Last week, Bank of Canada Governor Tiff Macklem told a news conference that the bank fully intends to gradually bring its balance sheet back down to something near typical prepandemic levels.Justin Tang/The Canadian Press
The Conservatives fired a shot across the Bank of Canada’s bow last week, in the form of a private member’s bill from one of the party’s biggest names.
And no, it wasn’t the central bank’s usual Conservative agitator, Pierre Poilievre, though the party leadership candidate’s influence was evident.
Last Wednesday, former Conservative leader Andrew Scheer sponsored a bill named the “Bank of Canada Accountability Act,” which proposes amending the Bank of Canada Act to put the Auditor-General of Canada in charge of auditing Canada’s central bank. Before even talking about the bill, Mr. Scheer thanked Mr. Poilievre for his leadership on the issue.
“Since the beginning of the pandemic, the Bank of Canada has massively expanded the money supply in Canada. As a result, we are seeing runaway inflation,” Mr. Scheer told the House.
“The Bank of Canada’s decisions have a direct impact on the value of the dollar that Canadians earn,” he added in a news release issued by the Conservatives in conjunction with the bill’s introduction. “With inflation running at historic highs, this kind of oversight and accountability is needed more than ever.”
Mr. Scheer told the House that the Bank of Canada has a “special exemption from the purview of the Auditor-General” – leaving the impression that, perhaps, the bank’s finances, asset holdings and operations are hidden from scrutiny.
The Bank of Canada is on the cusp of shedding bonds from its balance sheet
Don’t misread the Bank of Canada’s decision as inaction. Interest rates will rise, and quickly
In fact, the Bank of Canada Act already requires that the central bank have not one but two independent auditors, selected by the federal finance minister and requiring approval by cabinet. The minister has the power to order a wide range of special reports, and/or to instruct the auditors to broaden the scope of their audits. Those reports are, naturally, public documents, published in the Canada Gazette for all to see.
In an e-mailed statement, Bank of Canada spokesman Paul Badertscher said the Auditor-General already has legal authority “to investigate and audit the bank’s activities and records in relation to its role as fiscal agent for the government, agent for management of the government’s debt, and agent for the Exchange Fund Account [which holds the government’s foreign currency reserves].”
So, it’s not as if a pretty rigorous auditing structure isn’t already in place. But the specifics of the bill matter less than the message Mr. Scheer delivered in placing it before the country’s federal legislators.
Private members’ bills, statistically, have little chance of being passed into law. This is more about making a statement than about the specifics of the bill itself.
And the statement here – coming not from some low-profile backbencher, but from a highly visible senior member of the Conservative caucus – is that the country’s central bank has strayed in its conduct of monetary policy, and needs to be put on a shorter leash by Parliament.
It’s notable that this message would emerge just days after another Conservative leader, Erin O’Toole, was turfed in an internal party revolt. Mr. O’Toole had certainly blamed the Liberal government frequently for the country’s inflation woes, lamenting massive deficit spending and ballooning public debt. But he left the Bank of Canada out of the inflation debate, in apparent deference to the traditional principle that our political leaders don’t tell our independent central bank how to go about its business.
In his absence, other senior members of the Conservative caucus may not share that same sense of propriety. Certainly Mr. Poilievre, the consensus front-runner in the party’s leadership race, doesn’t. He has long targeted the bank’s quantitative easing (QE) program – under which it has purchased hundreds of billions of dollars’ worth of government bonds in the name of supporting financial markets and the economy in the COVID-19 crisis – as the root cause of the country’s inflation problem.
There is unquestionably an undertone of suspicion about the central bank in all of this – and on one level, it’s not unhealthy. After all, Parliament does have ultimate oversight over the Bank of Canada. The structures set up to exercise this oversight are very much hands-off; but those structures did not anticipate QE, a program that never existed before the pandemic, under which the Bank of Canada’s asset holdings have swelled from $120-billion to an ungainly $500-billion. It’s not crazy for federal legislators to ask whether they have adequate transparency into how the bank accumulated so much on its balance sheet, and what will happen from here.
But it’s hard to escape the sense that the Conservatives are signalling – louder, now that Mr. O’Toole has been supplanted – that the Bank of Canada is a suspicious and secretive operator whose powerful wings must be clipped.
There’s no doubt that there are hard questions to be asked about the bank’s balance sheet, where the bank is headed and how quickly.
To the bank’s credit, it has made moves in recent weeks to be more transparent in that regard. It signalled in late January that will soon consider starting to reverse the buildup and allow its bond holdings to shrink. Last week, Bank of Canada Governor Tiff Macklem told a news conference that the bank fully intends to gradually bring its balance sheet back down to something near typical prepandemic levels.
But fomenting public distrust in the central bank, and its competence and commitment to controlling inflation, is not constructive. Controlling inflation depends, in no small part, on keeping long-run expectations for inflation around the central bank’s long-standing 2-per-cent target. If the Conservatives are serious about doing what’s right to control inflation, they’ll tone down their rhetoric.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.