Affirming the Bank of Canada’s independence has to be more than just lip service – Financial Post

The question was in French, and there was a simultaneous translation, but Finance Minister Bill Morneau made a point of answering in both official languages. Thats because they mostly speak English on Bay Street.

We see the independence of the Bank of Canada as critical, he said at a press conference he organized on May 1 to announce he had chosen Tiff Macklem as the central banks next leader. Its something that has enabled our economy to be successful over previous decades.

It was good the minister did that, and it was helpful that Macklem subtly stated he was no ones puppet. Im confident the government will respect our independence in order to meet the targets that we set out jointly, he said. This is where accountability starts.

I see no reason to doubt either mans sincerity, though I tend to give even the most powerful people the benefit of the doubt at first. Not everyone is so generous these days. A critical mass of cynics has assembled on social media over the past decade that strongly believes we can skip past the evidence stage and get straight to the hangings.

This Twitter-empowered group is ruining public discourse, but no more so than the decline of authentic communication under the message-obsessed regimes of Prime Minister Justin Trudeau and his predecessor, Stephen Harper. Trust is earned, and the political class is borrowing against our fond memories of a time when politics was different.

You can tell the Bank of Canada is worried about the general state of political discourse. It watched in relative horror as the U.S. Federal Reserve became a political punching bag in the aftermath of the Great Recession. The American public woke up to the central banks vast power and, even though the Fed stopped a terrible recession, many decided they disliked unelected officials having so much influence over their lives.

The well of trust in institutions runs much deeper in Canada than it does in the U.S., but the Bank of Canada has opted against taking that more docile polity for granted. One of Governor Stephen Polozs legacies will be the steps he took towards transparency, turning a black box into a translucent one. Among his innovations is an ongoing series of articles, The Economy, Plain and Simple, by central bank staffers that try to explain various economic issues, creating a neutral ground in the highly charged policy wars that take place daily on social media.

Of course, that only works if the public continues to believe that the Bank of Canada is neutral.

Central banks might have prevented a global depression a decade ago, but that hasnt kept politicians at bay. Governments in India and Turkey have dumped central bank leaders they disliked, and Mark Carney, the former governor of the Bank of England, became a target of Brexiteers for warning that divorcing the European Union could hurt the economy.

In the U.S., President Donald Trump made a show of making your own mark by replacing Janet Yellen, the widely respected Fed chair, with Jerome Powell, a less experienced member of the central banks Washington-based board of governors. Trump then proceeded to aggressively harass Powell on Twitter and in the press when the Fed refused to cut interest rates. Powell eventually lowered borrowing costs, and some on Wall Street assumed he had succumbed to political pressure.

At the very least, Trumps Fed tweets caused the markets expectations for monetary policy to adjust in the direction favoured by the president, according to a report last year by Antoine Camous, an assistant professor in the Economics Department at the University of Mannheim in Germany, and Dmitry Matveev, an economist at the Bank of Canada.

Central banks are being watched closely by economists and the broader public to understand whether, or to what degree, their decisions are influenced by outside pressures, the pair wrote, citing other research that showed 39 per cent of 118 central banks sampled had faced at least one pressure event between 2010 and 2018.

Trudeau is no Trump, and not even the rowdiest member of Canadas Parliament could dream up the abuse that Carney endured on a regular basis in London.

Still, our passive-aggressive natures are capable of creating pressure events, both real and imagined. Bloomberg News, citing multiple unnamed sources, characterized Macklems hiring as the finance minister protecting his turf, a pushback against those in the Prime Ministers Office who would have preferred Carolyn Wilkins, the Bank of Canadas senior deputy governor.

Macklem is extremely qualified and almost got the job in 2013, but that didnt stop Catalyst, a non-profit that works to level the playing field for women in business, from muddying the waters by describing Morneaus choice as another example of women being overlooked for top jobs.

The Bank of Canada must maintain the publics trust, because it has taken the most radical turn in its 85-year history by committing to create hundreds of billions of dollars to buy federal bonds and provincial debt. The reason is to keep credit markets flush with cash when otherwise they would be deserts. Still, there will be ongoing suggestions that the central bank is simply printing money to monetize the Liberal governments debt and to keep provinces from going bankrupt.

The Bank of Canadas actions are far more complex than that. Still, its new, has an air of incredibility and, therefore, invites skepticism. Morneau and Macklem will have to do more than reiterate their conviction that the central bank should operate at arms length from cabinet. They will have to prove the convention remains in effect, and do so often.

Email: kcarmichael@postmedia.com |

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Affirming the Bank of Canada's independence has to be more than just lip service - Financial Post