Indeed, the FOMC has said that it “expects to learn more about the underlying demand for reserves during the process of balance sheet normalization. "10 Nonetheless, let me spend a little time reflecting on this challenging question. How banks respond to the Fed’s reduction in reserve balances could, in theory, take a few different forms.
Well, the exchange rate of the Canadian dollar is a key element of our monetary policy framework. Without a floating exchange rate, we would not have the ability to conduct an independent monetary policy appropriate to our domestic situation. This means that we do not have a target for the Canadian dollar.