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Canada’s monetary authority lacks American commitment to transparency

If Canada were the United States, and the Bank of Canada were the Federal Reserve, those of us who take an interest in monetary policy would be looking forward to some interesting reading in 2015. Alas, Canada's monetary authority is among the least transparent of the world's major central banks and few of the people it serves appear to care.

Americans dislike it when their public institutions keep secrets. In 1993, Henry Gonzalez, a Democratic congressman from Texas and the head of the House Banking Committee, forced former Fed chairman Alan Greenspan to admit the central bank kept transcripts of the meetings of its policy committee. Few knew the transcripts existed and Mr. Greenspan came under pressure to release them. It eventually was agreed the Fed would do so after a five-year delay.

We Canadians don't have the same kind of commitment to transparency. We don't seem to mind that the committee charged with maintaining financial stability meets in secrecy. Nor does it bother us that we know very little about how monetary policy is made. The Bank of Canada had a pivotal year in 2010. It ended its extraordinary pledge to keep interest rates at record low levels earlier than telegraphed and it raised interest rates for the first time since before the financial crisis.

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A record of the debate between Mr. Carney and his advisers on the Governing Council would inform the study of monetary policy. It also would allow the Canadian public to judge whether the technocrats at the central bank are up to the important task they have been assigned. But there will be no transcript of those deliberations this year, next year, or ever. According to a spokeswoman, the Governing Council keeps no records of its proceedings.

There is at least one prominent Canadian who has taken an interest in central bank transparency. That person is Mr. Carney, who now is the governor of the Bank of England. Earlier this month, Mr. Carney announced plans to further demystify policy making at the 320-year-old institution. Among the changes is a pledge to release transcripts of the Bank of England's policy committee meetings after eight years. "This is about reputation," Mr. Carney said, according to the Guardian newspaper. "It reinforces individual accountability."

The Bank of Canada believes transcripts and minutes would degrade the quality of debate by making policy makers conscious of an external audience. There also is a belief that since the Governing Council exists by convention, and that it is the governor who is responsible for monetary policy under the Bank of Canada Act, an official record of the policy committee's meetings is unnecessary. "There are no votes; instead, the Governing Council works toward a consensus viewpoint," Rebeca Ryall, a media relations officer at the Bank of Canada, said in an e-mail. "This process allows for a frank discussion where Governing Council members are free to challenge one another and push the boundaries of the debate in order to arrive at a decision they are all comfortable with."

The problem with this argument is that while it is true the Governing Council exists by convention, the central bank has sought to elevate its status to add credibility to its policy decisions. Governor Stephen Poloz told me in 2013 that he sees himself as the captain of a hockey team, not a one-man show. He forgot to add that he's also the coach and general manager because only he knows if the team is any good.

Mr. Carney's transparency initiative was informed by a study he commissioned from Kevin Warsh, a former policy maker at the Federal Reserve. Among other things, Mr. Warsh reviewed the Fed's experience with transcripts. The decision to release them allowed for a "natural experiment," as meetings dating back to 1976 were conducted by officials who never dreamed anything they said would be made public. All meetings of the policy after 1993 were attended by people who knew their contributions were being recorded and would be available for all to read five years hence.

Academics who have studied the transcripts observed a change in the tone of the debate after the veil of secrecy was lifted. The debate became less lively. Applying his own experience at the Fed, Mr. Warsh said this could have had as much to do with the leadership style of Mr. Greenspan, who commanded deference. Mr. Warsh was more persuaded by research that suggests the overall quality of debate improved at the Fed because public transcripts gave participants an incentive to prepare.

Economics professors N. Nergiz Dincer and Barry Eichengreen have developed a way of quantifying central bank transparency. Mr. Warsh updated their results for 10 central banks from developed countries. The maximum score is 15. Sweden's central bank scored 14.5 and the Reserve Bank of New Zealand 14. The Bank of England and the Fed tied at 12 and the Bank of Japan followed at 11.5. The Bank of Canada is one of four central banks at 11. The Swiss National Bank is last at 10.5.

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The Bank of Canada scores poorly on process; only one of a maximum three. That's because without minutes or transcripts, the Bank of Canada is a black box; we see what it wants us to see. That may not matter. A central bank will be judged on economic stability, not transparency. Mr. Poloz has done a good job communicating his approach to policy. Because his audience primarily is a Canadian one, that probably will be enough. What he and his advisers actually talk about will remain a mystery to all but a few.

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.

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