The Bank of Canada and the Dollar


The Bank of Canada goes to great pains to tell us that they have only one goal – namely to keep inflation at the mid point of the 1-3% target range – and have no view on the appropriate exchange rate of the Canadian dollar except insofar as it relates to this one goal.

This stance is more than somewhat at odds with the preamble to the Bank of Canada Act, which speaks clearly to management of the currency:

“WHEREAS it is desirable to establish a central bank in Canada 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;”

Those qualifying words “so far as may be possible…” cloud the waters a little but don’t really detract from the key legislative mandate of the Bank – to manage credit AND the currency in the interests of output, employment and trade and not JUST prices.

If Canada’s government agrees that the core mandate is the 1-3% formal inflation target, they should amend the Act accordingly.

(I note that the position of Governor of the Bank is being advertised publicly, not just here at home but also in the Economist. Candidates are advised that knowledge of the history of central banking in Canada will be considered a liability.)

One comment

  • In fact, PM Brian Mulroney wanted to put inflation as the bank’s mandate in his Constitutional reforms. Luckily, Trudeau made the Constitution sufficiently hard enough to amend in comparison to the US Constitution, so the issue evaporated. South Africa has an independent bank in their constitution, IIRC, which was made in 1996.

    Personally I think it would have been a disaster to do what Mulroney wanted, like so many of his IMF-inspired neo-liberal policies…

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