What makes a central bank special?
The Bank of Canada can borrow and lend. So can the Bank of Montreal. So can I. Nothing special there.
The Bank of Canada can set any rate of interest it likes when it lends. So can the Bank of Montreal. So can I. Nothing special there. "If you want to borrow from me, you have to pay x% interest." We can all say that. (Whether anyone will want to borrow from us at x% interest is another question.)
The Bank of Canada can set any rate of interest it likes when it borrows. So can the Bank of Montreal. So can I. Nothing special there. "If you want to lend to me, you have to accept y% interest." We can all say that. (Whether anyone will want to lend to us at y% interest is another question.)
And yet there's this utterly bizarre belief among many economists that it is the Bank of Canada that has the power to set Canadian interest rates, just by borrowing and lending. And that the Bank of Montreal, and ordinary people like me, somehow lack this special power. Even though we can borrow and lend too.
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