C. I print $100, lend it to Tom at 5% interest, so Tom gives me $5 per year. You borrow $100 from Tom (or Dick or Harry) at 5% interest, so you give Tom (or Dick or Harry) $5 per year. And then I give you the $5 per year that Tom gives to me.

B. I print $100, lend it to you at 5% interest, so you give me $5 per year, and then I give that $5 per year straight back to you.

The Bank of Canada is a Crown Corporation, and all its profits from printing money (the interest it earns from buying interest-paying assets with currency it prints that pays 0% interest, minus admin costs) are given to the federal government of Canada.

The Bank of Canada (like most central banks) currently does C. But the bonds it buys in the open market (from Tom, Dick, or Harry) are mostly government of Canada bonds, so you could say it is really doing B. But B is no different from A.

But who gets to decide how much is lent interest-free does make a difference, of course. Is it me or you who decides it's going to be a $100 and not a $200 interest-free loan? Right now, it's the Bank of Canada that decides (though both the Bank of Canada and the Government of Canada signed off on the 2% inflation target, which ultimately determines how much gets lent, so you could say that the decision is ultimately by mutual agreement, though the Bank of Canada decides how much printing is needed to hit that 2% target).

And C is administratively more convenient than A or B, if the amount the Bank of Canada wants to lend, and the amount the government of Canada wants to borrow, both fluctuate over time, so the Bank of Canada might sometimes want to lend more and the government borrow less, or vice versa. We use Tom Dick and Harry as a reservoir to make up the difference.

At the margin, the government of Canada pays the market rate of interest when it borrows. But it borrows roughly 5% of GDP interest-free. (The currency/GDP ratio is around 5%, on average.) Once you decide on the inflation target, the public decides how much currency it wishes to hold, as a percentage of income, and those determine how much currency the Bank of Canada prints each, and how much profits it gives to the government each year.

Right now, in Canada, this question is before the courts.

The "Court Party" (who invented the recent use of that term? I vaguely remember reading it in The Idler (who remembers that lovely Canadian magazine?) about 30 years ago) has adopted Major Douglas, and says the Bank of Canada is legally obliged to do A. Or monetary cranks have adopted the tactics of the Court Party, if you like. It's not just in the U.S. where this sort of thing happens.

God only knows what the lawyers and judges will make of this.

[My belated apologies to a Canadian journalist, whose name I have forgotten, whose phone message on this subject a month or two back I forgot to return.]