The Bank of Canada is an institution that does important work, but is complex and difficult for the general public to understand. It is a mysterious and cold organization, giving the impression of being hermetic and inaccessible. He is the perfect victim for a politician looking to personalize a culprit of an alleged economic derailment.
Pierre Poilievre, by targeting the Bank of Canada and its governor Tiff Macklem, applied a recipe already used by Donald Trump. One of the great notable achievements of the former president of the United States was the pursuit of Jerome Powell, the chairman of the Federal Reserve whom he appointed himself.
He called him incompetent, said he lacked vision and wondered if the Fed chairman was not a bigger opponent of his country than China. Why did he do it? For the simple reason that he did not agree with his monetary policy.
He wants to see the Federal Reserve stop raising interest rates in 2018, or even lower them. Donald Trump has raised the possibility of firing Jerome Powell. Remember, the president promised economic growth of 4, 5 or 6% and lowering rates is one way to boost the increase in GDPdespite the imperatives of the central bank’s monetary policy, to control inflation to 2% and find full employment.
Pierre Poilievre follows in the footsteps of 45at President of the United States by announcing that he will remove Tiff Macklem if he becomes Prime Minister and he will appoint someone who will return to a monetary policy centered on low inflation.
In Turkey, President Recep Tayyip Erdogan has called for lowering interest rates from his central bank to stimulate his economy despite rising inflation. The base rate was lowered from 19% to 14% last fall and inflation is at 70%.
The Turkish central bank is handcuffed: the country’s president refuses to raise rates and threatens to fire the governor if he does not apply his directives.
Tiff Macklem’s work was criticized
Of course, we are not in this situation in Canada. Inflation is approaching 7%, but the economy is doing well. Economic growth has been strong, the unemployment rate has never been so low, a large portion of Canadians were able to save money during the pandemic and demand is still rising.
Certainly the work of Tiff Macklem, like that of Jerome Powell in the United States or other central banks around the world, is being criticized these days by economists who argue that central bankers waited too long before raise the interest rate. Governor Macklem, for example, has been criticized for being slow in recognizing that inflation is not temporary and that currency restrictions should have started before 2022.
The bank acknowledges some mistakes, by the way. Deputy Governor Carolyn Rogers delivered a full speech on May 3 in Toronto on the importance of the central bank maintaining public confidence in its actions.
We are fully conscioushe explained,that because of the extraordinary steps taken during the pandemic and inflation beyond target, some are wondering if they can really trust us.
It is very important to maintain the trust of Canadians in the country’s most important institution. The central bank must do this work to consolidate or regain public confidence, such as the government.
The central bank, “automated teller machine”?
Candidate Pierre Poilievre chose to go the other direction. For strategic political reasons or because he was sincerely convinced of it, he attacked the credibility of the central bank and its governor, and announced that he would be fired if he became prime minister. He accuses the bank of being ATM of the government during the pandemic and to pursue a policy that does not allow inflation to be reduced.
In fact, the central bank bought most of the government bonds issued in the first months of the pandemic, security loans created to finance government support programs for the population.
It is legitimate to question the generosity of government programs during a pandemic. But the central bank did what other central banks around the world did, especially in the United States. When the economy stops in 2020, action needs to be taken.
Canada spent a lot of money during the pandemic and its debt increased. It is normal to question government options at this time. But it’s important to note that Canada remains the least indebted country in the G7 and it has maintained its AAA rating among three credit agencies.
We should add that the dismissal of the central bank governor because the prime minister does not agree with monetary policy could have devastating consequences on Canada’s image, its stability and its attractiveness for investors.
The bank’s mandate has not changed
Second, the mandate of the Bank of Canada has not changed. There is no need to return it to low inflation, as Pierre Poilievre suggests, because that is already the case. The bank targets the inflation rate of 2%, within 1%to 3%. This command was recently renewed.
To lower inflation, the bank’s current policy requires a marked increase in interest rates and the completion of the renewal of government bond assets held by the institution.
Again, criticizing the central bank for its management of inflation is legitimate. But we need to take the time to explain that supply chains have been scrambling for two years, even more so with tight detentions in China. The war also adds strong inflationary pressure on grain and fuel.
As explained by Sylvain Leduc, Vice Chairman of the San Francisco Federal Reserve Economy zone Thursday, Predicting what is happening in supply chains is very difficult and predicting what will happen about pandemics around the world is difficult. We feel the effects of what is happening in China, we see it in the zero COVID policy stopping production, and it disrupts global production and inflation in the United States and Canada.
Deceptive discourse on cryptocurrencies
Pierre Poilievre also recently stated that cryptocurrencies represent a relief of inflation. This statement is misleading. Volatility in cryptocurrencies is very high and its use remains marginal compared to major world currencies.
Bitcoin has dropped 55% since last November, Dogecoin has dropped approximately 82% over the past year, Ethereum has dropped 45%, and the cryptocurrency Terra, such as stablecoins, has completely collapsed over the past few days, lost almost all of its value. This cryptocurrency is intended to be linked to the US dollar. Looking for safe assets, investors stopped and Terra’s value evaporated.
Pierre Poilievre also said recently: We will give people the freedom, LI-BER-TY to choose their own currency without the Bank of Canada interfering to print money and lower the value of money.
This statement is also misleading. In the past year, the Canadian dollar has fluctuated between 77 and 83 U.S. cents, essentially between 77 and 80 U.S. cents most of the time. The money was not devalued by the work of the Bank of Canada. Other factors are at work, particularly investors ’search for safe assets, in U.S. dollars, due to fears associated with inflation and the low risk of recession.
Pierre Poilievre’s goal was to win over the leadership of the Conservative Party. But he can’t do that by dropping the most basic facts about central banks and cryptocurrencies.
Source: Radio-Canada
