A frisson of anticipation ran through the online journalistic community the other day – over a press release, of all things. “Pierre Poilievre, candidate for Prime Minister,” it began, erroneously, “will make an announcement … on policies relating to the Bank of Canada.” The location – outside the bank’s front door – seemed significant. Surely something big was up.
Mr. Poilievre has made a practice, after all, of attacking the bank at every opportunity, suggesting its leadership is incompetent, partisan, even “financially illiterate,” the better to satisfy his followers’ appetite for taunting “elites.” What disruptive, norm-breaking shock-jock antic might he have planned? Fire the governor? Change the bank’s mandate? Break it up and sell it off for bitcoin?
So when the announcement came and went, and all that was promised was an audit of the bank’s books – its books are already audited – together with a vow to prohibit the bank from launching a digital version of the dollar – it has not said it would – there was an audible sense of letdown among the punditry. “Is that it?” would be the gist. “Pierre Poilievre, Moderate,” one headline had it.
Certainly it could have been worse. But the notion that this performance was normal or appropriate behaviour on the part of a candidate for political office is only a sign of how far he has already moved the goalposts. Auditing the bank may make no practical difference to how it is governed, but that is not the point: The point is to suggest there is some sort of deep-state hanky-panky going on inside the bank, which only an outside audit could bring to light. The point is to demonize the bank, to discredit its leadership and undermine public confidence in its policies.
The bank is always open to criticism, of course, but it matters how it is conducted, and it matters by whom. The independence of central banks from political interference is rooted in much of the same soil as the independence of the courts, and is as sacrosanct. People agree to use a currency for the same reason they agree to obey the law: because they believe it has not been debased by the powers that be.
That does not mean critics should refrain from pointing out when either has in fact been debased. It does mean they should not make inflammatory suggestions to that effect without evidence. That is especially incumbent on those in positions of political leadership, or who aspire to it. A candidate for party leader who runs, essentially, against the bank is not sending a message that he would, if elected, leave the bank’s current leaders to carry on undisturbed. He is implying, even if he does not say it out loud, that he would fix their wagon.
This is a particularly hazardous moment to be playing politics with the bank. After a prolonged period in which interest rates were held at historic lows, the bank has begun to raise them, and promises to raise them further, the better to take the air out of inflation – or more particularly inflation expectations.
How much responsibility the bank bears for the current inflation may be debated. It is surely not entirely irrelevant that we are coming out of an unprecedented worldwide economic lockdown, with all sorts of associated supply chain disruptions, and that just as we were coming to grips with these the war in Ukraine erupted, sending commodity prices sharply higher.
But it is beyond dispute that, inflation having once taken root, the bank has a responsibility to uproot it. That it can do so is undoubted. That it intends to do so, only slightly less so. The only question is how costly it will be. If people believe the central bank can and will get inflation back down to 2 per cent in short order, they will adjust their price and wage demands accordingly, without much harm to real output. If they don’t, they will have to be beaten into believing it by experience – that is, by a recession.
To undermine the bank’s credibility at this, of all moments, then, is the height of recklessness. It can do no good, and may do much harm. Mr. Poilievre compounds the fault by pretending that, by baselessly questioning the bank’s independence, he is in fact defending it. The point of siccing the Auditor-General on it, he said in a statement after his press conference on the bank’s doorstep, was to “restore the bank’s independence.”
But what is the evidence that the bank’s independence needs restoring? Because, at the height of the pandemic, it bought government bonds in large quantities on the secondary market? Really? What should it have done, then?
The pandemic was a fact. The lockdown was a fact. The enormous increase in government spending needed to sustain the population through the lockdown was a fact. The bank had no hand in any of these. And what was also a fact is that prices had begun to fall: the deflation that Mr. Poilievre now mocks the bank for fretting about.
Had the bank not stepped up, had it left the financing of the government entirely to private markets, at a time when every government on Earth was also borrowing in similar amounts, the contraction would have been even sharper, and the deflationary spiral – people put off purchases in the expectation of lower prices, causing further economic contraction and faster deflation, leading to still more deferring of purchases and so on – that much worse.
It is entirely consistent with the bank’s mandate to keep inflation low and stable – the same mandate it has had for more than 30 years, under both Liberal and Conservative governments – for it to have acted as it did. If the only evidence that its independence was compromised is that it bought government bonds in the midst of the worst economic contraction since the Great Depression, we are obliged to ask: How would an independent central bank have behaved? And the answer is: exactly the same.
As a populist, Mr. Poilievre is unusual in that he is attacking the central bank for being too soft on inflation, rather than too hard. But give him time. The politician who is willing to play games with central bank independence is less interested in any particular outcome than he is in being seen to be responsible for it. He’s for hard money now, but he could as easily be for soft money if it suited his purposes. Which is a good argument for keeping him as far away from temptation as possible.
Keep your Opinions sharp and informed. Get the Opinion newsletter. Sign up today.