Failure “to defend the Canadian dollar” would produce even larger increases in domestic interest rates and inflict more serious damage on the economy. A major step towards dealing with this problem was taken in January 1988, when John Crow, the Bank’s new Governor, delivered his Hanson Memorial Lecture at the University of Alberta.
When trust in the system is lost, this process reverses. Depositors and investors become reluctant to provide funding to banks, banks to lend to other banks, and, in some of the most affected countries, both are sceptical of the ability of governments to backstop the system.2 Since the crisis, money multipliers have plummeted in the crisis economies.