The Bank of Canada wields enormous power, yet decisions are made in relative secrecy: Neil Macdonald
Canadians are owed more than the turgid commentaries the bank releases following changes to monetary policy
A group of 61 economists wrote a letter Monday to the federal finance minister, expressing concerns about the Bank of Canada's mandate.
Okay, perhaps not the sexiest story of the day. I suspect the opening sentence of their news release didn't exactly command the attention of assignment desks:
"While agreeing … that the goal of low inflation is highly desirable, this group of distinguished economists … believes that a two-per-cent inflation rate ought not to be the sole objective of monetary policy."
To be fair, though, the central bank itself works hard to be soporifically dull. Few Canadians, even well-educated Canadians, understand what it does, and the bank seems to like it that way. Like his predecessors, Bank of Canada Governor Stephen Poloz excels at using a lot of words to say as little as possible.
At the same time, no other agency of government exercises a greater power over the finances of Canadians. Certainly, no other arm of government operates as secretly, as free from public scrutiny.
Unlike the U.S. Federal Reserve, Canada's central bank has no committee of bankers, representing the country's various regions, who vote on whether to raise or lower interest rates. Unlike the Fed, the Bank of Canada does not publish minutes of its deliberations after a few weeks, or a full transcript after a few years.
And while Poloz must, by custom, take the views of his colleagues on our central bank's governing council into consideration, he and he alone has the authority to move interest rates, something that directly or indirectly affects every lender, every mortgage-holder, every creditor, every business, and arguably every employee in the country.
His decisions also have an impact on the government's finances, governments being the biggest borrowers of all. The cost of servicing the public debt, and therefore the government's room to spend on programs and its need to tax, rest on what Poloz decides to do.
In fact, the bank's actions are probably more important to most Canadians than other policies that have been debated and covered to death: pipelines, or carbon taxes, or pot legalization, or electoral reform.
The super-low interest rates the bank has sanctioned for the past decade have encouraged heavy borrowing and spending by young people, while simultaneously wrecking the retirement planning of elderly Canadians, who suddenly found themselves lucky to collect a return of even one per cent on their life savings. The policy amounted to a forced transfer of wealth from one generation to another.
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Poloz has another power, too, although he hasn't used it: the power to print money. His counterparts in the United States, Great Britain and the European Union have done just that in the years since the great meltdown of 2008, creating trillions of dollars out of thin air.
The central bankers effectively then lent it to their governments by buying treasury bonds on the secondary market, which had the further effect of forcing private money into riskier investments, driving stock markets to their current extreme-bubble highs.
And all of this was done without any voter consultation.
A strange system, perhaps, in a democracy, but ultimately necessary. Basically, control and regulation of the money supply is far too important a matter to be left to politicians. (Imagine giving an elected official, focused entirely on his or her political future, the power to print any amount to spend on re-election goodies? Or the ability to lower voters' mortgage payments whenever politically convenient?)
And there's an excellent reason for central bankers' famous discretion. One badly phrased sentence from any of them could move markets, causing needless pain to innocent investors.
At the same time, and this is what the 61 signatories to that boring letter Monday are on to: a little more accountability couldn't hurt.
At the moment, Poloz is bound by a single, simple directive, or, in the jargon of central banks, his "remit:" his sole official task is to keep the rate of inflation at between one and three per cent.
Other central banks, including the U.S. Fed, follow a dual mandate: price stability, meaning low inflation, and maximum, or "full" employment.
"We should be concerned about full employment," says Mario Seccareccia, professor emeritus of economics at the University of Ottawa and an organizer of the 61-name petition.
Seccareccia says it is clear and obvious that the inflation target is not the only criterion the bank currently uses. To pretend otherwise, as current policy does, is, he says, a "ridiculous charade."
Take, for example, the crippling level of household debt in Canada, something Poloz has no choice but to take into account. Put it this way: in cities like Vancouver and Toronto, where people have taken on enormous debt to get into hot housing markets, and now operate on the slimmest of margins, imagine what would happen if Poloz decided to raise interest rates to, say, five or six per cent, where they probably should be.
Or how such a decision might tie the hands of the Trudeau government, given its love of piling up debt.
In any case, says Seccareccia, the central bank shouldn't operate in such secrecy.
"We don't know what's going on. They should be accountable for what they are doing. They should have to defend their position, preferably on a regular basis.
"The House of Commons and the Senate should be in a position to judge whether they (the bank) are doing their job."
Fair point. Transparency is a democratic value, and voters are entitled to more than the rather turgid commentaries the bank puts out after tightening or loosening monetary policy.
But transparency doesn't seem to be much of a concern for the governing Liberals, despite their treacly happy talk. In practice, Finance Minister Bill Morneau's department has been just as secretive as it was under Jim Flaherty and Stephen Harper.
At a guess, the opinions of 61 economists notwithstanding, nothing will change.