Stephen Poloz grew up in Oshawa, Ont., witnessing firsthand the inverse relationship between his car-making hometown's economic fortunes and the value of the Canadian dollar.
He did his doctoral thesis on currency movements. His career at Export Development Canada – a Crown corporation that finances foreign buyers of Canadian goods – neatly corresponded with the loonie's flight from 62 cents (U.S.) to parity, a rise that killed 500,000 manufacturing jobs, bankrupted scores of exporters and left the country's industrial heartland a near ward of the state.
Any observer might conclude that the Bank of Canada Governor has more than a detached interest in the level of the Canadian dollar. He's lived its ups and downs personally as much as professionally.
When Mr. Poloz was chosen by the Harper government to take over from the London-bound Mark Carney in May, 2013 – over Mr. Carney's deputy and Bay Street favourite Tiff Macklem – the dollar stood at 99 cents. Today, it hovers around the 90-cent mark, give or take daily events.
Coincidence? Economists cite poor GDP and jobs growth – in other words, the fundamentals – to explain the loonie's decline. Currency traders have a different explanation. They pegged Mr. Poloz for a "dove" from the get-go and have seen his public pronouncements as systematic attempts to "talk down" the dollar.
As a top currency strategist at New York-based Citigroup told Bloomberg News in June: "The market is predicated on trying to sell the Canadian dollar. What Poloz is gifted at doing is giving them the opportunity."
Indeed, the Bloomberg report concluded, Mr. Poloz was "fast becoming the most influential central banker in the foreign-exchange market" with an ability to move markets that his counterparts in Japan and the Euro-zone – both entities that could use a bout of devaluation – could only envy.
Still, it was dubious praise. No central banker wants to be seen as a market manipulator. It violates the rules of fair play that capitalism depends on to survive and undermines the credibility and professionalism of policy makers. Mr. Poloz was gaining a reputation that threatened to come back to bite him.
It was becoming big enough of a problem that Mr. Poloz felt the need to set the record straight in a major speech last week that raised eyebrows from Hanover, Ont. to Hong Kong. "I believe in markets," he said. "Manipulating or trying to guide them is just not in our game plan." But his insistence that the bank targets only one economic variable – inflation – fell mostly on deaf ears.
To be clear, the Bank of Canada has not acted under Mr. Poloz to directly influence the value of the dollar by intervening in financial markets. Such intervention is not particularly effective and is normally undertaken only in concert with other central banks in times of crisis. Instead, Mr. Poloz is accused of "stealth intervention" by sounding unduly pessimistic about the state of the Canadian economy and suggesting interest rates will stay at rock bottom for some time yet.
Does that make Prime Minister Stephen Harper regret choosing Mr. Poloz? Not likely. In fact, it may well be what clinched his decision. For all his talk of Canada as an energy superpower, Mr. Harper is keenly aware that a petrocurrency has its downsides. Those downsides were threatening to cost him dozens of Ontario seats in the next election. Mr. Poloz's dovish dollar talk works in Mr. Harper's favour.
No, the governor of the Bank of Canada does not take his marching orders from the government. But the government does influence monetary policy by choosing the governor.
Ask Jean Chrétien. In John Crow's case, "I didn't agree with what he had done under [Brian] Mulroney by opting to wrestle inflation to the ground with high interest rates in the middle of a recession and with a high Canadian dollar," the former prime minister wrote in his memoirs.
Mr. Chrétien turfed Mr. Crow within two months of his 1993 election and replaced him with Gordon Thiessen. The dollar began what seemed like a fortuitous descent from 76 cents to 62 cents in 2002, triggering a manufacturing-led export boom in Central Canada.
The flip side of that boom, however, was complacency. With a low loonie, Canadian manufacturers ignored the need to become more productive and innovative. Thoroughly unmodern, few had any other competitive advantage to fall back on when surging oil prices drove the dollar to parity in 2007.
A lower dollar can put the wind in your sails for a while. Long-term, not so much.
Konrad Yakabuski