But in the postwar years, experience proved that a floating exchange rate was truly beneficial for domestic policy. However, during the 1970s and 1980s, the Canadian-dollar foreign exchange market was quite thin. As a result, the Bank of Canada had to intervene on a day-to-day basis with the aim of providing liquidity and reducing volatility.
Moreover, those episodes have highlighted the extent to which the provision of liquidity in an environment of heightened uncertainty can play an important role in allowing financial institutions to make more-accurate judgments about the solvency and creditworthiness of prospective borrowers (Mishkin, 2007a).