Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }
Coronavirus information
Coronavirus information
The Zero Canada Project provides resources to help you make the most of staying home.
Visit the hub

Former Bank of Canada governor David Dodge, seen here responding to questions at a news conference in Ottawa on April 23, 2003, says that the bank's current leadership has 'done what they needed to do.'

TOM HANSON/CP

David Dodge has some candid things to say about the powerful weapons that the current leadership at the Bank of Canada has unleashed to fight the COVID-19 crisis.

First, they’re doing the right thing. Second, the right thing – to “essentially print money” – could have uncomfortable consequences down the road.

“They’ve done what they needed to do,” the former Bank of Canada governor says in a telephone interview. “That is to ensure liquidity – that’s the prime job of the bank at this point in time.

Story continues below advertisement

“[But] this is not without consequences down the line.”

Mr. Dodge is talking about the decision last week by Governor Stephen Poloz and his deputies to not only slash the bank’s key interest rate – its primary tool for monetary policy – to 0.25 per cent, matching its record low, but to launch a massive government-bond-buying program that will inject money directly into financial markets and dramatically expand the central bank’s balance sheet. The program, which is a form of what central banks call quantitative easing (QE), is a first for Canada, although other central banks – most famously the U.S. Federal Reserve – leaned on QE in response to the 2008-2009 financial crisis.

Mr. Dodge, who headed the Bank of Canada from 2001 to 2008, is more qualified than most in this country to weigh in on such matters – and more willing than most with his qualifications to do so. While former Bank of Canada governors have traditionally shied away from publicly judging their successors’ actions, Mr. Dodge willingly brings his expertise and experience to the public discussion. He heads up a “crisis working group” recently formed by the C.D. Howe Institute, an economic think tank, to quickly assess and recommend Bank of Canada and government responses to the COVID-19 crisis.

“Let’s just call this simply what’s going on: We’re printing a lot of money to provide liquidity in the system,” Mr. Dodge says with characteristic bluntness. “Every country has issues when they print money. It will require inordinately deft management as we move out,” he says.

The primary worry around this kind of central bank money creation is its potential to ignite inflation. That’s something of particular concern to the Bank of Canada, which has long been one of the world’s leading proponents of using low and stable inflation targets as the guiding principle of monetary policy.

It’s notable that one of the key goals of past QE programs, from the Fed and others, was to actually stoke inflationary fires; they were fighting against a very real danger that the economy would slip into deflation. But Canada entered the current crisis with inflation already essentially at its 2-per-cent target. Even though the impact of the crisis will likely be generally disinflationary in the short term, there is a danger that a QE-infused money supply will contribute to inflation significantly overshooting the bank’s target when the economy rebounds – a rebound that many economists still believe could be quick and powerful when it comes, based on the enforced nature of the slowdown.

Mr. Dodge notes that the U.S. Fed’s greatly expanded balance sheet hasn’t proved to be the inflationary problem that many had feared, even when the U.S. economy returned to full capacity and continued to grow strongly. But he also wonders whether the United States, by virtue of having the world’s reserve currency, may be in an exceptional position in global markets to withstand the after-effects of QE.

Story continues below advertisement

“It’s not clear that all the rest of us – other than maybe China – can do that, without having some real repercussions,” he cautions.

One of Mr. Dodge’s key concerns is that the economic stimulus being provided by the Bank of Canada, at the same time as the federal government’s huge aid package, will accelerate demand in the Canadian economy – at a time when the COVID-19 economic shock, by its nature, has shut down the supply of goods and services.

“You’ve cranked up domestic demand without supply to meet it – so you’re [faced with] meeting it with foreign supply. That requires foreign capital inflows,” he says. “All of a sudden, you’re then beginning to run into balance-of-payments issues.”

A key, he says, will be restoring Canadian production of goods and services relatively quickly once the enforced shutdowns are rolled back, to meet all the supply that fiscal and monetary policy will fuel.

“If we can snap back reasonably quickly, and have goods and services available, and get people back to work, then we’ll work our way though it."

"If we can’t do that, then it ends up being a really big problem.”

Story continues below advertisement

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies