Bank of Canada | Poilievre proves his economic incompetence

It is to believe that Pierre Poilievre does it on purpose to prove that he understands nothing about economics.

During his campaign for the Conservative leadership, Mr. Poilievre had promised to fire the Governor of the Bank of Canada if he became Prime Minister.

It was hoped (like many curators no doubt…) that he had abandoned this idea. However, the Conservative leader reiterated on Wednesday this irresponsible and dangerous promise for the independence of the Bank of Canada¹.

All serious industrialized countries have a central bank independent of the government, which deals with managing the monetary policy of the country.

Whether you agree with the Bank of Canada’s latest rate hike or not, the last thing you want is for politicians to start micromanaging key rate hikes. They would inevitably be tempted to favor short-term economic growth (easier to get re-elected!), which would increase the risks of long-term inflation. That’s why we need an independent central bank that can take decisions that are unpopular but necessary in the long term.

That all of this has to be explained to Pierre Poilievre, who aspires to take power, is staggering.

Furthermore, the federal government does not have the right to fire the Governor of the Bank of Canada. The law is clear: the governor is appointed for good behavior for seven years. The term of Governor Tiff Macklem (Deputy Minister of Finance under the Harper government) ends in June 2027. Unless there is a huge scandal, Ottawa cannot get rid of it.

For decades, all G7 countries have respected the sacrosanct principle of central bank independence. Only Donald Trump was talking about firing the Fed chairman, but he never followed through on his threats.

If Pierre Poilievre keeps his promise, Canada would end up with a central bank that is not really independent, like in China or Turkey, and that could cause a major crisis.

Every five years, the federal government and the Bank of Canada agree on the inflation target, which has been 2% since 1996. (The United States and the United Kingdom have the same target at 2%, Europe and Australia have a similar target.) They will reassess the question in 2026. of the Bank of Canada.

It’s not just Mr. Poilievre’s desire to fire Tiff Macklem that’s problematic. His latest statements on inflation also show his, shall we say, flexible relationship with the facts.

“I want a central bank that’s not controlled by the PMO like we have right now,” Poilievre said Wednesday.².

This assertion is absolutely false. Do you think Mr. Trudeau is happy to see interest rates go up? Of course not. But the Trudeau government respects the independence of the Bank of Canada. Because he knows it’s an important cornerstone of a strong economy. Ironically, it is Mr. Poilievre who proposes to interfere in the management of monetary policy. We cannot at the same time want to fire the governor of the Bank of Canada and want a central bank that is independent of political power.

We can criticize certain decisions of the Bank of Canada. Was the last 25 basis point hike in July necessary? It is discussed. But overall, Canada is doing relatively well under the circumstances, with one of the lowest inflation rates in the G7 in 2023 (along with Japan and the United States).

Whatever Pierre Poilievre says, Justin Trudeau is not responsible for inflation, which has affected all G7 countries since the summer of 2021. Admittedly, his government spent a lot during the pandemic, but all G7 countries did the same. Mr. Trudeau has spent a little more than average, but his propensity to spend is a very minor factor in the current inflation, caused mainly by the strength of the Canadian economy, the labor market and the prices at the grocery store. Mr. Trudeau has very little control over all of this.

The best the federal government can do to tame inflation is get out of the way, let the Bank of Canada do its thankless job, and help less fortunate Canadians get through this crisis.

The worst Ottawa can do is undermine the independence of the Bank of Canada by firing its governor. This is what Pierre Poilievre proposes.

2. Ibid.