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BOC’s policy making should emerge from the shadows

There are times when it is easy to see that the United States and Canada are very different places. This is one of those times.

So great is the U.S. commitment to public scrutiny that Janet Yellen has already appeared on the cover of Time magazine, even though she doesn't officially take over as Federal Reserve chairwoman until the beginning of next month. President Barack Obama has nominated three other Fed governors who will take up their new positions only after the Senate has voted on their readiness to serve.

The Bank of Canada is also undergoing changes. In the spring, Governor Stephen Poloz will lose deputy governor John Murray to retirement and senior deputy governor Tiff Macklem to a career change. Mr. Macklem and Mr. Murray represent the Bank of Canada's strongest links to international finance and global policy makers. Their expertise will be difficult, and probably impossible, to replace.

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But don't worry: The same government that appointed senators Mike Duffy and Pamela Wallin will name a replacement for Mr. Macklem in due course. And Mr. Poloz, when he is ready, will select a new deputy governor to replace Mr. Murray. These appointees will be named as a fait accompli. Parliament will play no role. There will be no introductory press conferences.

The central bank's governing council was created to reassure the public that setting interest rates in Canada wasn't a one-man show. Yet the bank kept on speaking with one man's voice: the governor's. The institution likes it this way. Too much loose talk only creates confusion. The best way for the central bank's junior players to stay on message is to limit their public appearances. Timothy Lane, a former IMF official who has been on the governing council since 2009, gave three speeches last year, according to the Bank of Canada's website. Agathe Côté, a 30-year veteran of the Bank of Canada, has given seven speeches in three years as the governing council's only woman. The public has heard from Lawrence Schembri once in the 11 months that he's been a member of the policy committee.

But what if a little confusion leads to enhanced credibility?

The Bank of Canada has been lucky; it never has had to ask the public to follow it down the rabbit hole.

What happens if the Canadian central bank one day decides that it must reverse a disinflationary trend by creating billions of dollars to buy bonds? If Finance Minister Jim Flaherty is any guide, there is a strong current of doubt about the efficacy of quantitative easing in Canada. Would the public simply accept QE by decree? The Fed won over the public because of the lively debate that occurred not only outside the central bank, but within it. No one can accuse Ben Bernanke of foisting an untested policy on an unwitting public. The champions of stimulus won the debate.

In Wrong: Nine Economic Policy Disasters and What We Can Learn from Them, economics professor Richard Grossman chronicles the human cost of ideological blindness. There is no cure for the affliction, but Prof. Grossman argues forcefully that the kind of debate that goes on at the Fed is the best way to avoid mistakes that result in stubborn, arrogant and ill-informed thinking. Prof. Grossman actually uses Canada's central bank as a counterpoint. He shares a conversation he had with a Fed economist, who, after visiting Canada to present new research, complained of a "Bank of Canada view," rather than a free-flowing exchange of ideas.

Mr. Poloz would take offence to that. He says his policy meetings are rollicking affairs and that he begins each debate with an open mind. That actually strengthens the argument for greater transparency around governing council appointments. If Mr. Poloz is being steered by an inner circle of five people, the central bank's credibility can only be enhanced by the public seeing for itself the kind of advice the governor is getting. That begins with a more transparent appointment process, and it extends to deputies being given more freedom to talk about the forces shaping interest rates.

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About the Author
Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More

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