Bank of Canada has no one to blame but itself

The Bank of Canada has failed at its core mission. That's not an attack on an apolitical institution, or a threat to the bank's independence, as the bank's boosters are increasingly trying to frame criticism. No, it is a plain statement of fact. The Bank of Canada has failed to meet its inflation target, and if it is having a trust problem, the bank has no one to blame but itself.

Those at the bank are not “financially illiterate,” as Conservative leadership candidate Pierre Poilievre has suggested, but they made decisions that directly contributed to the highest inflation rates in 30 years. The bank is not Justin Trudeau's “ATM,” as Poilievre has also suggested, but the bank's policies have made it easier for the government to borrow money, devalue existing debt and increase tax revenues.

Unaccustomed to public scrutiny, the bank and its supporters are bristling at the suggestion it has made mistakes. “That's bull---t,” former bank governor David Dodge told CTV'S Evan Solomon when confronted with Poilievre's comments on financial literacy. “I'm very insulted by that.” Dodge then added: “It was that judgment call in the spring of (2020) that saved us from a real depression coming out of the pandemic.”

Dodge was referring to the Bank of Canada's decision to purchase government bonds on the secondary market, meaning assuming government debt held by private banks. This quantitative easing, which critics derisively call money printing, had the result of increasing how much money banks had access to, and could therefore lend. The policy also lowered the interest rates on loans for private borrowers, as well as the government.

In his interview, Dodge wasn't just defending the Bank of Canada from overheated attacks by Poilievre, he was clearly trying to absolve it of responsibility for eroding the paycheques of average people, while also claiming the bank saved the country from disaster. This notion of the Bank of Canada, and only the Bank of Canada, keeping the country from economic

It took too long for the Bank of Canada to change direction.

collapse is something of a recurring theme.

In a speech earlier this month, the senior deputy governor of the bank, Carolyn Rogers, also responded to Poilievre, though without saying his name. “We are acutely aware that, with some of the extraordinary actions we have taken during the pandemic and with inflation well above our target, some people are questioning that trust.”

She then went on to defend the bank and dismiss concerns raised by critics, apparently oblivious to the fact that by engaging in direct debate with a rabble-rousing politician, Rogers was mocking the convention that her institution must be above the fray. Like Dodge, she gave the Bank of Canada credit for preventing a recession, and avoided admitting mistakes.

“The combined efforts of central banks and governments helped stabilize the economy and ensure that, on top of an unparalleled health crisis, the world would not also have to face a financial crisis,” she said.

As for the inflation that came partly as a result of this intervention? “The intensity and persistence of supply chain disruptions have surprised us,” Rogers said. She rattled off the usual culprits to explain rising prices, such as high demand for computer microchips, the war in Ukraine and persistent lockdowns in China. “These are things we didn't foresee.”

According to the bank, it takes six to eight months for monetary policy to have an effect, meaning that by the end of 2020, and certainly by spring 2021, it should have been obvious that the bank's policies were inflationary. Instead, rising prices were labelled “transitory” and the bank's bond purchasing program continued for several months more.

Now that the bank is finally acting, Rogers wants credit for “decisive actions” to combat inflation. “We have the tools, we have the track record, and we are committed to getting inflation back to target,” she said. Uh, huh.

Even if flooding the money supply was necessary in the early days of the pandemic, it took too long for the Bank of Canada to change direction. Yes, the bank is independent of government and, yes, politicians should avoid politicizing it for their own purposes, but there would be less worry over political arsonists if there wasn't so much dried-out kindling lying around.