bank of Canada were consulted, and support was expressed for this initiative.

This Regulation was pre-published in the Canada Gazette, Part I on February 19, 2000. Interested persons were invited to make representations concerning the Regulations within 30 days. Only two responses, both opposing the proposal, were received during this period. The Department of Finance reviewed these representations and concluded that the government should proceed with the Order in Council requiring the Bank of Canada to cease issuing $1,000 notes.

Compliance and Enforcement

No particular measures would be required other than to inform the Bank of Canada of the approval of this regulatory amendment.

Contact

Mr. Richard Lalonde
Financial Sector Division
Department of Finance
140 O'Connor Street
Ottawa, Ontario
K1A 0G5
Tel.: (613) 995-1814
FAX: (613) 943-8436
E-mail: Lalonde.Richard@fin.gc.ca

Footnote 1

SOR/89-298

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