Bank of Canada Announces Changes Future its published FX benchmark.
By Johan Wednesday,
The Bank of Canada (BoC) announced today that it, as of March 1, 2017, will be a series of changes in the number, frequency and the calculation method of its kind published exchange (FX) rates. Bank of Canada Announces Changes Future its published FX benchmark.
See below Bank of Canada Announces :
What we’re changing and when
On 1 March 2017, we will make the following changes to our published foreign exchange rates:
The number of currencies published will be reduced to roughly 25, capturing the majority of foreign exchange transactions conducted against the Canadian dollar. It will say the combination of the top 20 currencies of trading volume (based on the Bank for International Settlements Triennial FX Turnover Survey) and those of Canada’s top 20 trading partners (based on Statistics Canada’s international merchandise trade data). It will be reviewed, and adjusted if required, every three years.
We will no longer publish two exchange rates (noon and closing), but will instead publish a single indicative rate per currency pair each day at 16:30 ET.
That single rate will be calculated in order to broadly say the average exchange rate observable throughout the Canadian business day. Exact details of this calculation method will be announced in the 4th quarter of 2016.
Why we’re making changes to our exchange rates
These changes will reinforce that Bank of Canada exchange rates is provided as a public good – for statistical, analytical and informational purposes only, and not as benchmarks for transactional purposes.
They also say the fact that exchange rates are now readily available from many alternative sources.
They are being implemented after broad public consultation and take into account broader international work on the right design of foreign exchange reference rates.
These changes are consistent with similar changes undertaken by other central banks.
Why we’re announcing them now
Although these changes will not come into effect until 2017, the Bank is notifying the public now to allow ample time for users of these rates to make any adjustments that may be required.
The Bank is acutely aware that these changes may cause adjustments in business processes, IT systems, legal contracts and in some cases, federal and provincial legislation.
The Bank conducted a public survey of the use of its reference rates in 2014. Respondents made it clear that a reasonable amount of lead time to prepare for the changes would be required.
In particular, over 80% of respondents indicated that a lead time of 3 months or less would be acceptable. By delaying implementation of these changes for 1 year, the Bank is providing considerably more lead time to enable any adjustments that may be required to take place smoothly.
Who will be affected by these changes
Based on a 2014 survey, there is a broad range of stakeholders who now use these rates, including:
Entities that use these rates for general business use
Entities that use these rates for commercial contracts or as a benchmark for transactions
Corporate that usage rates for accounting purposes
Individuals and entities subject to legal requirements to use these rates, e.g. Income Tax Act
Therefore the Bank will continue publishing exchange rates, but will cut the number published, their frequency and the calculation method. The Bank is aware that these changes could need changes in business processes, IT systems, legal contracts, and federal and provincial legislation. In some cases, it could also need seeking alternative sources of exchange rate data more right for specific business purposes, including as a benchmark for transactions.
By providing ample advance notice and delaying implementation of these changes for one year, the Bank is providing much lead time to enable any adjustments that may be required to take place smoothly.
What we’re doing to prepare users for these changes
In 2014, we conducted a broad public survey to gain a fuller understanding of the impact of these changes.
We are delaying implementation of these changes for one year and communicating these changes well in advance, to give users ample time to adjust, including seeking out alternative sources for rates.
We have consulted with several federal government organizations on these changes and are notifying relevant provincial authorities and industry association groups.
We will continue to publish exchange rates for about 25 currencies, as a public good, for statistical, analytical and informational purposes.
Why we’re reducing the number of currencies we give, exchange rates for
Findings from our 2014 survey, along with our own data, suggest that many currencies are very infrequently accessed.
We have decided to limit our published rates to those that represent the majority of foreign exchange activity against the Canadian dollar and are readily tradable.
This is consistent with practices at other major central banks.
When the final list of currencies and the new calculation method will be announced
The exact calculation method and choice of specific currencies will be announced in Q4 2016. The last currency list will be determined by the results of the
BIS Triennial FX Turnover Survey to be released later this year and by the most up-to-date Statistics Canada
International Merchandise Trade data available at that time.
Why we’re only going to publish one rate per day and why we are changing our calculation method
The Bank is changing its calculation method to say the average observable rate throughout the Canadian business day, and not a single point.
This reinforces the distinction between exchange rate fixings used as benchmarks for transactional purposes and Bank of Canada exchange rates that are provided as a public good, for statistical, analytical and informational purposes only.
The changes are being undertaken in the context of broader international official sector work on the design of foreign exchange reference rates, including recommendations from the Financial Stability Board on foreign exchange benchmarks and the Principles for Financial Benchmarks published by the International Organization of Securities Commissions.
Where else to get exchange rates
Unlike when the Bank began publishing its exchange rates many decades ago, rates are now readily available from many alternative sources (trading platforms, various free and fee-based Internet sources, and a range of other data vendors).
We will also drop publishing high and low rates
While the Bank will continue publishing weekly, monthly and annual averages, we will drop publishing the high and low exchange rates.
We will keep all past data
The Bank will keep up all past exchange rate data exactly as is, and will not re-start or re-calculate historical rate data.
We will adjust our exchange rate lookup tools
The Bank will keep up its various exchange rate lookup tools, but will make necessary adjustments to say these changes, while ensuring the integrity of all historical data. More details on how look-up tools will be adjusted will be provided in due course.