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The Progressive Economics Forum

What Does the Bank of Canada Do?

The Board of Directors of the Bank of Canada have retained Odgers Berndtson to seek a new Governor, and have placed an ad in the Globe and Mail, the Economist and La Presse.

The wording of the advertisement is questionable.

First, it states that “the Bank of Canada is the pre-eminent macro-economic institution in Canada.”

Really?

The Bank of Canada is undeniably important, but it has absolutely no role to play in fiscal policy which is entirely the responsibility of the Minister and Department of Finance.

Moreover, the inflation target which anchors monetary policy is set jointly by the Government and the Bank of Canada, meaning that monetary policy is a shared responsibility to a significant degree. The Government appoints the Directors of the Bank, and retains the formal power to issue policy directives.

The ad goes on to state that the Bank is “responsible for the conduct of monetary policy to keep inflation low, stable and predictable, promoting the efficiency of capital markets and the integrity of Canadian currency, while contributing to the development of stronger, more robust domestic and international financial systems.”

All important stuff, but not a word there about keeping the economy operating at potential, or about employment as a goal of monetary policy.

Lest we forget, the Bank of Canada does have a formal legislated mandate set out in the Bank of Canada Act, namely “to regulate credit and currency in the best interests of the economic life of the nation, to control and protect the external value of the national monetary unit and to mitigate by its influence fluctuations in the general level of production, trade, prices and employment, so far as may be possible within the scope of monetary action, and generally to promote the economic and financial welfare of Canada.”

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Comments

Comment from Larry Kazdan
Time: January 7, 2013, 5:28 pm

COURT CASE UPDATE

Two individual Canadians and COMER (Committee for Monetary and Economic Reform) are confronting the global financial powers in the Canadian federal court and accusing the Bank of Canada of not doing its job.

The motion before the Federal Court of Canada was heard on December 5, 2012, in Toronto.

Press Release (pdf)
http://www.comer.org/content/COMER_CourtCasePressRelease.pdf

Amended Court Filing (pdf)
http://www.comer.org/content/COMER_CourtCaseFiling.pdf

Comment from Travis Fast
Time: January 24, 2013, 5:43 pm

The description does do a nice job of describing the ideological proclivities of many a modern macroeconomist and certainly how the majority of profession views fiscal policy. The lie of course being that if price stability is really all you are concerned with then it is the labour market which is the primary institution / mechanism of macro adjustment.

Comment from Paul Tulloch
Time: January 25, 2013, 11:22 am

Hey Travis, wow where have you been- extended vacation- obviously you have been eyeballing a job as governor of the BOC- righteous – an instant solution to our over valued currency problems.

You can take that any way you like! dollar runs or sound macro policy.

Seems like a major point coming out of Davos today, that what a central bank should be doing is printing lots of money- MMT or quantitative easing style- austerity is the dirty joke in the Davos main ballroom.

Growth out of a decaying structure is strangely this picture I have of austerity or how maybe pouring gas on a burning house is slightly less conservative imagery.

Bottomline any bank of Canada governor appointed had better have a real good idea of what industrial strategy means as we need something other than flippant excuses to do little of anything but rely on apparently sound bank policy. For all that many said Carny was- he mainly was great at being what he did not do- which all meditates down to pretty much nothing- so my question- was Carny actually ever the Governor.

Comment from Larry Kazdan
Time: February 13, 2013, 12:44 am

Letter in Toronto Star:

A fiscal policy to benefit all Canadians
Published on Mon Feb 11 2013
http://www.thestar.com/opinion/letters_to_the_editors/2013/02/11/a_fiscal_policy_to_benefit_all_canadians.print.html

Re: Walkom: What did rock-star banker Mark Carney do for Canada? Feb. 8

We have an economic system whereby the prime minister, paid about $300,000 per year, can authorize expenditures on the health, education and welfare of the citizens of Canada only under the spotlight of parliamentary scrutiny and with legislative permission.

And we have a governor of the Bank of Canada, paid around $500,000 per year, who in secrecy can create unlimited funds to buy the suspect assets of financial institutions that have speculated too much and endangered the whole economy.

If monetary policy independence is so important to prevent political interference, why don’t we also have an appointed governor for fiscal policy who can make all budgetary decisions free from the oversight of prying politicians?

The other option is to integrate the Bank of Canada into the Department of Finance where it would all be subject to democratic review. Instead of functioning as a lifeline for the big banks so they can continue the generous bonuses of their chief executive officers, monetary operations could be conducted for the benefit of the majority of Canadians.

Monetary policies should no longer be in the hands of an elite financial club that has proven itself to have a conflict of interest with the common good.

Larry Kazdan, Certified General Accountant, Vancouver

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