Bank of Canada needs to do more to support economic reconciliation with Indigenous peoples, deputy governor says

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The Bank of Canada plans to ramp up efforts to advance economic reconciliation with Indigenous peoples, outgoing deputy governor Lawrence Schembri said in his final speech in that position, adding that more needs to be done to ensure Indigenous people have equitable access to jobs and education as well as credit and capital.

While monetary policy is a blunt instrument that cannot target specific groups, the central bank needs to do more to understand economic challenges that face Indigenous communities, and to support Indigenous groups seeking greater inclusion in the financial system, Mr. Schembri said.

He said the bank is consulting with Indigenous groups on a “formal reconciliation action plan,” which it hopes to publish next year.

Much of the speech focused on the challenges for many Indigenous communities and businesses in accessing credit and financial services – a fact Mr. Schembri chalked up to historic discrimination, the remoteness of many communities and legal structures limiting property rights, among other things. He cited research showing that only 0.2 per cent of private capital raised in 2013 went to First Nations and Inuit businesses.

A lack of capital and local banking services not only undercuts the ability to build infrastructure and businesses, it also undermines the ability of the central bank to affect credit conditions in Indigenous communities.

Mr. Schembri pointed to the four times the central bank has cut rates since 2000 in an effort to stimulate the economy during a downturn.

“For most of these periods, interest rates paid by Indigenous businesses on their loans from AFIs [Aboriginal Financial Institutions] did not fall as much as either the Bank of Canada’s policy interest rate or the prime rate charged by banks to their preferred customers. This suggests that monetary policy has been less effective at stimulating the Indigenous economy than other parts of the Canadian economy,” Mr. Schembri said.

Bank of Canada to reach out to Indigenous groups on economic reconciliation

AFIs, created in the late 1980s, are Indigenous-controlled, community-based financial organizations that provide loans and other financial services to First Nations, Métis and Inuit businesses in all provinces and territories, and operate under the umbrella of the National Aboriginal Capital Corporations Association. Mr. Schembri spoke on Thursday at a NACCA event.

He also flagged the need for better data, saying attempts to measure the size and performance of the Indigenous economy are hampered by lack of information.

Harold Calla, executive chair of the First Nations Financial Management Board, welcomed that observation, saying improved data are essential to develop and assess policies. As an example, he cited the board’s experience during the pandemic, when it had to search through financial statements from nearly 800 First Nations communities to come up with information the federal government could use to develop relief programs. He suggested such information should be in a central database that is up to date and easily searchable.

“That information should be readily available on an annual basis – that’s the kind of thing we are talking about,” he said.

The Truth and Reconciliation Commission’s 2015 final report called on Canada’s corporate sector to adopt the United Nations Declaration on the Rights of Indigenous Peoples and apply its principles by, for example, ensuring Indigenous people have equitable access to jobs and training opportunities.

After he spoke, Mr. Schembri was asked when the Bank of Canada would name an Indigenous person to its board of directors.

Mr. Schembri responded that the government makes those selections, not the bank itself, but that he was optimistic an Indigenous board member would be named “sometime in the near future.”

When it comes to monetary policy itself, the central bank can do little to support specific communities; it sets interest rates for the whole country, not any given region or sector. Policy makers have repeatedly said that maintaining low and stable inflation is the best thing they can do to support low-income Canadians.

At the same time, Governor Tiff Macklem has put more emphasis on labour market inclusion than some of his predecessors. During the pandemic, the bank began collecting more details on labour force participation by different demographic groups, and Mr. Macklem spent much of the past two years emphasizing the importance of an “inclusive” recovery.

References to labour force inclusion have largely disappeared from Bank of Canada communications in recent months, as Canadian unemployment has hit a 50-year low and the bank has begun aggressively raising interest rates in an attempt to tame runaway inflation.

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