Poilievre’s attacks on Bank of Canada are nonsense

Pierre Poilievre, one of the candidates for leadership of the federal Conservative party, has announced that, were he to become the prime minister after the next federal election, he would fire Tiff Macklem, governor of the Bank of Canada. Why would he do this?

To quote Poilievre, “The Bank of Canada Governor has allowed himself to become the ATM of this government.”

His replacement would, in Poilievre ’s words, “…reinstate our low inflation mandate, protect the purchasing power of our dollar and honour the working people who are in those jobs.”

The announcement was impressive to his followers but, in the real world, it is absolute nonsense.

If a Canadian prime minister were actually to carry out such a threat, it would have a cataclysmic impact upon the economy, the value of the dollar and investment – and therefore jobs.

In essence, what Poilievre is planning to do, were he to head a Conservative government, is to eliminate the independence of the central bank in formulating monetary policy. This would not instil confidence in business or in investors and preserving this confidence is absolutely central.

How can I know this? Well, I have a PhD in economics and I co-authored a university text book on money and banking in which the role of a central bank in the economy is explained in detail. I also wrote economic analysis for the commercial bank which employed me for nine years. So, I think I know something about the topic.

Why is the independence of the Bank of Canada so important and does it mean that the government could never fire a governor? No, but it does mean the policies of the bank are to be made solely on the basis of its stated objectives of maintaining the value of the Canadian dollar, controlling inflation (to the best of its ability) and providing a stable domestic financial environment in which both consumers and businesses can make rational financial decisions.

Consider now Poilievre’s claim that Macklem has run the bank as a limitless ATM for the government. Is this claim valid?

The pandemic had a devastating impact upon the economy beginning in March 2020. Necessary public health measures brought about lockdowns and constrained commerce; economic growth stopped and unemployment soared.

Faced with these circumstances, the government deployed a massive system of supports for individuals and businesses, the cost of which far exceeded its revenue. Therefore, it had to borrow the funds, which it did by selling bonds sufficient to cover these extraordinary expenditures to the bank.

In making these loans, the bank did not violate any law nor did it raise the interest rate it charged to government for the loans.

Now, suppose instead of providing the funds to the government, the bank followed the policy implied by Poilievre and said “Go find the money elsewhere.”

The government would have had to induce wealth-owners to buy massive amounts of government securities. I doubt that appeals to patriotism would be sufficient to the task, so the government would have had to offer substantially higher rates of interest.

And rising interest rates when economic growth is in decline and unemployment is increasing is not a brilliant strategy. I hope even Poilievre would recognize this simple fact.

Poilievre obviously believes that most people don’t understand the role of a central bank and is appealing to their legitimate concerns about inflation and the substantial increase in the federal debt.

The Bank of Canada does not control the world price for oil and natural gas, nor does in regulate international shipping nor is it responsible for glitches in supply lines that stretch across continents and oceans. These are some of the factors causing the current inflation.

Raising interest rates as it has recently done signals the bank’s concern about inflation. Cutting back its support for government borrowing is also really important. Both are measures any good central bank can and should take at this time.

Denigrating the Bank of Canada — a central bank whose strengths are recognized around the world — disqualifies Poilievre for a position of leadership. We can do better.